7th Freedom Entry on Marginal Routes
• Lower air fares reduce the profitability of incumbent carriers and induce exit by them;
• The loss of profits is limited by exit;
• If the market is strongly competitive and air fares fall considerably, there are substantial
gains to home country travellers, through greater reliance on trade in airline services;
• In this situation, extensive rather than limited and restricted entry by 7th freedom carriers
is in the interest of the home country;
• In some situations, incumbents may be able to reduce costs and survive;
Overall, in this second case, the home country is likely to benefit from allowing 7th freedom
operations, since the gains to its travellers will exceed profit reductions to airlines, and tourism
benefits will be positive. Production by the home air transport industry will be reduced, and the
country will be relying more on imports of air transport services- in short, it will be taking
advantage of the gains from trade.