193 T. Çetin and F. Oğuz (eds.), The Political Economy of Regulation in Turkey, DOI 10.1007/978-1-4419-7750-2_9, © Springer Science+Business Media, LLC 2011 9.1 Introduction During the past two decades, the world has experienced a deregulation movement in the aviation industries. Governments have recognized the benefits of competition for the market and/or in the market. USA deregulated its airline industry. Since 1992, it has signed over 90 open skies agreements with other countries. The European Union (EU) recognized a single aviation industry in EU. From 1987 to 1993, EU intro- duced three packages for reforms that almost fully deregulated the EU air industry. Turkey has also followed up this trend. In 2003, it opened the industry to competition by deregulating entry to market especially in the scheduled domestic flights. Before 2003, the Turkish airline industry had been dominated by Turkish Airlines (THY), a state-owned public enterprise. The deficiencies in the number of firms and the insufficiencies of the regulatory process in the industry impeded development of infrastructure and competition especially in the domestic flights. The deregulation movement of 2003 has differentiated the regulatory institutional environment and the monopolistic structure in the industry. The focus of this chapter is on the structure of the pre-2003 industry and market developments after the deregulation movement. In this context, the chapter consists of four sections. Section 9.1 presents a statement of historical setting including legal endowment, the domestic and international regulatory structure, and institutions that are interested in regulation of the industry, privatization attempts, and the build-operate-transfer (BOT) model. Section 9.2 analyzes the pre-2003 industry structure. In Sect. 9.3, we focus on the impacts of the deregulation move- ment of 2003 over the industry. In this context, this section scrutinizes develop- ments in entry to market, new route structure, passenger and cargo transportation, the number of firms and aircrafts, seat capacity, air traffic, and ground handling. T. Çetin (*) Department of Economics, Yildiz Technical University, Besiktas, Istanbul 34349, Turkey e-mail: tcetin@yildiz.edu.tr Chapter 9 Regulation, Deregulation, and Competition in the Turkish Airline Industry Tamer Çetin and Serkan Benk