Fairness to airline consumers

Systematic thinking should guide us in the use of state power

The airline industry has emerged as an important new feature of the Indian economy. The conceptual machinery of market failure and lowest-cost intervention guide us on thinking about policy problems and solutions.

Underserved destinations

One piece of the airline industry is well understood: Profit-maximising airlines may choose to not serve certain poor locations. The market failure here is “the positive externality”. Air connectivity imposes gains upon the city over and beyond the gains reaped by the traveller.

Positive externalities are well known in economics, with examples ranging from education to vaccines. The standard solution is public funding. A government should run a “viability