Since the end of the eighties in most European countries many transportation services underwent a process of deregulation. In Italy, this process has been particularly strong in the domestic air transport market, one of the largest in Europe. The end of state monopoly on the national routes and the development of local airports produced new entry, lower average prices and passengers increase. Still many obstacles to competition remain. The presence of a domestic monopolist operating with public subsidies and the rules governing slots allocation have been the main factors hampering the full play of competition and induced accommodating strategies among the players. A comparison with other major European domestic markets shows higher prices in Italy even controlling for service quality. This shows that the full effects of deregulation cannot be obtained only by eliminating regulation barriers on the main market. It is necessary to create efficient allocative mechanisms on the related slots market. Another important condition is a full consistency of public policies, which at the moment are giving wrong signals to the agents by promoting competition and at the same time are keeping on protecting rents.