The authority said that the air transport market within the EU had 'an enshrined culture of collusion'.
Now the CAA is calling for the European Commission to crack down drastically on anti-competitive practices.
According to the authority all new, unused and returned take-off and landing slots at airports should be reserved for new and competing services.
Should this fail to work there may be a case for confiscating some slots from larger airlines, the report says.
The CAA said that all but 26 scheduled routes linking airports in the EU were monopolies or duopolies.
It believes that the 'grandfather' approach to slots, which gives airlines the use of the same slots year after year, is partly responsible for the dominance of large carriers, in which the state often has a stake.
The CAA also calls for the gradual elimination of state aid for airlines.
In the interim, any that is allowed should have strict terms attached, forbidding the use of aid to make acquisitions or to expand market share.
The authority said that losses in the airline business were not due to competition or lower fares but to high costs stemming from a belief by some companies that their governments would bail them out.
The report urges Europe to embrace genuinely effective policies against anti- competitive behaviour by large airlines.
Some of the issues for concern are the misuse of computerised reservation systems, frequent-flyer programmes and unfair payments of commission to win business away from smaller airlines.
Mergers also require tough examination, the CAA said, and should only be allowed where competition will be increased.
The report states: 'This would not be so where the largest EU flag carriers seek to merge or build alliances with each other.
'Mergers or alliances between the community's largest airlines are not needed for reasons of international competitiveness.'
Christopher Chataway, the chairman of the CAA, said new rules that allowed EU airlines to fly anywhere they wished between EC countries set the basis for competition but that more must be done.
'Otherwise it is likely that there will be even more concentration and less competition which will lead to less choice and higher fares,' he said.
The CAA said that air fares in the United Kingdom, where there has been more competition, were generally lower than elsewhere in the EU.
People beginning their journeys in most member states other than the UK can pay 30 per cent more than those travelling from Britain.
The report adds that normal economy fares within the EU are about 30 per cent higher than within the United States, the only exception being the UK.Reuse content