Open skies deal may help consumers
Agreement will allow more airlines to fly between U.S. and Europe
The recent agreement between the U.S. and the European Union to liberalize air traffic between the continents could force prices down.
Last week, the European Union agreed to the tenants of the so-called “open skies” deal with the United States, which opens up trans-Atlantic flights to European and American airlines. For now, the agreement includes only international flights, which means an American airline can fly from, say, New York to Paris to Vienna. But a European airline can fly from Berlin to New York, but then not on to any other city in the U.S. This may change when the open skies deal is revisited a few months after the original agreement takes effect in March 2008.
So far, most analysts agree that the increased competition will be good for consumers in the form of lowered fares and more options. Chris Avery, a analyst with JP Morgan wrote that business class fares between the U.S. and London’s Heathrow airport could fall 10 percent.
Other analysts, however, are in a wait and see mode.
As for the airlines, some are already applying for routes. For example, AER Lingus announced new non-stop service from Dublin, Ireland to the U.S., specifically San Francisco, Calif., Orlando, Fla., and Washington, D.C. Within hours of the “open skies” announcement, Continental filed with U.S. regulators for a route between its Houston, Texas hub and Heathrow.
Heathrow is seen as a major factor in the equation because of the numbers of corporate travelers who fly between the U.S. and London. Currently, only British Airways, Virgin Atlantic, American Airlines and United Airlines fly between Heathrow and the U.S.
"If this were a game of Monopoly, (Heathrow) would be like Boardwalk - it's a piece that makes winning a lot easier," wrote analyst Daniel McKenzie of Credit Suisse.
The agreement is expected to entice more Americans to head to Europe and vice versa. In 2006, almost 13 million Americans made the trip across the Atlantic, according to the U.S. Department of Commerce. The European Travel Commission predicts that those numbers will increase by at least 2 percent or 3 percent this year. Depending on the price of tickets and the routes available to Americans, those numbers could skyrocket in 2008.
Travel experts disagree about where Americans visit most, but France, the United Kingdom and Italy are all at the top. "Traditional destinations like Paris and London are really going through the roof for short breaks," said Conrad Van Tiggelen, chairman of the ETC.
The open skies deal could have other repercussions as well as some analysts say it will speed up mergers between airlines.
