Open Skies agreement between US & EU is flawed

A new "open skies" aviation agreement between the United States and the European Union on Thursday will help lead to more competition and competitive pricing, but does not help reduce American protectionist rules currently in place.

Ultimately, the landmark pact will open Heathrow Airport to European and U.S. airlines wanting to fly the lucrative transatlantic routes. Before this agreement, there was an agreement between London and Washington where only two British and two U.S. airlines (BA, Virgin Atlantic, American Airlines, and United) can fly the route. Currently, about 40 per cent of all transatlantic flights from Europe leave from Heathrow.

The new deal will allow European carriers to fly to the U.S. from anywhere in the European Union (EU). Restrictions on the number of U.S. airlines flying the other way will be eased. For London's Heathrow airport, any carrier can negotiate a deal for its scarce landing space. So for example, Continental can choose to fly a route to Heathrow, instead of London Gatwick. Delta or Northwest could try to apply for a route to the airport too. In reverse, BMI can now fly a route from the EU to the U.S., or Virgin can now choose to fly a route from Paris to New York.

With more airlines being able to fly routes from the U.S. to Europe and back, this should result in cheaper costs. European officials estimate that it will generate $16 billion in economic benefits and create 80,000 jobs.

Obviously, this should be all good news, but not everyone is happy.

First, British Airways, Virgin, American Airlines, and United will be the ones to lose out since their monopoly on transatlantic routes will be over. They had to know that this day was coming anyways.

Second, one part of the agreement favours America over the EU. U.S. airlines would be able to fly within Europe, but European airlines would not get that privilege. This means that a U.S. airline can land at any European city, pick up more passengers, and fly on to any other European city. Their European counterparts cannot. They can fly to any American city, but are forbidden from continuing to a second city.

Third, American protectionist policies remain in place. While American companies could buy European airlines up to 49% of any kind of stock, foreigners can only control no more than 25% of voting shares and 49% of total ownership. Essentially, it protects U.S. airlines from any foreign takeover.

Fourth, America's domestic airline market remains closed to European competitiors.

The UK was the only European country initially opposed to the open skies agreement but managed to secure two concessions for its approval.

One, the implementation of this deal will be delayed from October to March 2008.

Two, if the United States does not take further steps to open its airline market by 2010, the European Union can scrap the agreement.

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So U.S. travelers get to enjoy two years of possible lower prices and more competition. However, while price may be a major factor in selecting an airline to fly to Europe, airline loyalty and good quality service should not be left along the wayside. Discount airlines such as Ryanair have horrendous service, and if you think paying a ticket 50% cheaper for a discount airline is good, expect a lousy service in return.

As for British Airways and Virgin Atlantic, it is time for them to give up more slots at Heathrow and focus on producing more quality and competitive service. This is what consumers want.

As for U.S. regulators putting up roadblock after roadblock on Branson's Virgin America airline, it is a sign that this agreement may not be fruitful in the long term, or at least until 2010.

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