U.S. And European Negotiators Announce Tentative Flight Agreement

Negotiators from the United States and European Union (E.U.) on Friday reached a preliminary agreement which, if ratified later in March, would lead to an opening of restrictions on trans-Atlantic flights. This agreement, nicknamed "Open Skies," will result in any airline, from the U.S. or E.U. being able to fly from anywhere to anywhere on either side of the Atlantic.

The agreement will also allow foreign airlines to stop in the U.S., before flying to another carrier, which in the industry is known as a "fifth freedom" rights. One down side for consumers is that the agreement will no longer limit how much a carrier may charge fliers.

But U.S. Secretary of Transportation Mary E. Peters felt the agreement would "offer more choice and convenience to American consumers." E.U. Transport Commissioner Jacques Barrot agreed. "In economic terms, this unprecedented agreement would represent a step change." Barrot went on to estimate that the breakthrough, which had previously stalled when the U.S. balked at giving investment freedom to European airlines, could be worth up to $15.8 billion.

The sticking point, in which Europeans will have a larger role in management decisions, was finally solved with a compromise. The U.S. will not change its long-standing policy of limiting ownership and voting rights in U.S. airlines to 25 percent, but would make it possible for European companies to purchase up to 100 percent of non-voting shares.

Another potential barrier to the agreement had been England, where Heathrow airport had long been closed to true open competition. Prior to the agreement, only American Airlines and Delta Air Lines had been allowed to fly into the London airport. Should the agreement be ratified by both European transport ministers and Congress, more U.S. airlines would be given that opportunity.

The aspect of the deal that could be most beneficial to carriers like American and United would be the increased trans-Atlantic flights. U.S. airlines are increasingly dependent on international routes for profit, especially with increased competition at home.

Airline officials were cautiously optimistic about the preliminary agreement. "It's a step in the right direction," said Anthony Concil, a spokesman for the International Air Transport Association. James May, president of the Air Transport Association trade group, agreed. "While we have not seen the details, this tentative agreement has the potential for creating new avenues of economic development between the U.S. and Europe."

Ulrich Schulte-Strathaus, the secretary general of the Association of European Airlines, was likewise cautious. "Our initial reaction is that there seems to be a substantially improved balance in the wording of the agreement."

While the airline industry has long campaigned for more freedom, saying it would bring more flights and cheaper fares, some economists warn it may take time for the flying public to really feel any of the benefits.

"Given the fares that are available at the moment, I find it hard to believe that they will fall much further from where they are now," said Peter Morris, chief economist with Ascend, an aviation consultancy company.

Sources:

www.bloomberg.com/apps/news
www.nytimes.com/2007/03/03/business/worldbusiness/03skies.html
www.playfuls.com/news_09_4003-The-US-and-the-EU-Sign-Draft-Open-Skies-Agreement.html