Tuesday, March 18, 2008
With the U.S./EU Air Transport Agreement (dubbed "Open Skies") set to come into effect in just under two weeks, rumblings of dissent and concerns over the Agreement's impact are already occurring. According to an article which appeared in yesterday's edition of The Guardian, the International Air Transport Association's Chief Executive Giovanni Bisignani is claiming that continued government shielding of its flag carriers is "killing the aviation industry." Bisignani specifically singled out the Open Skies Agreement as falling short of expectations given the foreign control restrictions it left in place. He has even gone so far as to accuse Jeffrey Shane, U.S. Under Secretary of Transportation Policy, of being a "protectionist" due to the maintenance of the foreign investment caps under Open Skies. This hostility towards U.S. policy is more than mere rhetoric. As the article rightly points out, EU Member States may suspend rights under the Open Skies Agreement should the next stage of negotiations fail to yield satisfactory results. While any suspension of rights is not likely to come into effect until 2012, the very possibility that EU Member States may ground flights from U.S. carriers undoubtedly adds a layer of necessity for both sides to reach a workable solution to the foreign investment problem.
With respect to the impact of Open Skies, both the European Commission and the U.S. Department of Transportation announced that it will launch a joint research project to examine transatlantic airline alliances. Under the alliance system, carriers agree not to compete against each other on the same routes and also engage in code sharing. This system of alliances, while unstable at times, has become a necessity for airlines in an era still plagued by restrictions on full-fledged mergers. The future of these alliance networks will be a subject of great interest given the fact that Open Skies will undo current restrictions on the transatlantic route between the U.S. and EU, thus inviting further competition.
As for the transatlantic route itself, the Wall Street Journal is reporting that both United Airlines and American Airlines have responded by offering new services between the U.S. and London's Heathrow Airport. United is offering a package deal on its new Denver to London Heathrow service while American has opted to pull its flights from Gatwick Airport and reroute them into Heathrow. Still, passengers shouldn't get too excited about the possibility of further direct flights into Heathrow. With the very slots available commanding high prices and government-imposed traffic caps, it remains unlikely that any but the largest carriers will be able to take full advantage of Open Skies' opportunities at Europe's busiest airport.