Monday, March 05, 2007

"Open Skies" over the Atlantic

Sources: Houston Chronicle; The Mercury News;;;

The EU and the US tentatively agreed to a new “open skies” arrangement that would remove many of the existing restrictions on intercontinental flights. Transatlantic flights, 60% of global air travel, would be opened for all European carriers to fly non-stop routes from any EU city—even outside the airline’s home country—to any US destination and vice-versa. This arrangement would also remove price restrictions on transatlantic flights. The US would permit European airlines to obtain more than 50% capital interest in American airlines, previously barred in the interest of national security, but would continue to cap ownership of voting rights to 25% of the American airline.

European and American lawmakers must still approve the agreement before it goes into effect. If adopted, it is forecast to increase transatlantic traffic by 50% within 5 years to nearly 76 million passengers annually and to create 80,000 EU and US jobs. Consumers will enjoy more flight options and more competitive prices. The airlines generally should benefit from the increased travel, but individual airlines, like British Airways, might suffer from low-fare competition on lucrative transatlantic routes. In fact, British Airways opposes the agreement. The EU predicts that the deal could be worth almost $16 billion, with benefits also extending to cargo transporters who could take advantage of increased routing options and competitive pricing.


Should the US approve the “open skies” agreement? Will the increased competition on transatlantic routes deepen the financial problems of American airlines, or will benefits of increased access throughout Europe offset the losses?

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