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What does ‘open skies’ do for us?

The new open skies agreement between the U.S. and the European Union has generated a lot of attention in both trade and consumer media. Much, however, has focused on benefits to and challenges for airlines and airports rather than on benefits for the flying public. As a listener recently asked me on a call-in show: “How will the new European agreement benefit me as a consumer?”

The short answers:

  • Starting next March, you will see new nonstop routes to Europe, most notably from a few key inland hub cities to London’s popular Heathrow Airport, as well as additional competitive nonstop flights on the very busiest transatlantic routes and more small-plane business-only flights.
  • You probably won’t see reduced economy fares or improved economy service.

For those of you who want more detail, here’s my extended take on the overall situation.

Less than it seems

The basic idea is that the agreement will almost totally deregulate air service between Europe and the U.S. Any airline based in the U.S. will be able to fly to any city in any E.U. country, with no government rules or restrictions on routes, fares, or schedules, and vice versa.

Overall, however, the new agreement is less revolutionary than some of the hype would make you think. We already have extremely liberal aviation agreements with many key European countries, so the new pact merely widens abilities that we’ve already enjoyed to a significant degree.

And there’s still some question about the future evolution of the agreement. European governments want the U.S. to get rid of laws that limit foreign ownership and control of U.S. airlines. The Europeans also would like their airlines to be able to fly routes entirely within the U.S., or “cabotage,” as it’s called. Congress seems to be adamantly opposed to both of those provisions—and the opposition seems to be equally strong in both parties, so a possible shift in Congress in the next election isn’t likely to have a big impact.

Heathrow is the prize…

The big prize in the negotiation is liberalized access to London’s Heathrow airport. Even though the U.S. already had a pretty liberal agreement with the U.K., the Brits held firmly to one key provision of a longstanding bilateral treaty: Only four airlines—two based in the U.K., two in the U.S.—were allowed to fly to Heathrow, and only to/from specified cities. Originally the two U.S. lines were PanAm and TWA, but their authorities transferred, currently to American and United. (The incumbent U.K. lines are British Airways and Virgin Atlantic). Those original four plus other airlines have been able to fly to/from the other London airports—Gatwick, Stansted, and Luton—but Heathrow has been a closed door.

…and business class is the key

Why is Heathrow so desirable? The answer is in the nature of the transatlantic marketplace.
On flights between the U.S. and Europe, airlines live or die, financially, on their business-class travelers. Although a business-class seat occupies about three to four times as much space as an economy seat in an airline cabin, business class fares range from 10 to more than 20 times the average economy fares. And business-class travel is steady, year-round, in contrast to highly seasonal vacation travel.

London is by far the most important European origin and destination city for transatlantic business travel. And business travelers strongly prefer Heathrow. It’s the only one of the four big London airports that is close enough to central London to allow business travelers to use cabs or private cars to connect directly between office, home, or hotel with the airport. Gatwick, Luton, and Stansted are so far out of town that travelers to/from central London must use rail connections.

Some of the press covering the Heathrow question has emphasized the many connections available at Heathrow. Although Heathrow does, in fact, have flights to more worldwide points than any other European field, connections aren’t really important. Heathrow is a lousy airport for connections; if you can’t fly nonstop, connections are much easier through Amsterdam, Frankfurt, Munich, or Paris. Heathrow is important as an origin or destination point, not for connections.

Slots in play

The new agreement removes the treaty barriers for U.S. other airlines to serve Heathrow. But that doesn’t mean “y’all come.” Heathrow’s total capacity to handle flights is strictly limited. Even with legal permission to fly there, nobody can add flights without first finding the needed landing and takeoff “slots.”

A few years ago, conventional wisdom was, “even with open skies, new U.S. airlines will never get the Heathrow slots they need.” That’s proving to be wrong. Continental, Delta, and Northwest are already making deals to obtain slots formerly used by European alliance partners for less lucrative short haul Heathrow routes—transfers made more palatable by the steady inroads of low-fare airlines and high-speed rail on those short routes.

Winners: U.S. internal hubs

The big U.S. legacy lines desperately want to fly nonstop between their important eastern hubs and Heathrow: Continental from Newark and Houston, Delta from Atlanta and New York, Northwest from Detroit and Minneapolis/St. Paul. You’ll probably see new nonstops on all of those routes by the end of next year. And the British lines may offer competitive flights on some of those trips.

Otherwise, both U.S. and European lines will continue to open new routes from their hubs to additional secondary European cities. And British Airways and Virgin will probably shift most of the U.S. flights that now use Gatwick to Heathrow.

Winner: New York

British Airways and Virgin Atlantic have both expressed interest in flying from other European countries to the U.S. Most of the focus is on new flights from other big European centers—Paris, Frankfurt, and Milan—to New York. And they may start with all-business-class flights. Clearly, you won’t see anything really new; just more-of-the-same duplication of existing services.

Left out

I don’t see much in the way of new low-fare competition coming out of the open skies agreement. In recent years, we’ve seen only a few very minor new entrants. flyglobespan and Zoom are the latest hopefuls, but I don’t see that they’ve gained much traction. The unhappy fact for low-fare wannabes is that the legacy lines make so much money in business class that they can afford to sell lots of economy tickets below cost just to fill up their rear cabins.

The main advantage for economy travelers will be new Heathrow flights on the U.S. lines that allow you to start your trips or make connections at a nearby and convenient interior hub rather than congested and delay-prone JFK and O’Hare. Of course, you’ll still suffer in the same cattle-car seats—but at least the schedules will be better.

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