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Opening the U.S. to Open Skies

Stephen Beard May 14, 2008
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Opening the U.S. to Open Skies

Stephen Beard May 14, 2008
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KAI RYSSDAL U.S. and European trade negotiators meet tomorrow to do battle in Slovenia. The result could be a revolution in the business of transatlantic air travel, the most profitable piece of the arline business. The negotiators will open talks into the second phase of what’s known as the Open Skies agreement.

We told you about phase one a while back — it lets all American carriers, rather than a select few, fly transatlantic routes to Europe. Phase two could break another barrier: letting European airlines own their American counterparts. From London, Stephen Beard reports.


STEPHEN BEARD: Open Skies part one took effect last month — that allowed more American carriers to fly in and out of airports in Europe, including Heathrow. European carriers gained reciprocal rights in the U.S. That was the easy bit. Aviation analyst Howard Wheeldon says now comes the much harder part.

HOWARD WHEELDON: What we want now is the opening up and allowing of European airlines to acquire large stakes in — and indeed the complete airlines themselves — in the U.S. and vice versa.

Under current rules, foreign companies can buy only 25 percent of an American carrier. That’s unfair and anti-competitive, says Paul Charles of the British airline Virgin Atlantic.

PAUL CHARLES: Why is that Ford of America, for example, is allowed to invest as much as it wants in the U.K., open car plants and invest in other carmakers, but Virgin Atlantic, as a carrier, is not allowed to enter the U.S. and own more than 25 percent of any particular American carrier?

He argues that the global airline industry has been hopelessly fragmented by these archaic ownership rules. It must consolidate to cut costs, especially with oil at $125 a barrel. And he says European carriers should be allowed to operate freely within the U.S.

CHARLES: The principle here is about freedom of choice and freedom for carriers to fly from any city to any city.

But consolidation and increased competition could mean big job losses in the U.S. and Europe. Tomorrow’s meeting in Slovenia is unlikely to lead to a breakthrough in this U.S. election year. Joe Lampel is with the Cass Business School in London:

JOE LAMPEL: No American politician would in any way do anything that would jeopardize employment or autonomy of American business interests. So this will have to wait till next year.

But not much longer than that — if the U.S. fails to offer equal traffic rights and open up its ownership rules by 2010, it could lose the airport access it gained in Europe last month. Part one of the Open Skies deal could be rescinded.

In London, this is Stephen Beard for Marketplace.

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