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U.S./EU agreement will ease air travel barriers

The United States and the European Union signed a landmark air services agreement Monday, opening up transatlantic markets to more competition beginning next year.
/ Source: Reuters

The United States and the European Union signed a landmark air services agreement Monday, opening up transatlantic markets to more competition beginning next year.

The "open skies" deal that removed World War II-era barriers to service appears initially weighted toward European carriers, some of whom have begun to recognize what they anticipate will be new business opportunities.

Jacques Barrot, vice president of the European Commission, said in a statement that increasing competition would "shake up" the transatlantic market and lead to lower fares.

"Already, the European airline industry is feeling its effects in a positive way, with plans for new services and signs of a much more flexible and dynamic approach to airline investment among European carriers," Barrot said.

The pact replaces restrictive agreements and allows airlines for the first time to offer service from any city in the 27-nation EU bloc to any U.S. city and vice versa. There are no restrictions on the number of flights, aircraft used or routes.

As a result, several overseas airlines have been active in pursuing new routes.

European low-cost airline Ryanair is exploring the possibility of transatlantic service between Dublin, Frankfurt and Barcelona to New York, Dallas and San Francisco.

Virgin Atlantic plans to expand vigorously, possibly adding flights to the United States from Paris, Zurich and other cities within a couple of years. Ireland's Aer Lingus is also planning new routes.

And takeover speculation for Britain's bmi has heated up since the agreement was reached.

Industry experts agree that European heavyweights Air France-KLM, Germany's Lufthansa and British Airways Plc could also benefit substantially from their size and reach.

Experts also agree the deal is good for U.S. cities like Chicago, Houston, and Atlanta, and for American travelers who potentially could pay less to fly to Europe. But for U.S. carriers, the agreement that takes effect in March 2008 does not pack much of a wallop.

U.S. airlines achieved their main goal on paper of getting greater access to London's Heathrow airport, the most lucrative destination for business travel in Europe, but obtaining slots and gate space is expected to be tough. Heathrow-U.S. service is currently limited to four airlines - American Airlines , United Airlines, Virgin and British Airways.

U.S. law also limits investment in American carriers by overseas interests to 25 percent of voting stock, dampening prospects of consolidation. This will be the top priority of negotiators in a second stage of talks starting in mid-2008.

The Bush administration's attempts to ease ownership caps have been rebuffed by Congress. With Democrats in control of both houses, pro-labor forces are expected to exert even more influence over lawmakers to block any change in the law. Unions fiercely oppose foreign investment, fearing overseas control could reduce wages and benefits or cost their members jobs.