Airline Alliances Key To Making It Work, Group Adds

It's been a long time coming... and for some, not long enough. The much-vaunted Open Skies agreement between the United States and the European Union comes into effect Sunday... and is set to radically shake-up the transatlantic air travel market, according to Deloitte member firm aviation specialists.

As ANN has reported, under the new agreement airlines will now be able to fly to the US from any EU airport, not just their home country, and vice versa. Many in the UK believe the agreement serves greater benefits to American carriers -- as under Open Skies they are now allowed relatively open access to Heathrow, space permitting -- than British and other European airlines.

However, Graham Pickett, partner serving the aviation industry at Deloitte UK, believes easing on restrictions will provide windfalls on both sides, if airlines work together.

“The Open Skies agreement could lead to greater competition between airlines for flights from Heathrow," Graham Pickett, partner serving the aviation industry at Deloitte UK, noted.

Previously just four airlines could operate flights from Heathrow to the US. “However, airlines keen to rival the incumbent players may find it difficult to secure landing slots. Trading in slots, a bit of a grey area in terms of regulation, can be an extremely expensive business, with prime slots potentially changing hands for up to £30 million ($60.2 million US) a pair.

“Alliances between carriers are seen as the best way to open up routes from Heathrow to the US, with members of the Star Alliance looking to British airline BMI, which has the second highest number of slots at Heathrow, to help them.

“There may also be some M&A activity as airlines shape up to this new world, especially in the second stage of the Open Skies agreement, when current regulations on European investment in American airlines could soften.

“All this movement and competition among airlines as they maximize their new freedom is generally thought to be good for the consumer. Logically, if more airlines are competing for passengers on the same route, prices should fall, but these reductions are most likely to favor business class tickets.”

“US airlines have been preparing for the change. Smart organizations are already planning for the effects of Open Skies in rationalizing their networks, hubs and flight operations,” said Terry Kurtenbach, Co-leader, Global Transportation, and Deloitte LP partner, "The effects of Open Skies may already be occurring as a catalyst for consolidation in the US air carrier industry."

In 1977, the Bermuda II Agreement was signed, allowing only a handful of airlines -- British Airways Plc (BA), American Airlines Inc, United Airlines Inc and later Virgin Atlantic Airways Ltd -- to operate between London Heathrow and the US. Widely regarded as one of the most restrictive bilateral aviation agreements ever, this will be swept away by the Open Skies treaty in March 2008.

Further analysis on the Open Skies agreement can be found at the FMI link.

FMI: www.deloitte.co.uk/executivereportspring2008