(AFP) – Mar 25, 2008
WASHINGTON (AFP) — An open skies pact set to take effect between the United States and the European Union this weekend may offer few immediate benefits for travel in view of the turmoil in the US economy and airline industry, analysts say.
The agreement that takes effect Sunday ends most limitations on US and EU airlines' ability to fly between the two continents, and holds the promise of cheaper airfares and more choices for passengers.
But industry observers say the fruits of the agreement are unlikely to be harvested soon, with carriers hurting from record-high fuel costs and heightened economic uncertainty.
"I think it would mean a lot more if the industry were not in the dire straits they are in now," said Terry Trippler, an aviation consultant and founder of tripplertravel.com.
"The industry is more concerned about cutting flights than expanding. Eventually this will be fantastic when this industry shakes itself out. Right now, the celebration is muted."
George Hamlin, managing director of the consulting firm ACA Associates, said some new flights are coming, with Air France offering service from London to Los Angeles and US carriers getting some coveted slots at London's Heathrow Airport.
"In the longer term there may be some overexpansion, followed by some contraction," Hamlin said.
Hamlin said airlines must plan ahead for both lean and good times, ordering aircraft and securing landing rights even if conditions are not optimal.
"The US airlines are putting more into the North Atlantic market because they see it is a fairly lucrative market," he said. "But the more airlines go in, the less lucrative it becomes."
Stuart Klaskin of the aviation consultancy KKC said he sees the market gradually opening up to competition that will benefit many smaller cities on both sides of the Atlantic.
"I think in the next 18 months you will be able to travel at a steep discount to Europe," he said, predicting a wider range of low-cost, business-class and other carriers on expanded transatlantic routes.
Klaskin said carriers have been preoccupied with the economic climate and fuel costs and "there is a question of who makes the first move."
In view of the circumstances, he said, "they can't afford to make a mistake."
Casting a cloud on the open skies pact is that as the agreement takes effect, both sides must gear up for a second round of negotiations on opening airline companies to foreign investors.
This remains a sensitive subject in the United States, which blocks foreigners from owning more than 25 percent of a domestic airline.
Trippler said that with US airlines hurting, "the Americans are going to have to adjust that policy."
"Reality is setting in. Foreign ownership restrictions are going to go by the wayside, because airlines have got to get flying profitably. I think it's an outdated requirement."
Kevin Mitchell, an independent consultant and chairman of the Business Travel Coalition, is less optimistic about the future of the accord.
"I think progress has to be made" on easing foreign ownership, he said, to keep momentum in the talks. "I don't see it in the tea leaves."
"On one hand there is a gigantic opportunity for the industry to rationalize itself," Mitchell added. "On the other hand, there is concern out there we're not going to get to the next phase, and that naturally would limit how much risk companies would take."
European carriers, especially those in Britain, are eager to get into the US market and have been pressing for Washington to ease the ownership limits.
But some in the US view carriers as "strategic assets" that should not be run by foreigners.
Robert Mann, an aviation consultant with RW Mann & Company, said progress is unlikely in the second round of talks set to open in September -- just two months ahead of the US presidential election.
"I don't know if people were looking at an election calendar when they set the schedule," he said. "I have the feeling this will take on the aura of the Dubai ports fiasco," referring to congressional blocking of a Dubai acquisition of a major US port operator.
Mann said that until a new presidential administration takes office in 2009 "it's unlikely much will happen" in the open skies talks. "There will be frustration if anything in September."
Mitchell said one danger of languishing "phase two" negotiations is "if it doesn't go anywhere, you'll see the Brits asking for renunciation of phase one."
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