Open Skies Matter More Than Open Access to Sky

Business comment

By Dan Roberts, Business Editor, Sunday Telegraph

Last Updated: 12:28am GMT04/03/2007

Open Skies matter more than open access to Sky

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/03/04/ccom04.xml

Next time you are stuck at 30,000 feet in cattle class, knees against chin, wondering whether you can afford to upgrade to business, spare a thought for Douglas Alexander. Britain's fresh-faced transport minister has a dilemma on his hands that could age him almost as much as a cramped flight on the transatlantic red-eye.

The question winging its way to his desk at the Department of Transport is what to do about a surprise outbreak of harmony between Europe and the US over the vexed issue of aviation liberalisation. After 12 years talking about it, the two sides finally reached an "Open Skies" agreement in Brussels on Friday - allowing many more airlines to compete on key routes in exchange for a limited relaxation of foreign ownership restrictions.

While Alexander cannot veto the agreement on his own, he could probably put up enough of a fight to abort it before it takes off. There will be plenty of powerful voices in the control tower urging him to do so. British Airways and Virgin Atlantic are both petrified that Open Skies will become a code word for the invasion of Heathrow - upsetting the current cosy deal that gives them the bulk of Europe's most coveted transatlantic route.

The UK aviation industry, which has previously cherished the right to conduct bilateral trade talks directly with the US, is right to be suspicious of any deal cooked up in Brussels. The US has given up almost no ground over its protectionism towards foreign owners. But from 30,000 feet up this is a relatively insignificant scar on the landscape: there is little chance of BA making a bid for a big US airline, so why the fuss?

The bigger issue remains allowing more airlines to compete openly against each other for routes and landing slots. Competition should bring down prices for all passengers, but the shocking cost of transatlantic business-class travel should be centre stage - a full-fare business ticket to New York from London can cost £4,000 compared with just €1,600 (£1,086) from Amsterdam. The same deregulation that transformed short-haul markets in Europe is badly needed at Heathrow and Mr Alexander should ignore grumbling from the tower.

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British airlines tell EU ministers: scrap this open skies agreement

· 'Lousy' deal adjudged too friendly to US interests
· BA shares fall more than 6% at news of new rules
Marianne Barriaux
Tuesday March 6, 2007
The Guardian http://www.guardian.co.uk/Business/story/0,,2027374,00.html

British Airways and Virgin yesterday delivered a stinging attack on the draft open skies agreement signed on Friday that is intended to open up the transatlantic airline market. The airlines urged EU transport ministers to push negotiators to deliver a new and better treaty.

Speaking at a conference in London, Martin Broughton, chairman of British Airways, said it was a "lousy agreement", designed to "bolster US interests" and offered "minuscule concessions dressed up as significant breakthroughs". BA's shares fell more than 6% on the expectation that it will lose out from the deal.

The open skies agreement would scrap rules that reserve US take-off and landing slots at Heathrow for British Airways, Virgin Atlantic, United Airlines and American Airlines, opening it up to more competition. Mr Broughton said: "The greedy American eyes are all on Heathrow."

Steve Ridgway, chief executive of Virgin Atlantic, was equally scathing of the deal, saying that far from being a disaster if it were dropped, it would provide even more of an incentive to move forward.

An open skies deal has been under discussion for nearly four years. On two previous occasions, a draft deal was dropped because of resistance from the US or from the UK and Germany. On Friday, an agreement was reached that is due to be considered by EU transport ministers on March 22.

The deal will allow EU airlines to fly from any airport in EU countries to the US. Up until now, airlines have only been able to fly to the US from their own country. This could pave the way for takeovers between European carriers.

John Byerly, the deputy assistant secretary for transportation affairs in the US, argued that the US had given significant concessions. He said: "It was gift time last week in Brussels and we gave."

But one of the main points of contention is over the rules of ownership and control of US carriers by foreign investors, as well as the US's refusal to give EU carriers access to its domestic market.

Mr Ridgway said: "Airlines are no longer strategic assets - they don't need to be controlled the way they are." He added: "Aviation needs to be freed."

A foreign investor can own only 25% of the voting stock in a US airline - a fact that has angered carriers such as British Airways and Virgin. The US has indicated it cannot change this rule "at this time", but if the deal is agreed, will work on further liberalisation.

The open skies agreement is politically controversial in Washington. Any change to the ownership rules would require legislation and would be difficult to get through Congress. Mr Byerly admitted that the US stance on ownership was the toughest issue in the talks.

In the draft agreement, the US has signalled European companies will be able to hold 50% of the capital of a US airline, but still be allowed to hold only 25% of voting shares.

Mr Broughton said: "Once the US has achieved their prime negotiating objectives of achieving an open skies deal, its motivation to liberalise further will evaporate."

Jacques Barrot, the EU transport commissioner, said he had spoken to US officials. "We have the conviction that for the moment it is not possible to change the law on the rules of control," he reported. He added the EU would not give up pressing the US on the subject. But he argued the agreement would still be the "most valuable aviation deal ever", worth as much as €12bn (£8bn).

Mr Broughton said: "I think the UK government feels quite strongly about this, and every indication I've had is that they sympathise with our position."

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March 5, 2007

British Airways Shares Slide On Competition Fears

http://news.airwise.com/story/view/1173128785.html

AirWise News

British Airways shares plunged as much as 10 percent on Monday, shaken by a pact between the United States and Europe to boost trans-atlantic flights which the European Union's transport chief urged EU governments to endorse.

The "open skies" deal outlined on Friday would allow airlines to fly more routes linking Europe and the United States, helping their businesses but potentially eating into revenues at BA and other carriers which now dominate the routes.

Transport Commissioner Jacques Barrot on Monday called the plan the most ambitious ever attempted and said failure by Europe to back it would create "a legal mess".

"In the next few weeks, I will ask the transport ministers from around Europe to look hard at this agreement," he said in a speech in London. "I hope we can go ahead. But I am not ready to predict the outcome."

Britain, one of the countries which might oppose the plan, wants an "agreement that is meaningful, balanced and robust," a spokesman for the Department for Transport said.

He would not be drawn on how Britain would likely vote, but said: "EU transport ministers will need to examine the text, they will need to agree among themselves whether it represents an acceptable way forward."

Barrot said if EU ministers fail to back it he would be forced to take nations to the European Court of Justice for refusing to give up bilateral aviation pacts with the United States.

Analysts said BA had reason to be concerned about the open skies deal.

"The implication is that prices are going to fall and everybody knows that BA's yields on the north Atlantic are what drives its profits," said Exane BNP Paribas analyst Nick van den Brul.

Deutsche Bank analysts estimated a deal could chop trans-atlantic fares by 15 percent and slash GBP491 million pounds (USD$944 million) from BA's revenues in the first year of implementation.

Currently, direct flights to the United States from London's Heathrow Airport are limited to BA, Virgin Atlantic, United Airlines and American Airlines.

BA Chairman Martin Broughton said on Monday the "open skies" agreement would cede benefits to US airlines in return for only "miniscule concessions" from Washington.

He cited as shortcomings a continued ban on European airlines carrying passengers between US cities and only scant change to the Fly America program which reserves US government and government-funded traffic for US airlines only.

The deal is no different in economic terms from ones rejected by EU transport ministers in June 2004 and November 2005, Broughton said in a speech in London.

Barrot, speaking at the same event as Broughton, urged BA to think of the long term and said ultimately the airline "could well become the prime beneficiary".

EU transport ministers are to decide whether to back the plan on March 22 and finishing touches could go on a deal timed for a US-Europe summit set for April 30 in Washington.

Barrot said the decision "could go to a qualified majority" decision, meaning a weighted voting system is used that would allow the plan to be accepted even if some nations vote against it.

EU negotiators would not have agreed the deal if they did not think it had a chance of approval from transport ministers, Barrot spokesman Michele Cercone said.

(Reuters)