Airlines Salivate at Possible European Routes

Trans-Atlantic air traffic between Europe and the US is expected to increase by 55% over the next five years.


It's still 11 months until the trans-Atlantic air market is deregulated, but airlines on both sides of the pond are angling for their share of what's expected to be an explosion in lucrative trans-Atlantic travel.

Airlines "have been waiting 15, 20 years for this to happen," says aviation consultant Craig Jenks. "They are not willing to wait one minute more."

Delta, Virgin Atlantic, Continental and Aer Lingus are among those carriers positioning themselves for the coming change in rules, planning new routes and striking cooperative arrangements with other airlines.

After years of negotiations, the United States and European Union last month agreed to dismantle the patchwork of agreements that has limited trans-Atlantic air service since World War II. The new treaty, called Open Skies, takes effect March 30, 2008, and allows any U.S. airline to fly anywhere in the EU's 25 nations, and any European airline to fly anywhere in the USA.

For travelers, it will mean more flight alternatives. The effect on fares is less certain. The increased competition can't hurt, but the trans-Atlantic market is already competitive.

Virgin Atlantic spokesman Paul Charles says fares may not drop at all, because intense competition already is restraining them.

Aviation consultant Jon Ash of Washington, D.C., says the premium that airlines now collect for service to London's popular and convenient Heathrow Airport will evaporate as airlines increase their service there. Beyond that, he says, fares will be slow to decline.

London's Heathrow in spotlight

As airlines position themselves for deregulation, much of the activity centers on service to Heathrow, the airport closest to downtown London and the center of operations for British Airways.

"Heathrow is the cash cow," Ash says. In the 12 months ended in February, the average fare from the USA to Heathrow was 29% higher than that from the USA to Gatwick, another main London airport, according to consultant Sabre Aviation Solutions. For the airlines, stakes in the coming rules change are high. Trans-Atlantic air traffic between Europe and the USA is expected to increase by 55% over the next five years. Some recent Open Skies-related developments:

*Delta is scrambling for operating rights at Heathrow so that it can launch service from its Atlanta base as soon as the treaty takes effect, CFO Ed Bastian says.

*Virgin Atlantic is studying new flights from six European cities. If launched, Virgin would start the routes out of New York John F. Kennedy and Newark, where it now flies. Possibilities include Madrid, Zurich and Milan, Italy.

*Continental Airlines hopes to launch Heathrow service from its Houston base before summer 2008.

*Immediately after the Open Skies agreement in March, Aer Lingus announced plans to launch service this year to three new U.S. cities: San Francisco, Orlando and Washington Dulles. The Irish carrier had the authority for the service but didn't use it until deregulation was on the horizon.

*United and British carrier BMI are seeking final approval from U.S. regulators to expand their code-sharing partnership. Passengers would be able to go to the United website and buy one ticket to get to their final European destination.

Change could be gradual

Frequent London traveler Randy Jones of Marietta, Ga., is crossing his fingers that Delta gets into Heathrow. He now pays about $2,000 to fly into Gatwick, and at least $400 for car service to drive him about 90 minutes to his destination. He'd rather fly to Heathrow, because it's closer to where he needs to go. But to do that, he'd first need to fly to New York JFK -- a detour that adds six hours both directions.

"Travel time is costly because that time typically is not billable," says Jones, a management consultant.

Airlines won't automatically gain access to Heathrow. They must first buy pricy landing and takeoff rights. How quickly that happens "depends on their friends, partners and bank accounts," Ash says. British Airways owns roughly 40% of the slots.

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