Open-Skies Deals will take Wing; Major Flight Agreement Expected this Month

With one, and possibly two, major international agreements revving up on the runway, the world of aviation is about to change, bringing more competition between airlines, more choices for air travelers and the prospect of cheaper airfares.

Open-skies agreements loosen legal restrictions on which airlines can fly to which airports and how often they can fly there, putting in motion a train of consequences.

"Open skies will give consumers more choices, and there will be more seats available," said Terry Trippler, an industry analyst in Minneapolis. "And if more choices and more seats follow course, it means better airfares."

"This is good for everyone. I do not see a downside to open skies," he said, embracing a view widely held in aviation industry circles that open-skies agreements are both highly desirable and long overdue.

The first and largest deal, an open-skies agreement between the United States and the European Union, is expected to be signed April 30 and take effect next March 30. The second deal, with China, is further from realization, but hopes are high. Talks with the Chinese are scheduled in Chengdu, China, next week and in Washington next month, and Transportation Secretary Mary Peters says she hopes to see a rough draft with China by year's end.

International open-skies agreements have been on the world aviation industry's radar screen for years, but national pride, security concerns, protectionist laws and bureaucratic red tape have grounded such high-flying notions.

Until now. In an age of accelerating globalization and liberalized international trade rules, the situation is starting to change -- though just how open skies play out remains to be seen.

"It's unlikely we'll see any major change right away," said Henry Harteveldt, airline analyst in the San Francisco office of Forrester Research. Traditional factors such as the price of fuel, currency exchange rates, commercial availability of airport gates and the availability of aircraft will still go a long way toward determining where and when airlines fly, he said.

Still, he said, "more competition generally means lower fares." Leisure and excursion fares could fall substantially, though sky-high business class fares could persist.

The rules changes will provide business opportunities for airlines but present challenges as well. British Airways and Virgin Atlantic Airways have long resisted open-skies pacts, apparently to protect their prominence on lucrative routes between the United Kingdom and the United States.

Major U.S. carriers, just now recovering from several years of huge financial losses, have banked on overseas routes to pump up profits. Those profits may soon have to be divided among more players.

And all hub-and-spoke network carriers face the possibility of fresh competition from entrepreneurs such as Ryanair's founder and Chief Executive Officer Michael O'Leary, who recently said he plans to create an affiliated startup airline to fly the Atlantic, offering attention-getting promotional fares as low as 10 euros ($13.50) from London to New York, in the next three or four years.

Given that the EU deal won't take effect for nearly a year, hard facts about future fares, routes and schedules are difficult to come by. Airline executives and airport officials said they are still in a planning mode, but they also said they're excited by the possibility of a lot of new business, and the advent of a freer, market-driven age of aviation.

The U.S.-EU deal, for example, will allow U.S. carriers to fly from this country to any city in the 27-nation European Union. It will also give airlines from EU countries such as Germany and Great Britain greater latitude to serve additional U.S. cities.

That's quite a contrast to present agreements, which are highly restrictive.

Only two U.S. carriers, American Airlines and United Airlines, are allowed to serve London's Heathrow airport, which handles more international fliers than any airport in the world, and only two United Kingdom carriers, British Airways and Virgin Atlantic, can fly between Heathrow and the United States.

Under the new rules, any U.S. airline will be able to serve Heathrow, provided it can secure landing slots at the famously busy facility.

Changes are also expected aboard the aircraft. "On international routes, increased competition also equates into better service," Trippler said. "And should there be a deal with China, get out of the way. The service level to Asia will skyrocket. That's especially true of leading international carriers. You'll see more Singapore Airlines, more Cathay Pacific Airways, more British Airways, and they will put pressure on the U.S. airlines to do better."

Harteveldt sees it much the same way. "U.S. airlines are going to have to examine their in-flight experience," he said. Without an upgrade, "They will lose people."

Nevertheless, for some major U.S. carriers, open-skies deals could present a wide-open window of opportunity. Continental Airlines and Delta Air Lines have both said they hanker to serve London Heathrow, a gateway to the rest of Europe, as soon as they can.

United Airlines, which already flies to Heathrow and accounts for nearly half the business at San Francisco International Airport, said it's fine with the prospect of stepped-up competition and has growth plans of its own.

"Open skies represent a lot of opportunities," said Michael Whitaker, the Chicago carrier's senior vice president for alliances, international and regulatory affairs. "We can serve whatever cities we want, when we want, with whatever equipment we want. It changes the equation by taking the government out of the decision-making process."

If a deal with China gets done, United will be ready, Whitaker said. United out-muscled American Airlines, Northwest Airlines and Continental to win U.S. government approval to operate the only new route to China up for grabs this year. Last month, United began daily nonstop service between Washington, D.C., and Beijing.

"China could use more service than it has now," he said. "We're likely to see more service from the West Coast, both over San Francisco and over Los Angeles -- the West Coast is a natural gateway to Asia -- though I think we're probably a couple of years away from that happening."

There are only 11 weekly flights now between the United States and China. By contrast, there are 55 weekly flights to Germany, with which this country has an open-skies treaty.

"The real interesting thing is what will happen with China," said Harteveldt, who said a deal with China could prompt other Asian nations such as Japan to relax their restrictions.

Bay Area airports, like their airline customers, are planning for the shape of things to come -- whatever that turns out to be.

At SFO, which handles more than 90 percent of the Bay Area's international travelers, spokeswoman Kandace Bender said the airport anticipates a shifting mix of airlines and destination cities. "We expect to see a lot of movement," she said. "We have been having intensive internal discussions about it."

At Oakland International Airport, which has made itself a prime venue for domestic low-fare carriers, the director of aviation, Steven Grossman, said the airport's core strategy won't change, but new international flights are welcome.

Under the current tight restrictions on who can fly where across the oceans, "Opportunities for international service are very limited," Grossman said. "Now, with open skies, it starts to drop some of the barriers. I'm talking about international airlines coming here."

Oakland has recently attracted Oasis Airlines, a low-fare startup in Hong Kong that plans to start nonstop service between Oakland and Hong Kong in autumn. Although Oasis didn't come in because of an open-skies pact, Grossman says such deals could become easier to do once open-skies agreements fall into place.

At Mineta San Jose International Airport, open skies mean "smaller U.S. airports will be able to compete for and justify air service to destinations in Europe that were not possible previously," spokesman Rich Dressler said in an e-mail.

"Airlines with midsize aircraft will be able to utilize smaller U.S. airports for nonstop flights. Both airlines and consumers will be able to avoid the extra hassle and time of only connecting at congested hubs."

Moreover, Dressler said, "We believe the population demographics, coupled with the strength of the Silicon Valley business travel (market), lend themselves to support transatlantic service."

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