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From today's Online Wall Street Journal.
Pact Ushers In Competitive Skies
[FONT=Times New Roman,Times,Serif]U.S.-EU Accord Invites
Mergers and Lower Fares;
Charting Winners, Losers[/FONT]
[FONT=times new roman,times,serif][FONT=times new roman,times,serif]By DANIEL MICHAELS
March 23, 2007; Page A3[/FONT]
[/FONT]
Under the new "open skies" pact deregulating air travel between the U.S. and the European Union, Continental Airlines Inc., Delta Air Lines Inc. and Northwest Airlines Corp. get potentially lucrative new trans-Atlantic access, while AMR Corp.'s American Airlines, British Airways PLC and ailing Alitalia SpA are likely to face intensifying competition.
The approval of the deal by transportation ministers of the 27 EU states will have broad ramifications for air travel between the world's busiest aviation markets -- immediately opening the door to greater competition, lower fares and new services. In the longer term, the agreement also promises to fundamentally change the way airlines are regulated and encourages European airlines to more aggressively compete in each other's home markets. It also raises the possibility of a wave of international airline mergers that are prohibitively difficult, though restrictions over foreign control of U.S. airlines remain.
Continental, Delta and Northwest will for the first time have the right to serve London's popular but restricted Heathrow Airport. Ireland's Aer Lingus Group PLC and British Midland Airways Ltd. also stand to win big because of the new freedom they will have serving the U.S. market.
"This offers better access to the most important European market," London, said Jim Whitehurst, Delta's chief operating officer. "The new competition should lead to a substantial reduction in ticket prices, and that's good from a customer's perspective."
British Airways and American Airlines will be forced to battle increased competition at Heathrow. Italy's Alitalia could face an invasion of better-run rivals in its rich home market.
The outcome had faced some uncertainty; British authorities were hesitating because the deal allows increased competition at Heathrow, which is already operating near capacity. Italy also balked, fearing the deal could upset its privatization of Alitalia. Both countries ended up endorsing the agreement after winning a five-month delay in its implementation, which will now be March 30, 2008 -- after the opening of a large new terminal at Heathrow and Italy's target date for selling Alitalia.
The deal doesn't need U.S. congressional approval, and President Bush has already given his support. U.S. and EU officials expect to sign the pact at a summit in Washington on April 30.
Under the agreement, any European carrier will be allowed to fly to any city in the U.S., and U.S. carriers will be granted access to all airports in the EU. Until now, permission to fly was granted on a bilateral basis between individual countries. Rules dating to the 1940s largely prohibited a carrier from one country from selling tickets on flights between two other countries.
World Photo British Transport Secretary Douglas Alexander ... spoke with EU Commissioner for Transport Jacques Barrot during Thursday's meeting of transport ministers. Some carriers have already signaled they hope to capitalize quickly on the new rights. Britain's Virgin Atlantic Airways Ltd. recently said it would consider launching services to the U.S. from other European countries, competing directly with local carriers. Continental says it is seeking "blanket open skies authority," to operate in all European Union countries. U.S. cargo giants FedEx Corp. and United Parcel Service Inc. also stand to gain from the new freedom to fly freight between European airports.
UAL Corp.'s United Airlines, which sold its New York-to-London route to Delta last year, said it hopes to boost service to Europe via its hubs in Chicago, Washington, Denver and Los Angeles. "Now we can fly to whatever cities we want," said United senior vice president Michael Whitaker.
Over the long term, the biggest fallout could come from European carriers being allowed to much more aggressively compete with each other in Europe -- threatening financially weaker national carriers in large markets such as Italy, Greece, Poland and Scandinavia.
Analysts say the competition could come even sooner through the world's three airline alliances: Star Alliance, SkyTeam and oneworld. Within these groups, one airline can put its customers on a partner's plane, allowing fliers to buy tickets more easily on many routes. Today, for example, Northwest Airlines can fly between its Detroit hub and Amsterdam not only with its own passengers, but also fliers who have bought tickets through KLM. Starting next year, KLM will have the right to sell seats on Northwest flights between the U.S. and destinations all across Europe -- not just Amsterdam. Officials from the two carriers said they would consider doing this, but announced no specific plans.
American said the accord opens more opportunity to work with marketing partner British Airways through the oneworld alliance. But Chief Executive Gerard Arpey also recently conceded that having more airlines flying into Heathrow "by definition is not good for us."
The new deal also relaxes aviation rules requiring that a carrier from any country be owned and controlled by citizens of only that country, a stipulation that impeded cross-border airline mergers. Under the new agreement, the U.S. will treat the EU as if it were one country. One immediate beneficiary of the change will be Air France-KLM, which has faced lingering regulatory uncertainty over Air France's 2003 acquisition of KLM.
British Airways Chief Executive Willie Walsh has attacked the EU as "naive" for granting the U.S. free access to Heathrow before securing more access to the U.S. market. Mr. Walsh called the pact "a missed opportunity" and pressed U.K. and EU officials to extract more from the U.S. in a second phase of deregulation talks, set to start within months.
The rights necessary to land at and depart from congested Heathrow at a specific time -- called "slots" -- are also expensive and difficult to obtain, costing as much as $25 million each. Nonetheless, Delta plans to offer service to Heathrow from March 2008. "It's all a matter of price," Mr. Whitehurst said.
Pact Ushers In Competitive Skies
[FONT=Times New Roman,Times,Serif]U.S.-EU Accord Invites
Mergers and Lower Fares;
Charting Winners, Losers[/FONT]
[FONT=times new roman,times,serif][FONT=times new roman,times,serif]By DANIEL MICHAELS
March 23, 2007; Page A3[/FONT]
[/FONT]
Under the new "open skies" pact deregulating air travel between the U.S. and the European Union, Continental Airlines Inc., Delta Air Lines Inc. and Northwest Airlines Corp. get potentially lucrative new trans-Atlantic access, while AMR Corp.'s American Airlines, British Airways PLC and ailing Alitalia SpA are likely to face intensifying competition.
The approval of the deal by transportation ministers of the 27 EU states will have broad ramifications for air travel between the world's busiest aviation markets -- immediately opening the door to greater competition, lower fares and new services. In the longer term, the agreement also promises to fundamentally change the way airlines are regulated and encourages European airlines to more aggressively compete in each other's home markets. It also raises the possibility of a wave of international airline mergers that are prohibitively difficult, though restrictions over foreign control of U.S. airlines remain.
Continental, Delta and Northwest will for the first time have the right to serve London's popular but restricted Heathrow Airport. Ireland's Aer Lingus Group PLC and British Midland Airways Ltd. also stand to win big because of the new freedom they will have serving the U.S. market.
"This offers better access to the most important European market," London, said Jim Whitehurst, Delta's chief operating officer. "The new competition should lead to a substantial reduction in ticket prices, and that's good from a customer's perspective."
British Airways and American Airlines will be forced to battle increased competition at Heathrow. Italy's Alitalia could face an invasion of better-run rivals in its rich home market.
The outcome had faced some uncertainty; British authorities were hesitating because the deal allows increased competition at Heathrow, which is already operating near capacity. Italy also balked, fearing the deal could upset its privatization of Alitalia. Both countries ended up endorsing the agreement after winning a five-month delay in its implementation, which will now be March 30, 2008 -- after the opening of a large new terminal at Heathrow and Italy's target date for selling Alitalia.
The deal doesn't need U.S. congressional approval, and President Bush has already given his support. U.S. and EU officials expect to sign the pact at a summit in Washington on April 30.
Under the agreement, any European carrier will be allowed to fly to any city in the U.S., and U.S. carriers will be granted access to all airports in the EU. Until now, permission to fly was granted on a bilateral basis between individual countries. Rules dating to the 1940s largely prohibited a carrier from one country from selling tickets on flights between two other countries.
World Photo British Transport Secretary Douglas Alexander ... spoke with EU Commissioner for Transport Jacques Barrot during Thursday's meeting of transport ministers. Some carriers have already signaled they hope to capitalize quickly on the new rights. Britain's Virgin Atlantic Airways Ltd. recently said it would consider launching services to the U.S. from other European countries, competing directly with local carriers. Continental says it is seeking "blanket open skies authority," to operate in all European Union countries. U.S. cargo giants FedEx Corp. and United Parcel Service Inc. also stand to gain from the new freedom to fly freight between European airports.
UAL Corp.'s United Airlines, which sold its New York-to-London route to Delta last year, said it hopes to boost service to Europe via its hubs in Chicago, Washington, Denver and Los Angeles. "Now we can fly to whatever cities we want," said United senior vice president Michael Whitaker.
Over the long term, the biggest fallout could come from European carriers being allowed to much more aggressively compete with each other in Europe -- threatening financially weaker national carriers in large markets such as Italy, Greece, Poland and Scandinavia.
Analysts say the competition could come even sooner through the world's three airline alliances: Star Alliance, SkyTeam and oneworld. Within these groups, one airline can put its customers on a partner's plane, allowing fliers to buy tickets more easily on many routes. Today, for example, Northwest Airlines can fly between its Detroit hub and Amsterdam not only with its own passengers, but also fliers who have bought tickets through KLM. Starting next year, KLM will have the right to sell seats on Northwest flights between the U.S. and destinations all across Europe -- not just Amsterdam. Officials from the two carriers said they would consider doing this, but announced no specific plans.
American said the accord opens more opportunity to work with marketing partner British Airways through the oneworld alliance. But Chief Executive Gerard Arpey also recently conceded that having more airlines flying into Heathrow "by definition is not good for us."
The new deal also relaxes aviation rules requiring that a carrier from any country be owned and controlled by citizens of only that country, a stipulation that impeded cross-border airline mergers. Under the new agreement, the U.S. will treat the EU as if it were one country. One immediate beneficiary of the change will be Air France-KLM, which has faced lingering regulatory uncertainty over Air France's 2003 acquisition of KLM.
British Airways Chief Executive Willie Walsh has attacked the EU as "naive" for granting the U.S. free access to Heathrow before securing more access to the U.S. market. Mr. Walsh called the pact "a missed opportunity" and pressed U.K. and EU officials to extract more from the U.S. in a second phase of deregulation talks, set to start within months.
The rights necessary to land at and depart from congested Heathrow at a specific time -- called "slots" -- are also expensive and difficult to obtain, costing as much as $25 million each. Nonetheless, Delta plans to offer service to Heathrow from March 2008. "It's all a matter of price," Mr. Whitehurst said.
[FONT=times new roman,times,serif]--Paulo Prada, Melanie Trottman and William Echikson contributed to this article[/FONT]
Write to Daniel Michaels at [email protected]6
