The skies above us have never been so open, or so scrutinized. With the pending debut of the Open Skies agreement, between the United States and the European Union, at the end of the month, most onlookers are optimistic that completely deregulated international travel between the continents will offer more options to groups and, perhaps, lower prices.

"Open Skies means airlines are free to fly as much as, and wherever, they want," said Pat Murphy, partner at Gerchick-Murphy, a Washington,DC-based aviation consulting firm. "I think the long-term effect will be all kinds of new services, competition, and consolidation. The consequences are going to be pretty interesting and positive for the consumer."

The Open Skies agreement essentially eliminates the restrictions on which carriers could fly to other countries. Open Skies means any European Union-based carrier will be able to fly passengers to any American city and vice versa.

"For middle-sized cities, it will be beneficial," said Tim Punke, a partner with Monument Policy Group, in Washington, DC, and a consultant to the National Business Travel Association. "It has been very easy to go from New York to Europe, but for smaller cities, this will change the view of flying from those points to the continent."

Some European carriers already have moved to take advantage of the new agreement. In January, British Airways announced a new subsidiary, to debut in June, that will fly between New York and either Brussels or Paris. Further, British Airways' plans include flights between several U.S. cities and Amsterdam, Frankfurt, Madrid, and Milan.

Meanwhile, European low-fare carrier Ryanair has said it intends to start flying to the United States, with service to such cities as Baltimore and Providence, RI. On the U.S. side, low-fare carrier Southwest is looking at European service, which may open up international flights to and from many secondary U.S. cities.

Elimination of Restrictions
Now, eyes are focused on the next stage, which could open competition within domestic air routes.

"Stage-two Open Skies discussions, to begin shortly, will entail unlimited flying within other countries," said Murphy. "That's currently illegal, but with a stroke of the pen, you could have, for example, British Airways flying between New York and Washington, DC. It will be more competitive than ever before."

Planners—especially those with international business—seem happy with the pending options.

"Nothing pleases me more," said Audrey Bird, president of International Meeting Planners, in Naples, FL, who views the increased competition afforded by Open Skies as a force to drive airfares downward. "It's been just awful in the last couple of years to get decent airfares."

While there have been many other open-skies agreements signed between the United States and individual countries—almost 90 at last count, with the most recent between the country and Australia—the one with the EU about to go into effect promises to impact internationally bound groups the most.

"New routes will appear on both sides of the pond, giving travelers destination opportunities they haven't had before," said Scott West, senior manager of travel with event marketing agency George P. Johnson Co. "Airline code-shares, potential new alliances, and new startups may enable this even further. Airline competition may foster more competitive fares."

To take advantage of the new world of unregulated international travel, West recommended that planners and corporate travel managers negotiate with as many carriers as possible, include those airlines' code-share partners in the negotiations, and keep up to date with new routes and new carriers.

Possible Mergers and Complications
Connected with increased air-carrier globalization, however, is airline consolidation. Some of it is being spurred by Open Skies, as airlines jockey for global advantage. But it's also being inspired by the state of the airline industry itself and the difficulty airlines are having in sustaining profitability.

At press time, Delta Air Lines and Northwest Airlines were inching closer to a merger agreement that would create the world's largest air carrier. Continental
Airlines, meanwhile, is discussing merging with either United Airlines or American Airlines.

The five carriers control the bulk of the domestic U.S. market. Even as the continued appeal of lowfare carriers such as Southwest and JetBlue increases domestic competitiveness, some say mergers among the big network carriers could result in the loss of domestic flights and an increase in fares.

Open Skies also promises to foster acquisitions by the biggest
European airlines—mainly Lufthansa, British Airways, and Air France/KLM—which may gobble up smaller carriers to enhance their expanded international presence.

Thus, while Open Skies may increase competition by adding carriers to the mix, consolidation—putting routes in the hands of fewer mega-airline carriers—looms as a worry for meetings and business travel pros.

In a January survey of corporate travel managers conducted by the Business Travel Coalition, almost 75 percent of respondents said they expect higher fares if airline mergers go forward, and more than half said service would probably decline. Last year, political pressure, driven by fears of anti-competitiveness, helped stave off a US Airways takeover of Delta.

"Yes, mergers are a concern," said meeting planner Bird. "There could be negatives."

While the impact of airline deregulation, which began in the late 1970s, is still being sorted out, Open Skies—the latest and perhaps most dramatic chapter in this story—has most observers optimistic about the air-travel industry.

"If we're just looking at the U.S., and worrying about X or Y airlines, then yes, one could worry," said Punke. "But the reality is that it's a global market now."



Originally published March 10, 2008

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