Global business expert assesses the Open Skies agreement

University Park, Pa. -- Flying across the Atlantic Ocean may become a lot faster and cheaper soon. On March 30, the Open Skies Plus air transport agreement went into effect, ending many restrictions on airlines from the United States and the European Union.

For decades, direct trans-Atlantic flights between U.S. and European cities were heavily regulated. The Open Skies agreement will make it possible for more nonstop flights between the two continents and Great Britain.

The E.U. Transport Council and the U.S. Department of State's Bureau of Economic, Energy and Business Affairs first entered into the provisional Open Skies agreement in March 2008 after many years of negotiation. The next round of talks between the European Union and the United States on this issue -- which may include further loosening of restrictions -- is scheduled for May.

Fariborz Ghadar, director of the Center for Global Business Studies at Penn State's Smeal College of Business and Schreyer professor of global management, policies and planning, explained that recent airline consolidations have opened up the opportunity to deregulate the amount of flights across the Atlantic.

"Now the regulations say you can fly from just about anywhere, to anywhere. Airlines aren't so restricted to particular hubs anymore. As long as there is a slot for a plane and schedules allow it, airlines can go wherever they want," said Ghadar. 

He said despite this, slots at London's Heathrow Airport have been more or less restricted to Virgin Atlantic and British Airways, as well as domestic carriers United and American, but with the recent opening of a new terminal there, other companies, such as Delta Airlines, will soon be flying into the world's busiest hub.

As a result of increased competition for airline passengers from both continents, Ghadar said airfares might go down, especially where there are direct flights to popular destinations with several airlines vying for business. However, if there isn’t enough traffic in certain areas -- for instance, smaller regional airports like University Park Airport -- he said prices will be just as costly as they are now.

On that same note, Ghadar said this summer could bring about new flight destinations if there is enough demand. For instance, rather than flying from New York to London, then catching another flight to Nice, France, travelers could see more direct flights if people request them frequently and consistently. This, he said, will be slower in coming than most people think, however, since airlines will first watch for popular travel patterns.

Despite what seem to be obvious benefits of the Open Skies agreement, Ghadar said one problem with it is that talks on opening airlines to foreign investors failed, with U.S. government officials opposed to the idea. Under U.S. regulations, foreigners may not own more than 25 percent of a domestic airline.

Historically, the government has maintained that certain key industries -- like telecommunications -- should have some governmental control without the possibility of foreigners buying a majority stake in them, Ghadar explained. The airline industry is one of those, but people have started questioning whether this regulation should be removed for strategic reasons.

"If we are two different entities and you have a slot in your terminal, I have to schmooze with you to use your slot," Ghadar said. "But if you were a part of my corporation, it wouldn't be necessary. It makes sense to do that, to make it easier for the airlines."

Since the 1990s the U.S. has made Open Skies agreements with several countries. The addition of E.U. nations brings the total number of countries with agreements to 91. (For a list of nations go to http://www.state.gov/e/eeb/rls/othr/2008/22281.htm. For highlights of Open Skies agreements, visit http://www.state.gov/e/eeb/rls/fs/2006/208.htm.)

For more information about the U.S.-EU Air Transport Agreement: Open Skies Plus, visit http://www.state.gov/e/eeb/rls/fs/2007/81644.htm
 

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Last Updated March 19, 2009