After years of wrangling, European and US negotiators seem to have crafted a deal on transatlantic Open Skies that, while far from perfect, could reshape the air service landscape between the two blocs, and relegate the role of Bermuda to a footnote in aviation history
One of the best known and most beautiful islands in the world is known in the airline business more for its association with a controversial series of inter-governmental pacts than for its attraction as a tourist destination. That island is Bermuda, a small speck of land located in the Atlantic Ocean some 1,770km northeast of Miami.
The meeting that first put this British overseas territory on the map for this industry took place in 1946. UK and US transport officials met under the clear Bermudian skies to negotiate a new deal on air services. The resulting agreement, a highly restrictive one at the insistence of the British negotiators fearful of its carriers being swamped by their US cousins, was the world's first bilateral air services agreement.
Just over 30 years later it was renegotiated, producing the Bermuda II deal in 1977. The most important part of Bermuda II was that it only allowed four airlines from the US and UK to operate between the US and London Heathrow: American and United Airlines, British Airways and Virgin Atlantic.
Now, another 30 years later, Bermuda's accidental role in air transport folklore looks like being assigned to the history books. For, after 11 rounds of talks stretching over several years, negotiators for the European Union and the USA have a draft agreement over a two-stage opening of the market between the two continents. There will be no more bilaterals between the US and individual European states.
If approved, the first stage of Open Skies would come into effect as early as October. The deal, as drafted, does however leave some thorny issues for later. The most prickly of these issues is that of the US limits on ownership and control of its carriers. Foreign nationals can now only own 49% of a US carrier and are limited to 25% of the voting stock.
So what is really at stake as EU-US skies open? The deal is, first and foremost, a hugely significant symbol of aviation liberalisation. The single most important market this deal could open is Heathrow to any US or European carrier wanting to fly across the Atlantic.
Market access is touted as the primary benefit of Transatlantic Open Skies. "We have an opportunity to unlock major benefits on both sides of the Atlantic," says European Transport Commissioner Jacques Barrot.
"In economic terms, this unprecedented agreement would represent a step change - it could be worth up to €12 billion ($16 billion) in economic benefits and up to 80,000 new jobs," says Barrot. There could be 26 million extra passengers on transatlantic flights within five years, he says, compared to just under 50 million today.
But does the mature Europe-US market really have such growth possibilities? The reality is that the transatlantic is already one of the most fiercely competitive long-haul markets in the world. From the European side it is also one of the slowest growing, with Association of European carriers boosting transatlantic traffic by only 2% in January. The picture from the US side is rather different, with the US majors seeing nearly an 11% traffic rise in January. Opening the market is a good thing, but do not expect a release of pent-up demand as seen between say India and the UK when services were liberalised.
For some, an inevitable consequence of this newly liberated market will be airline consolidation and mergers. These will come, but there is no urgency, even in a market seemingly awash with private equity groups eager to buy into airlines. As Jamie Baker, the New York -based executive director and airline analyst at JP Morgan commented recently: "I just feel this is not a real market-moving event for US carriers."
It is among the airline alliances that the opportunities lie. As Jean-Cyril Spinetta and Leo Van Wijk of Air France-KLM noted in the Wall Street Journal: "By enhancing competition, this agreement would allow US and EU antitrust authorities to approve more commercial integration inside alliances." Don't be surprised to see Delta compelling Air France to sacrifice Paris-London Heathrow slots to enable Delta to fly Heathrow-Atlanta, suggests Baker.
So, after so many false starts, Open Skies looks set to become a reality. There are plenty of flaws in the current deal, and risks on the European side that the US side will dawdle on the ownership issue in stage two of this deal. However, finally, there is the very real prospect that Bermuda II can finally be referred to as an aeropolitical curiosity.
Source: Airline Business
