The Sky's the Limit

Since deregulation of the airline industry in the late 1970s, the European Union's member states have maintained a complicated patchwork of bilateral deals with the United States on airline routes and fares.

Lufthansa, for instance, is the only European airline allowed to fly from Germany to the US, preventing other EU carriers from competing on the Frankfurt-New York route, while only four airlines are permitted to fly between London's Heathrow and US airports.

But that's likely to change when European transport ministers vote on a groundbreaking transatlantic pact in the course of a two-day meeting that starts Thursday.

Lower fares through increased competition

Under the new "open skies" agreement, Washington will treat all 27 EU nations as one entity, meaning that any EU airline can fly from any point in the bloc to any destination in the United States, while American airlines will be able to fly to the EU location of their choice.

"The impact of open skies is that the industry will become more competitive and the cost savings they achieve will be passed on to the consumer, putting a downward pressure on airfares, especially in business and first class," said Dorothy Robyn, a Washington DC economist who handled aviation policy in the Clinton administration.

The main beneficiaries of the deal will be European airlines that are currently subject to restricted bilateral deals with Washington, such as Aer Lingus. The Irish airline is only allowed to fly to four US cities under current conditions, but -- like all the EU's airlines -- could soon offer flights to many more American destinations.

Britain opposed to deal

Almost all EU members are expected to vote for the open skies pact. The UK is the one exception. Experts said it's defending its flagship carrier, British Airways (BA).

BA is attempting to protect a near monopoly on lucrative flights from Heathrow to the United States. Under an antiquated bilateral accord, BA shares the route with only three other airlines: Virgin, American and United.

Since flights between the US and Britain account for 40 percent of all transatlantic traffic -- with the bulk of passengers traveling through Heathrow -- other airlines are vying to break up the quartet's stranglehold on Heathrow's transatlantic landing slots.

"The single biggest benefit is the ability of more airlines to fly into (London's) Heathrow airport," Robyn said.

Industry analysts, however, said the chances of Britain exercising its veto power are slim.

"The UK government is under huge pressure to accept the agreement, as imperfect as it may be," said Stephen Furlong, an airline analyst at Davy Direct. "It's BA and Virgin against the world."

But on Tuesday, Virgin, Britain's second largest airline, turned around its opposition to the open skies plans and announced that it was looking into offering direct flights from Frankfurt, Paris, Zurich, Milan and Amsterdam to New York, something it would not have been able to do under the old bilateral accords.

Imperfect, but consumers still benefit

British Airways has also advanced the argument that the deal is unfair to the Europeans, since EU airlines won't have the right to fly within the US domestic market, while American carriers would acquire a blanket right to carry passengers inside of the 27-member bloc.

Furlong added that even though the pact was lopsided in favor of the US and did not go far enough, lower airfares and a greater choice of destinations were likely to be in store for European consumers.

Continental Airlines, which favors the open skies treaty, said it would apply for blanket authority to serve destinations in all EU countries.

"Our strategy is to offer direct, point-to-point flights from European destinations into our Newark hub that are not served by the others," said the airline's European spokesman, Nick Britton.

Still, Furlong warned airline passengers not to expect too much from the deal, though he said it was a positive step.

"There won't be a quantum leap in air travel, but we're looking at incremental growth for sure," he said. "We'll see more competition in the premium markets (routes such as New York- Frankfurt or Los Angeles-London), which will drive down fares, but also more direct, non-stop flights for secondary markets where demand is strong."