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“Open Skies” agreements are in the news again. How these disputes are resolved may determine the price of future international air travel.

The term “open skies” refers to agreements between governments, allowing international airlines to fly freely to/from the countries in question. Without an open skies agreement, an airline’s decision to fly to/from a given city must be approved by the governments at either end.

In many cases, countries sign bilateral agreements which limit the number of flights between countries, and limiting the companies which are permitted to make the journey. Traffic to and from London’s Heathrow Airport is most famously regulated in this way, allowing for two British and two American carriers only (British Airways, Virgin Atlantic, American, and United).

Open skies presumably bring greater competition and better point-to-point service, thereby lowering costs for travelers. On the other side, airlines that hold exclusive rights to a destination tend to want to keep it that way. (For example, the island of Guam recently petitioned the U.S. Department of Transportation to open the skies, a move which Continental, which operates a hub there, is fighting vigorously.)

Right now, the US and various European Union member states have bilateral agreements in place, but these are technically illegal under EU rules, which require such deals to be made with the EU itself, not with member states. So last November, the US and EU struck a bargain: Open skies between the EU and the US, if the US revises its legal restrictions on foreign ownership of airlines.

This is where the problems arise. The WSJ explains (subscription necessary):

[…] foreigners are banned from owning more than 25% of the voting stock in a U.S. carrier, or 49% of the total stock. The Bush administration and the Europeans would like to raise those caps, but Congress has refused. To get around that, the administration wants to reinterpret a regulation that requires foreigners exercise “no semblance” of control over a U.S. airline. The change would let non-U.S. citizens influence an array of operations, including marketing, routes and types of equipment used. Decisions on safety, security and use of craft to aid the military would remain in U.S. citizens’ hands. The caps on stock ownership wouldn’t change.

With the current political climate opposed to foreign ownership of security-sensitive American assets (such as Dubai’s entry into the seaport management business in the U.S.), protectionist sentiment could break the deal. This would hinder the liberalization of flight routes, potentially propping up prices.

Without open skies, it sounds like we’ll be opening our walllets.

tags: travel | air travel | open skies