After months of impasse, the European Union and the United States have announced a tentative agreement on their proposed so-called open-skies treaty. Details are not yet fully released, but some key points are leaked:
The agreement, announced by the Transportation Department, would allow European airlines to fly from anywhere in the EU to any point in the U.S., and vice versa. For example, it would end restrictions on the number of airlines allowed to fly between the U.S. and London’s Heathrow Airport, one of the world’s busiest. Only four carriers — United Airlines, American Airlines, British Airways and Virgin Atlantic — now serve that market.
Putting aside the scheduling nightmare of adding more flights to Heathrow, this sounds like a good step for consumers. More competition, more point-to-point flights, and quite likely lower prices. Sounds good, right? But that’s not where the story ends.
In the past, an open skies deal was stymied by parallel negotiations over airline ownership.:
Another key aspect of the deal, described by a U.S. government official who spoke on condition of anonymity, would enable European companies to own as much as 49.9% — and in some circumstances, more than 50% — of U.S. airlines, up from the current 25% limit. Yet another provision could help Richard Branson’s Virgin Group Ltd. gain regulatory approval needed to launch a U.S. subsidiary, Virgin America Inc.
Virgin America must be fuming at that phrasing — “U.S. subsidiary” — considering their arguments that they’re as American as curly fries and NASCAR. But if it keeps them in business, they may wince, but accept it.
More importantly, this is a significant shift in U.S. policy, if it’s passed. (Congress would still need to ratify such a treaty, and that’s not guaranteed.)
Changed ownership rules are a double-edged sword. In principle, I’ve argued repeatedly that specific bans against foreign ownership are misguided patriotism, and that arbitrary rules like that keep valuable foreign capital out of American aviation.
On the other hand, the proposed open-skies treaty apparently makes it possible for trans-Atlantic mega-mergers, and outright mergers are rarely pro-consumer, since they tend reduce services and raise prices.
But trans-Atlantic mergers might be different: Yes, there might be service reductions and price hikes on the international routes, but the domestic markets on either side wouldn’t be affected much.
Besides, mergers need to be reviewed by federal regulators, regardless of whether they’re between domestic players or between a foreign company and a domestic one. So there’s — at least theoretically — an escape hatch if a merger looks likely to hurt consumers.
So, while the devil is in the details, I’m hoping that this treaty works out. Am I missing something? Hit the comments.
Related:
- Will foreign ownership of airlines mean lower prices?
- More on open skies
- Are open skies dirty skies?
- US-EU open skies treaty dead in the water, so to speak