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Eos and Maxjet have kicked the proverbial bucket, but the all-business carrier concept isn’t quite dead yet. Silverjet found new life by getting a cash infusion, a promise of more cash, and possibly even a bidding war/buyout offer. Huzzah for them!

But the other remaining trans-Atlantic airline, L’Avion, has figured that it can survive by partnering with others. And it’s linking up with another new airline — the British Airlines subsidiary OpenSkies, which launches flights from Paris (Orly) to New York (JFK) on June 19.

L’Avion will codeshare the OpenSkies flight, but not the other way around, at least for now. L’Avion flies all-business class from Newark to Paris, while OpenSkies flies a plane with business, premium economy, and economy from JFK to Paris. L’Avion’s seats are all forward-facing cradle seats (not lie-flat) while OpenSkies has alternating front-and-rear facing 180-degree lie flat business seats.

For L’Avion’s survival, getting a codeshare with a British Airways subsidiary seems like a smart move. I’m still not sure how they can afford to sell tickets for under $1500 round trip in business class and survive long-term, but the new codeshare may have thrown them a lifeline for the short term.

The European-American open skies treaty was signed today. Assuming the U.S. Senate ratifies it (as expected), the deal goes into effect in March 2008.

The big news is that American airlines can fly into any European city, and vice versa. Plus, American airlines can fly passengers between countries within Europe. European airlines can’t fly domestically within the U.S., so you won’t see Air France or Lufthansa flying from Orlando to Memphis.

Overall, this deal should lead to greater competition and lower prices. That’s good!

But… the devil is in the details. As the treaty is written, there are some concerns, as Ed Hasbrouck points out:

The “Open Skies” agreement [Article 8, Section 3] requires compliance with all “recommended practices” of the International Civil Aviation Organization (ICAO). By making ICAO recommendations mandatory, the “Open Skies” agreement effectively delegates to ICAO the legislative power of the E.U. and the US. This is especially problematic because national delegations to ICAO have never included data protection, civil liberties, or human rights authorities.

Less legalese translation: An unelected international organization can dictate the aviation policy (including aviation security policy) of the US and the EU.

Governments ceding some of their sovereign authority to international organizations isn’t anything new. But considering how much importance security issues have in the American consciousness, it’s startling that our leaders were willing to hand off so much authority.

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The proposed “open skies” treaty between the European Union and the United States moved a big step forward today when the EU transportation ministers voted unanimously in favor of the agreement. The treaty now goes to the US Congress.

So, if this passes (a big if), what’s in it for you? I gave an analysis earlier, in the pre-game show, so to speak, here.

Short version: More point-to-point routes and competition on trans-Atlantic routes: good! The possibility of international airline mergers: mixed, probably bad. Net effect: still good!

London Heathrow remains a big sticking point. Within seconds of the EU passing the treaty, Continental filed an application to fly to Heathrow. We’ll see if they can find room for more airlines at that already-overcrowded airport.

The other big sticking point is an American change in airline ownership rules. If the treaty passes, foreigners will be allowed to own a majority in American airlines — as long as the voting stake doesn’t exceed 25%. Expect an eventual trans-Atlantic merger.

The deal heads to Congress. I hope they pass it, and that the treaty signing ceremony on April 30 goes on as planned. If you care about this sort of thing, one way or the other, write your senators.

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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

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

The proposed open skies treaty between the United States and the European Union (earlier commentary here and here) suffered another setback last week, when the US Department of Transportation restated its proposed rules for foreign ownership of US-based airlines. At present, non-US individuals or entities can hold no more than 25% of the voting stock of America’s airlines; the EU wants the US to raise that number to 49% — the same limit that Europe mandates for its own airlines.

Though technically separate issues, the open skies treaty and the foreign ownership rule are intimately linked in negotiations, ostensibly for “security reasons”:

“Open skies” discussions between the European Union and the United States have stumbled over U.S. concerns that the new regulations would allow European airlines to play a greater role in the management of U.S. carriers. Because of domestic opposition, it was reported this week that the United States has decided to delay the new rules. As a result, a European Union spokesman said, the EU will not move forward this year with an agreement.

Any eventual agreement would open the skies no earlier than summer 2007.

The latest rules go a step further than the existing restrictions. They specifically state that American airline shareholders or boardmembers must have veto power over foreigners: International investors’ purchases would buy them equity, but not control, as they would have no voice if the Americans on the board objected.

Feel safer, knowing these rules are in place? Maybe we should extend the same rules to banks, car makers, and insurance underwriters, whose products could presumably have security ramifications as well. Let’s build a moat while we’re at it.

This is economic nationalism at its finest, and it’s probably unworkable in practice. Will every corporate decision be subject to USDOT regulation in light of these new rules? If an airline makes any change, must they demonstrate that an American made the decision? Ridiculous.

Caught in the crossfire is Virgin America, the proposed San Francisco-based discount carrier. Some controversy (and delay in license approval) has emerged over whether the new airline is owned or controlled by the Virgin mothership and its headstrong helmsman Richard Branson, in violation of existing USDOT rules. (Incidentally, Virgin America’s chairman is Canadian-born (gasp!!) Donald Carty, former head of AMR Corporation (American Airlines).) Even California’s Governator, Arnold Schwarzenegger, is getting into the game, lobbying the federal government to approve the Virgin America application.

Once again, nationalist bluster and the security canard are getting in the way of reason — and lower fares.

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tags: travel | air travel | open skies | regulation | economic nationalism | security

“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