A pilot's view of Open Skies

The Open Skies agreement may seem like a sunny proposition, but its repercussions for passengers are not so clear.

We all knew it was coming. In fact, it was signed on April 30, 2007, and became effective on March 30, 2008. Since then, have you noticed any differences in the way airlines operate? It’s probably too early to tell, but I can assure you: Change is on the way.

So what am I talking about? Open Skies—and if you haven’t heard of it, I’ll try to help you understand this historic and very complicated aviation agreement.

After four years of intense negotiations between the United States and the 27 member states of the European Union, the Open Skies agreement was signed. Representing 60 percent of the world’s airline market, this agreement stipulates that any E.U. airline may fly direct to any destination in the United States, with unlimited frequency and without any restriction on fares. Conversely, any U.S. airline may fly into any country in the E.U., then continue to another destination within the E.U., as long as it’s not within the country in which the flight first landed. European carriers are still restricted from flying within the United States, but they will probably gain access in 2010, when the pact will be reopened and liberalized.

The previous bilateral agreement, called Bermuda II, had been in effect since 1977. Bermuda II set rigid rules about which airline from which airport could originate transatlantic flights, and where those flights could terminate. The original players, representing 40 percent of transatlantic traffic, were U.K. airlines British Airways and Virgin Atlantic out of Heathrow (LHR), and United and American Airlines to Heathrow. In addition, the agreement strictly limited companies to a 25 percent stake of foreign ownership in U.S. airlines. These ownership restrictions have now been eased to allow a foreign company to own up to 100 percent of a U.S. company’s non-voting stock, provided the stakeholder doesn’t control more than 25 percent of voting stock. (Voting shares give the shareholder a say in how a company is operated.)

From the passenger’s perspective, this updated pact sounds like a good deal. The agreement is expected to lower airline fares on transatlantic routes, as well as almost triple the number of passengers on those routes over the next five years. On the surface, it looks like a win-win—and in the long run, it may prove to be.
But let’s take a look at some potential drawbacks.

The single biggest problem facing U.S. airlines today, besides the rising cost of jet fuel, is crowded skies. Many would say that our skies are saturated and can’t accept any increase in traffic. As I discussed in a previous column (“A Pilot’s View of Airports,” March 2008), the U.S. hasn’t built any new major airports since Denver International (DIA) in 1994, though the new Indianapolis airport is nearing completion. As a result, we don’t have the capacity to add traffic, unless added international flights are slated to arrive at and depart from smaller regional airports. These connecting flights, however, would cause additional traffic and more delays.

Crowding problems aren’t limited to the United States. A number of European airports face the same challenges as their American counterparts, and they are also constrained by limited open space for expansion. Transatlantic flights need long runways for takeoff because of weighty fuel loads, and most small runways aren’t built for heavier jets. Fortunately, many European cities are connected by a highly efficient rail system, with only short distances between them, which enables some international flights to use the smaller regional airports. While the idea of boarding a train after a transatlantic flight is not ideal, it would help to increase the number of flights to the E.U.

As a pilot for a major international airline, my opinion is less sanguine. Any external influence that reduces airfares is a cause for concern. Airlines are infamous for underpricing their product, and they rarely turn a profit. Governments continually issue certificates of operation to upstart companies who initially have extremely low fixed costs. Honeymoon deals are cut for new jets that require almost no maintenance for the first few years of operation, mostly built by aircraft manufacturers looking to increase their market share. Combine these low fixed costs and add the low salaries of new workers, and you have a recipe for an unsustainable airline. These new entrants piggyback off of an infrastructure financed by the legacy carriers, then force airfares down to ridiculous levels. This drags every other airline down as well, since they must match fares in an effort to protect their business. These upstarts last an average of about five years. Since deregulation in 1978, 160 airlines have filed for bankruptcy. Twenty of those have filed since 2000, and most are now out of business.

Safety is another concern when contemplating the Open Skies agreement. While the majority of E.U. airlines have exemplary safety records, the same cannot be said for airlines elsewhere. This new pact is very likely to be replicated by governments all over the world, which will lead to a host of other problems. Through code-sharing agreements currently in effect, you can purchase a ticket on a major domestic airline for travel all over the planet. While the ticket will show the name of the airline you purchased it from, the actual airline that carries you may be completely different. The Boeing Company conducted a study in 2006 that tabulated commercial jet aircraft accidents worldwide from 1997 through 2006. The results concluded that the accident rate for foreign carriers was six times higher than that of U.S.-and Canada-based airlines.

Competing with airlines from poorer countries, or with countries that receive government subsidies, presents additional financial challenges. Because most passengers simply look for the lowest airfare, those airlines will sometimes be used, regardless of their safety records. As a result of that pricing pressure, foreign flights will be substituted whenever code-sharing is available.

While unbridled competition and access to truly free markets usually lead to the most effective and efficient marketplace, certain restrictions and regulations should stay mandatory in the complicated airline industry. Maintaining control of our airlines not only makes good business sense, but it is also a matter of national security in today’s uncertain world. The health and longevity of the U.S. aviation system depends on safety and security—two critical concepts that should never be negotiated away.
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CHRIS COOKE is a pilot with a major domestic carrier. He can be reached at editor@executivetravelmag.com.