News The Sky’s the Limit – the impact of deregulation

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The Sky’s the Limit – the impact of deregulation

negotiators from the European Commission and the United States, reached agreement on a new “Open Skies” policy

In March 2007, negotiators from the European Commission and the United States, reached agreement on a new “Open Skies” policy to be implemented in March 2008 which will mean that “every US carrier can fly to every city in the European Union and every EU carrier can fly to every city in the United states.” 1

This agreement replaces the Bermuda II agreement of 1977 which saw heavy restrictions placed upon the lucrative routes between the US and Europe with only a limited number of carriers able to fly to and from North America.

Analysts in Brussels say that the proposed deal will raise transatlantic passenger numbers by 26 million over the next five years (this translates to a 10 per cent rise in passenger numbers). Additionally, it is suggested that the agreement will create 80,000 jobs in the United States and Europe and create €12bn (£8.1bn) of economic benefits.

As passengers, we are certainly going to benefit from the increased numbers of flights available to us. The low-cost airlines will be keen to get in on the action and this will mean associated low-cost transatlantic prices. Leisure passengers are very price- sensitive and as more seats become available on these routes, it is assumed that ticket prices will fall as demand increases. Business passengers meanwhile value frequency of service and as the number of transatlantic services increase, so this too should drive down the cost of the business fare.

Additionally, we will have a far greater choice of destination airports available to us. Rather than being limited to direct flights to large hubs such as Chicago, JFK in New York and Los Angeles, we will have the opportunity to fly to and from smaller airports on either side of the Atlantic.

Nor is it just the customer who will benefit from this new agreement. The Civil Aviation Authority (CAA) has modelled the impact of such an agreement and predicts that under the Open Skies scenario, “airlines benefit from cost reductions of between 3 and 6 per cent due to the increased competitiveness of the market” and also that the “possibility of mergers between EU carriers is assumed to reduce their costs by up to 2 per cent over the first five years of the agreements.” 2

It seems as though everybody is a winner but is this necessarily the case? Whilst some welcome the changes, there are many who feel that this liberalisation of a market-area, encompassing 60 per cent of global civil aviation traffic, can only spell trouble.

The big concern for many is the environmental impact. Airline travel is the fastest-growing factor in human-induced global warming.3 It is estimated, that by 2012, emission levels from EU flights will have increased by 150 per cent from 1990 levels. This seems to stand in stark contrast to pledges made by EU leaders just weeks before the Open Skies agreement was reached, where they stated their intentions for a 20 per cent reduction in greenhouse emissions by 2020.

Nor is it just chemical pollution issues. With an increase in the number of flights, people living close to airports will suffer from more sustained levels of noise as airport expansion is required to cope with the rise in the volume of traffic.

If the predicted rise in passenger numbers is accurate, the airport authorities in Europe and the United States are going to have to radically overhaul airport and security procedures to facilitate the movement of people through the airports. It could be argued that this is no bad thing given the chaos at many of our airports at the moment, but is it realistic to expect these changes to be implemented in less than a year given the nature of travel in today’s socio-political climate?

In principal, the idea of cheap, direct flights from Europe to cities all over the US is appealing. The exchange rate is very favourable for Europeans and an eight-hour flight for a long weekend of shopping is a manageable option for many people. Additionally, airlines are increasingly aware of the environmental impact of their business and new technologies are constantly being developed to reduce the output of noise and emissions. A major issue however, is that a fast rise in the number of passengers and flights does not necessarily mean a rapid, improvement in airport security, procedures and infrastructure.

1 Rice, Condoleeza – Press release – EU website
2 EU/US: CAA’s Analysis of the benfits
3 Though the Stern Report (2006) suggests airlines are responsible for just 1.62% of all greenhouse emissions globally