Peter Gallagher

Don’t bet on it. The ‘open skies’ agree­ment now being nego­ti­ated between the USA and the EU is not as big a break­through as the boost­ers say. ‘Open skies’ agree­ments don’t nec­es­sar­ily give for­eign air­lines access to domes­tic avi­a­tion mar­kets or to ‘cab­o­tage’ between domes­tic des­ti­na­tions in each oth­ers’ mar­kets. This is not, unfor­tu­nately, a step toward the cre­ation of a global avi­a­tion mar­ket but just another step in the aggre­ga­tion of big­ger bilat­eral deals.

The Finan­cial Times cor­re­spon­dent offers a breath­tak­ing prospect:

“Such a deal could break the log jam block­ing the con­sol­i­da­tion of the global avi­a­tion indus­try, which has lagged far behind other sec­tors from telecom­mu­ni­ca­tions to cars and phar­ma­ceu­ti­cals in the pace of merg­ers and acqui­si­tions. Con­tro­ver­sially for the UK a US/EU deal would also open up Lon­don Heathrow to more com­pe­ti­tion.”(FT)

But the real­ity is more mun­dane. Although the term “Open skies” is a tri­umph of mar­ket­ing spin, such agree­ments are to avi­a­tion ser­vices what ‘hub and spoke’ free-trade agree­ments are to mer­chan­dise trade.

They are bilat­eral access agree­ments for the air­lines of two trad­ing part­ners to each other’s exter­nal travel ser­vices mar­ket. They do away with a lot of the mumbo-jumbo of the Inter­na­tional Air Travel Asso­ci­a­tion (IATA) ‘rights’ allo­cated to each car­rier from each point of ori­gin to each des­ti­na­tion. But, typ­i­cally, they don’t open up a com­pet­i­tive mar­ket among all car­ri­ers serv­ing either end of the ‘open skies’ agree­ment and they don’t offer access to domes­tic travel mar­kets or other ‘feeder’ markets.

The EU is now nego­ti­at­ing an ‘open skies’ agree­ment with the USA only because the Euro­pean Court dis­al­lowed the national ‘open skies’ agree­ments reached between the USA and indi­vid­ual mem­ber coun­tries. If the two sides reach agree­ment this will open a seri­ously big market—with greater poten­tial com­pe­ti­tion within Europe for Heathrow (as the FT notes).

A for­mer senior EC offi­cial in charge of avi­a­tion, Fred­erik Sorensen, says – The future of ‘wide open skies’ by Fred­erik Sorensen, For­mer Head of Air Trans­port Pol­icy, Euro­pean Commission.pdf that the EC want’s to go fur­ther in this nego­ti­a­tion, open­ing up access to inter­nal trav­el­ers and domes­tic air­ports. But the USA remains res­olutely opposed to ‘cab­o­tage’, as far as I know.

The com­men­ta­tor with great­est insight into the global avi­a­tion ser­vices issue, in my view, is Prof Christo­pher Find­lay at the Aus­tralian National Uni­ver­sity. If you’re inter­ested in this ‘open skies’ issue, read a few of Chris’s papers: par­tic­u­larly his 2003 paper on “Pluri­lat­eral agree­ments on trade in air trans­port ser­vices: the US model” (pdf file, about 100k).