Beginning of the end for rigged aviation markets?

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).

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