Passengers may benefit from the competition, but carriers take aim at open skies agreement which gives foreign airlines access to lucrative international routes to/from U.S.
Why should travelers care about the confounding complexities in the debate over international aviation accords known as open skies agreements?
In a word, competition.
In the domestic air travel market, competition has been sharply curtailed in the last decade as U.S. airlines went out of business or merged. That has led to a reduction in domestic routes serving smaller markets that do not feed robust revenue into an area where the major airlines are intensely focused: lucrative international flying. Yet on the expanding international routes, which transported more than half the total 3 billion passengers around the world last year, competition is generally intensifying.
That’s good for travelers looking for more choices and better fares. It’s not so good for domestic airlines feeling increased competition from foreign carriers that are aggressively expanding their service to and from the United States.
Foreign carriers expanding
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Last year, domestic airlines flew about 82.9 million passengers on international trips from cities in the United States — but foreign carriers also accounted for a big chunk of international flying from the United States, about 71.9 million passengers, according to Transportation Department data. Claiming that some foreign carriers have unfair competitive advantages, United States-based airlines have been lobbying for new restrictions on open skies agreements, which have opened the world’s skies to carriers from the United States, but also enabled many foreign airlines — from the highflying Dubai-based Emirates to the hard-charging low-cost carrier Norwegian Air — to make extensive inroads here on their own.
For example, Emirates — highly regarded by business travelers for its luxury premium cabins — introduced nonstop service between New York and Dubai in 2004, and has since added eight more American cities (including Seattle).
On the other end of the scale, Norwegian Air, the third-largest low-fare airline in Europe, now flies to and from New York; Los Angeles and Oakland, California; and Orlando and Fort Lauderdale, Florida. The airline is planning to expand with its fleet of sleek new Boeing 787 Dreamliner airliners.
There are numerous other examples of foreign carriers claiming shares of the international market, over and above those that operate in formal alliances and code-share partnerships with domestic carriers.
The three major domestic carriers that have extensive international networks and alliances with international partners are American Airlines, United Airlines and Delta Air Lines. It isn’t clear how far they might get in seeking new restrictions on foreign airlines that they say pose unfair competition in violation of open skies criteria, something Emirates and other foreign carriers deny.
But as the industry trade group Airlines for America puts it, “U.S. airlines are increasingly competing with foreign carriers who are subject to more favorable tax, regulatory and infrastructure environments.” Pointedly, its statement adds: “Unlike foreign carriers, U.S. airlines serve small, rural and other nonhub communities throughout the country. More profitable international operations enable domestic carriers to provide service to less profitable small and rural markets.”
Travelers push back
There is consumer pushback against the major domestic airlines’ initiatives, of course. Carriers in the United States have gained antitrust immunity on alliances and other route and marketing agreements they share with select foreign partners, said Kevin Mitchell, the chairman of the Business Travel Coalition, which promotes the interests of corporate travel managers. With that gained, he said, domestic airlines want to limit competition from foreign carriers.
We’ll be hearing a lot more this year from the American airline industry, its foreign competitors and business-travel consumer interests, as domestic carriers push harder for government intervention in unwanted foreign expansions. In recent years, domestic airlines and their foreign partners have prided themselves on what they call “capacity discipline” — keeping supply and demand in balance to maintain fare levels, using skillfully calibrated international strategies.
For this quarter, American Airlines, concerned about possible oversupply from increased competition over the Atlantic, reduced its trans-Atlantic capacity by 8 percent. And in a conference call with stock market analysts last month, United’s chief executive, Jeffery A. Smisek, replied to a question about capacity with a dig at foreign competitors’ expansion tactics: “Well, I do think that the capacity discipline that has been shown by U.S. carriers is not necessarily shown by international carriers.”
Whatever the modifications being debated, open skies agreements are crucial to U.S. international economic interests, said Charles H. Rivkin, an assistant secretary of state who heads the State Department’s Bureau of Economic and Business Affairs. Since 1992, the United States has negotiated 114 open skies agreements.
“Before open skies began to liberalize international aviation, airports like Dallas-Fort Worth, Detroit, Las Vegas, Minneapolis, had no direct international connections,” said Rivkin, a former U.S. ambassador to France. Cities where open skies agreements have made direct international service possible all report significant economic benefits in visitor revenue and local jobs, including from cargo transport, he said.
What about domestic carriers’ assertions that some foreign airlines are propped up with anticompetitive subsidies?
“These open skies agreements call for fair and equal competition, and we are working to defend that provision,” he said. “So to the extent that there are subsidies, they should be concerned.
“But these are discussions that we have all the time with the industry, and we are there to support fair and equal competition — a level playing field for all, which is the essence of open skies. Obviously we will respond to any information that we receive that runs counter to our obligation to support fair and equal competition.”