New Treaty Opens Trans-Atlantic Air Routes

More services from more cities may bring lower airfares.

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LONDON— When Air France Flight 60 from London's Heathrow Airport touches down at Los Angeles International Airport on March 31, after an 11-hour, nonstop flight, it will be taking part in commercial aviation history—as will some other trans-Atlantic services starting that day.

For decades the Heathrow-L.A. route, like many other existing or potential trans-Atlantic services, has been legally off limits to Air France and most other global airlines. That's changing, thanks to the new Open Skies treaty between the U.S. and the European Union, which liberalizes air traffic within the world's busiest and most lucrative international skyway.

The treaty will allow U.S. and European carriers to fly from any European country to any American destination. Significantly, it will open up Heathrow, Europe's most-used, best-connected hub. Currently, only two U.S. airlines—American and United—and two British ones—British Airlines and Virgin Atlantic—can operate in and out of Heathrow.

Competition to take advantage of the changes wrought by Open Skies is already ratcheting up. Delta Air Lines, for example, will start service between Heathrow and New York's JFK, while Northwest Airlines will offer flights linking Heathrow to Detroit, Seattle, and Minneapolis. BA, meanwhile, is launching a subsidiary it's cheekily calling Open Skies that will start flying in June from either Paris or Brussels to New York and eventually include other top European business destinations, including Madrid, Frankfurt, and Zurich.

Analysts expect the increased competition will result in some cheaper fares, at least in the short term. "Consumers will benefit from this agreement," says Bernard Jacobs, an aviation industry analyst in the Netherlands.

Bargain fares, coupled with the weak dollar, could also bring more European tourists flocking to the United States. Patrick Murphy, cohead of industry consultants Gerchick-Murphy Associates, says that Europeans are already making quick shopping excursions to New York. "Now they'll probably be looking at shopping trips to other cities, too." Some second-tier American cities could benefit, especially if they're underserved tourist destinations, like Las Vegas.

In Europe, the accord could see airlines establishing trans-Atlantic ports in smaller cities, like Stuttgart, Germany, and Bristol, England, and offering nonstop service from former eastern bloc countries like Romania and Bulgaria.

Murphy also expects the treaty will result in more mergers, like Delta's pending takeover of Northwest. Consolidation could, of course, eventually provide cover for fare increases. But the treaty has also persuaded low-cost airlines, like Ireland's Ryanair, to eventually start services to the United States, too. "And they'll help keep price discipline," Murphy insists.

Budget carriers—which typically rely on a business model of quick-turnaround, short-haul flights—may, however, find the transition to one trip-a-day trans-Atlantic routes a bumpy one. They'll have to figure out new ways to cut costs, a task complicated by rising fuel prices. Major carriers will instead focus on premium-paying business fliers. When BA start-up Open Skies begins flying, only 30 of the 82 seats on its 757s will be economy priced.

American carriers face some disadvantages in the race to benefit from Open Skies. Their fleets tend to be older, thus less fuel efficient and more expensive to operate, and lack of cash could make it harder for them to scoop up slots at Heathrow. A pair of prime-time Heathrow slots now costs more than $60 million, according to the Financial Times. But U.S. airlines have one lucrative advantage: They can fly connecting flights from European destinations to other European cities or on to Asia and the Mideast. European carriers, however, cannot operate domestic flights within the United States.

Murphy expects airlines will discover and exploit all sorts of market opportunities that don't exist today, once they adjust to the new regime. "Over time," he says, "it [the treaty] is going to have some very significant effects—good things will happen."