Open Skies Agreement: airline mergers and competitive prices

The new US-European open skies rules, due to take effect in March, will create a major storm for American and worldwide carriers, analyst say. That's the case in part because only a few European airlines and handful US carriers have long dominated transatlantic routes. The agreement will allow any European or US airline to fly any route between any city in the EU and any city in the United States. US airlines will also be given the right to fly between European cities, and EU airlines will be allowed to operate direct flights between the United States and non-EU countries.

Air France-KLM and Delta Airlines have already signed a deal to share costs and revenues on North Atlantic routes. Under the agreement, Air France will give slots at London's Heathrow airport to Delta to use for flights to Atlanta and New York. The French carrier also will start a new service between London and Los Angeles.

Airline experts figure the arrangement would also start a wave of similar consolidation and joint ventures among other carriers looking to expand on the newly deregulated market. That should increase competition on transatlantic routes and help reduce costs. Although no radical effect on fares is expected, some believe ticket prices might tend to go down.

In April 2007, Ryanair confirmed it was planning to start a new airline that would operate long-haul flights between Europe and the United States. The carrier intends to start flying in 2010 to 5-6 US cities, and unlike traditional low-cost airlines, would sell both economy and premium-class tickets.

Changes in aviation tax proposed

UK government has introduced plans to change the way Air Passenger Duty (APD) is charged. In its pre-budget report, the Treasury says it will charge aviation tax per aircraft, instead of per passenger. Federation of Tour Operators director general Andy Cooper said it was too early to assess the full impact of the move, but said charter and no-frills airlines should benefit, because they tend to have higher load factors than regional and scheduled airlines.

Treasury spokesman said they will now launch a consultation process with various departments including those at Transport and Business, to see how the new charge could be implemented. Any new system is slated to be introduced by November 2009, with current APD rates frozen for next year.