What does the Open Skies agreement mean for flight passengers? And why do airlines have a problem with it.
In 1992, the United States pursued an Open Skies civil aviation relationship with international partners after concluding an Open Skies air services agreement with the Netherlands. The agreement sought to help “expand international passenger and cargo flights by eliminating government interference in commercial airline decisions about routes, capacity and pricing.” The goal of the agreement was to provide consumers access to more affordable, convenient and efficient air services. The assumption was that in so doing, it would promote increased travel and trade which would as a result spur high-quality job opportunity and economic growth.
This assumption proved to be true. According to the President and CEO of Airports Council Internation — North America, Kevin M. Burke, “U.S. Open Skies agreements have generated at least $4 billion in annual gains to travelers.” Prior to the agreement cities like Portland and Minneapolis had few or no direct international air connections according to the Bureau of Public Affairs. The agreement has allowed a city like Portland, Oregon to generate over $240 million in airport and visitor revenue.
Since its inception in 1992 and subsequent expansion to over 100 partners from every region of the world, the agreement has been successful in promoting economic benefits to cities, travelers and competing airlines. It has made travel cheaper for travelers, made more US cities accessible to the world and made the world more accessible to many US cities.
Recently, three major US carriers, American Airlines, Delta Airlines and United Airlines have sought to challenge the agreement. The CEOs from these companies have recently begun lobbying the Obama administration to restrict access by rival airlines based in the Persian Gulf. In addition to their appeal, domestic airlines have also sought to prevent the entry of the low cost Norwegian Airlines into the US market.
Many including CEO and President of the US Travel Association agree that “any move to abrogate Open Skies would fly in the face of competition and consumer choice, and ultimately harm demand for travel to the U.S,” as reported by the U.S. Travel Association.
The question is why: why is this now a problem after 20 years? The officially stated reason by the lobbying group is, “unfair competition from the Middle East carriers Emirates, Etihad Airlines and Qatar Airways.”
Here are some facts to consider:
- US Airlines are now more profitable: The six largest U.S. carriers posted more than $3.96 billion in third-quarter profits last year, as a result of falling fuel prices and increased demand. ($21.7 billion in operating profits from 2007–2012)
- US Airlines are among some of the most profitable airlines in the world : 3 of the top 5 most profitable Airlines are US Based
- Passengers traveling to or from the US on US carriers are paying more than other passengers around the world: According to the Department of Transportation, the U.S.’s busiest airports are seeing airfares rising at roughly double the rate of inflation going back to 2011. (with 3Q fares rising steadily since 2009, according to the Bureau of Transportation Statistics)
- The Open Skies agreement has increased competition for flights flying out of the US, with over 70 percent of international departures from the United States flying to Open Skies partners.
- This competition has proven especially beneficial to US passengers as it gives access to a wider range of countries, from a wider range of US cities.
All things considered, what are your thoughts on the move to challenge the agreement by the big three US carriers?
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