Will Open Skies Mean Lower Air Fares?

We may all be pleased to know that with the implementation of the Open Skies treaty (see post below) American Airlines will now offer increased service to Heathrow instead of Gatwick. (Good news if you are an American Airlines traveler as I am, bad news if you happen to live near Heathrow and have to deal with the noise of hundreds of flights every day!) And it may also please us, particularly if we live in Utah, to know that Delta will be offering flights from Salt Lake City to Paris.

But the one question that most ask is, "Will this lead to lower air fares between the US and Europe?"

After studying the issue in great detail, I can conclusively say... "I don't know."

Under capatilism, increased competition normally means lower prices, but the airline industry has never seemed to work this way. That's why your ticket for a flight may cost $791, while the person next to you might have only paid $256.

In an ideal world, I would expect prices to drop over the Atlantic. But the airlines have been brutally battered by skyrocketing fuel prices, increases that have weakened their bottom line. Several airlines in the US have had to file for bankruptcy. Latest reports from Europe state that Alitalia, the Italian airline, may be bought by the company formed by the merger of Air France and KLM.

The airlines are not doing well right now. A fare war over the Atlantic would benefit none of them, and they know it. We may see a slight drop in prices, but not much. I just checked the price of a round trip ticket from Austin to Heathrow in June, with taxes it was $1,378.20. That is not much of a bargain. A ticket to Frankfut cost $1,312.30, three times more than I paid to go there in early March. These are not mileage run fares!

The airlines look forward to the summer months when flights to and from Europe are full and fares are high. Maybe we will see a larger than normal reduction in fares during the winter when there is excess capacity.

Fare wars in the US generally start when Southwest or Jet Blue enter a market. Neither of them will be flying to Paris any time soon. So I look to the European low-fare airlines. Perhaps one of them has the financial strength to enter the market and start a low fare service, much as Sir Freddie Laker did with his Skytrain service between London and New York in 1997, $99 one way. (In all fairness, I should note Sir Freddie's airline went bankrupt in 1982.) Something like this could drive the fares lower. Until then, the chances of American, Delta, British Airways, or any of the other major carriers starting a fare ware appear to be slim.

Perhaps the increased competition will stop fares from going much higher, but I see little hope for them to drop substantially.