open skies - impacts and outlooks
DESCRIPTION
Presentation by Jon Ash at the Air Transportation Research International Forum Spring Meeting in Los Angeles, California on March 20, 2008.TRANSCRIPT
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Open Skies – Impacts & Outlooks
Presented by:
Jon F. Ash
President InterVISTAS-ga2 Consulting Inc.
1615 L Street, NW, Suite 910Washington, DC 20036
Spring MeetingLos Angeles, California
March 20, 2008
1
Outline
BackgroundBilateral “Open Skies”Evolution of NegotiationsMarket RespondsSecond Stage-Outlook
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Background
3
History of Bilateral Agreements
In 1944, Chicago Convention created to provide a framework where international civil air transport could develop. Multilateralism rejected by British.Subsequent bilateral agreements ensured the viability of national carriers; regulated capacity, number of carrier designations, routings, pricing, etc.Consumers were not the ultimate beneficiary.
4
Types of Bilateral Agreements that have evolved over the years
Bermuda I (1946)U.S. and the U.K.
Bermuda II (1977)U.S. and the U.K.
Open Skies (1992)First one between U.S. and Netherlands (many countries added later)
MALIAT multilateral (2001)U.S., Singapore, Brunei, Chile, New Zealand –predecessor to U.S.-EU Open Skies
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Bilateral Open Skies
6
The U.S. currently has 91 Open Skies partners
Africa20 agreements
including Egypt, Ethiopia, Senegal,
Namibia, etc.
Asia/Pacific24 agreements
including Korea, New Zealand, UAE,
Thailand, Pakistan, Singapore, India, etc.
North, Central, South America14 agreementsincluding Canada,
Chile, Peru, Jamaica, Costa Rica, etc.
Europe33 agreements
including EU member states*, Switzerland,
Ukraine, etc.
Prior to Negotiations, The U.S. had 77 agreements*33 agreements includes separate agreements with all member states
7
The U.S. had Open Skies agreements with many European Countries—Pre U.S.-EU
Major countries such as UK, Ireland, Spain and Greece were operating under controlled regimes.Carriers from “Open Skies” partner countries are allowed to participate in anti-trust immunity relationships.
8
Barriers to moving beyond bilateral “Open Skies”
Nationality clauseRestrictions on foreign ownership and control of domestic carriersRight of establishment7th Freedom rightsCabotageFly AmericaWet LeasingCivil Reserve Air Fleet (US)Some of these would require significant U.S. legislative change
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Evolution of Negotiations
10
Real world barriers. Why did the U.S. and EU look to begin negotiations?
European Court ruled that individual bilateral “Open Skies”agreements with US violated the Treaty of Rome nationality clause.Markets including UK, Spain, Ireland and Greece were not “Open Skies” partnersCarriers from both sides continued to disagree with restrictions at London Heathrow, Shannon Stop rule, etc.Brussels (the Commission) wanted to control the aviation regulatory environment.
11
First Stage Agreement
In June 2004, the EU Council of Transport Ministers rejected the proposed first stage agreement as “imbalanced”The Council directed the Commission to return to the negotiating table to rectify the “imbalance.”
12
Changes between 2004 and 2007 Agreements
Language on ownershipFranchising capabilitiesWet Leasing Agreement to begin Phase II negotiations
Pressure of ECJ ruling prompted the Commission to deliver an agreement.
13
Practical Impacts of Agreement
Opens London Heathrow to all Carriers
Slots selling for $25 million/pair
CREATE “CARRIER OF THE COMMUNITY”
Carriers may now operate what was formerly 7th
freedom services.Eliminates Treaty of Rome violation (ECJ decision)
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Market Responds
15
Current U.S. nonstop gateways to Europe by Departures
75% of all departures are from 8 airports with more than 20 average daily departures
20LAX22BOS24PHL29IAD30ATL39ORD62EWR86JFK
ADD*Airport
+20 ADD
8-19ADD
1-7 ADD
SFO
LAS
PDX
SEA
LAX
PHX
DEN
MSP
DFW
IAH
MEM
ORD
DTW
CLE
CVG
CLT
RDU
IAD
ATL
SFB
TPA
RSW MIA
BWI
PHLEWR
JFK
BDL
BOS
MCO
SLC
Source: OAG June 2008, Fifth Freedom Operations not includedADD is Average Daily Departures
16
Current European nonstop gateways to the United States by Departures
52% of all departures are from 4 airports with more than 25 average daily departures
37AMS43FRA46CDG92LHR
ADD*Airport
Source: OAG June 2008, Fifth Freedom Operations not includedADD is Average Daily Departures
+20 ADD
8-20ADD
1-7 ADD
SNNDUB
BFS EDIGLA
KEFOSL
ARN
HEL
WAWKRK
PRG
OTP
ATH
BUDVIE
TXLHAM
CPH
AMSDUS
CGNFRA
STRBRU
CDGGVA ZRH
MUC
VCEMXPPSA
FCO
NCEBCNMADLIS
OPO
MANSTN
LHRLGWBRS
BHX
17
U.S. – North Atlantic Passengers
U.S. - United KingdomU.S. - GermanyU.S. - FranceU.S. - NetherlandsU.S. - ItalyU.S. - IrelandU.S. - SpainU.S. - SwitzerlandU.S. - BelgiumU.S. - Other Europe
Total U.S. - Europe
17,2189,3236,2424,6652,8952,0751,9261,568
7754,405
51,092
Source: U.S. DOT T-100, YE Comparisons of September 2007
33.7%18.2%12.2%9.1%5.7%4.1%3.8%3.1%1.5%8.6%
100.0%
0.7%6.6%
(1.8)%2.8%8.4%6.4%
15.2%10.9%6.7%
10.8%
3.9%
Market 2007 Passengers (000)
% of Total
2006-2007Growth Rate
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U.S. – Europe Nonstop Structure
4.2%100%730,447Total
-1.0%20.4%149,330Other0.0%4.7%34,370US Airways
28.6%5.7%41,776Northwest-0.1%6.1%44,767Virgin Atlantic0.6%6.6%48,098Air France6.2%7.0%50,792United0.3%8.3%60,398American3.4%8.8%64,249Continental8.0%10.0%73,148Lufthansa2.4%10.7%78,139British Airways
11.5%11.7%85,380Delta
% Change from 2006% ShareSeats/Week
Each WayCarrier
Source: OAG June 2007/2008, Does not include transatlantic service to Russia, Middle East, Israel, North Africa
19
U.S. – Europe Frequency Comparisons
Frequencies by Alliance Grouping
38%
22%27%
13%
41%
21%26%
12%
0%
10%
20%
30%
40%
50%
Perc
enta
ge
2007 Frequencies2008 Frequencies
Other
Source: OAG June 2007/2008, Does not include transatlantic service to Russia, Middle East, Israel, North Africa
20
Most changes have taken place in the U.S. – London market.
Heathrow
Luton
Gatwick
Stansted
City
Many carriers that could only serve Gatwick have announced new Heathrow serviceSome carriers have retained limited service at GatwickSlots at Heathrow costly (most were traded among code-share partners)Stansted growing its role as a favorable gateway to the banking district in LondonBritish Airways has announced new services between City Airport and New York.
21
Notable changes after deal comes into force.
Entering Denver – London Heathrow market
Announced that it will cease all Gatwick Operations in 2008 and shift all flights to
Heathrow
Announced plans to serve New York from Brussels and Paris –”Open Skies”
New York – Paris Orly with Air France as a partner
London Heathrow – Los Angeles nonstop market (partnership with Delta)
Detroit and Minneapolis service to Heathrow, and entry to Seattle – London Heathrow market.
RouteAir Carrier
Note: Some Routes may have been available prior to agreement but are in fact a competitive response to overall rights becoming available
22
As expected, service at London Gatwick has decreased …
Carriers Seats Flights
ATL CLE CLT CVG TPA Same Same Same
DTW PHL Same Less Same
IAH Less Less Less
EWR Same Less Less
JFK More Less Less
MCO More More MoreSource: OAG June 2007/2008
23
…while London Heathrow has increased.
ATL
BOS
BWI
DEN
DFWDTW
EWR
IADIAH
JFK
LAX
LHR
MIA
MSP
ORD
PHL
PHX
RDU
SEA
SFO
Carriers Seats Flights
ATL DFW IAH MSP RDU
New New New
DEN EWR JFK LAX PHL SEA More More More
BOS BWI MIA PHX SFO
Same Same Same
IAD Same More More
DTW Same More Same
ORD Same Less Less
Source: OAG June 2007/2008
24
Heathrow will be more competitive.
2008 Year-Over-Year Comparisons
9%
19%
25%
-35%
22%
-38%
46%
8%
-60% -40% -20% 0% 20% 40% 60%
Total London
Other
Heathrow
Gatwick
SeatsFrequencies
Source: OAG June 2007/2008, Other includes Stansted, City and Luton Airports
25
Most Heathrow growth has been from U.S. New Entrants.
New Heathrow-U.S. Nonstop Frequencies by Type of Carrier
1.02.93.4
11.0
0.0
2.0
4.0
6.0
8.0
10.0
12.0
US New Entrants UK Incumbents US Incumbents Other
Avg
. Dai
ly D
epar
ture
s
Source: OAG June 2007/2008
No new flights from any UK new entrants have been
announced as of today.
SkyTeam Alliance previously had 0% LHR Market Share
26
For the most part, drastic changes in the market have not materialized…
As expected, carrier added three new U.S. gateways after “Shannon Stop Rule” phase-out.
No application yet for Antitrust Immunity
Recently announced plans to delay 7th freedom operations from Europe
Only certain unique markets have provided an opportunity for 7th freedom service
No major Transatlantic low-fare announcement has been made yet
Delaying start of UK – US scheduled nonstop services from Heathrow
ActionAir Carriers
27
Partnerships on the transatlantic continue to evolve.
Smaller alliance members could be acquired by larger carriers:
BA IberiaLufthansa Swiss, AustrianAir France Alitalia
New types of marketing and investment alliances could develop further
Aer Lingus & JetBlueLufthansa & JetBlue
28
European majors may seek a role in potential U.S. airline mergers.
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Second Stage-Outlook
30
Second Stage Negotiations begin in May 2008 in Slovenia.
Priority Items for discussionsFurther liberalization of traffic rightsAdditional foreign investment opportunities Effect of environmental measures and infrastructure constraints on traffic rights Further access to Government-financed air transportation (FLY-America)Provision of aircraft with crew (Wet-leasing)
31
What other issues are tied to the Second Stage and beyond?
“What-if scenarios”Current agreement reads: “if no second stage agreement has been reached by the Parties within twelve months of the start of the review, each Party reserves the right thereafter to suspend rights specified in this Agreement .”Additional parties to the multilateral regime
Switzerland, Canada, New Zealand, Singapore, Morocco
Joint Committee established to oversee rights in current agreement
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