Explained: Open Skies and Business Travel

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Travel News 23 Apr 2018

Open skies agreements could be the most important and least talked about part of your international journey. Everything from the airlines you choose, to the destinations they offer, to the flight schedule operating are all affected by open skies agreements. Today we’ll be taking a look at what open skies agreements are, how they underpin your current travel, criticisms of the concept and what opportunities new agreements could bring in the future.

 

What are Open Skies Agreements?

The ‘open skies’ policy began in the early nineties, with the U.S. signing a series of agreements with other governments setting rules for air travel between them. Open skies agreements were meant to address protectionism in the airline industry. Many governments owned their major airlines outright, or designed laws to protect them from competition and subsidize their operations. Foreign airlines could only fly from select ‘gateway’ cities, at limited intervals, often subject to higher charges and competing against subsidized rivals. This cut down on the types of routes that could be offered, stifled competition and produced inefficiency. Open skies agreements were designed to improve the situation, allowing airlines to freely fly international routes and compete openly with each-other for passengers, breaking down regulatory barriers and eliminating government involvement in airline decision making.

The agreements have three aims:

• To encourage fair competition by limiting government subsidy or support of airlines.
• To relax capacity and price controls to let the market set rates.
• To relax restrictions on the number of international gateways, allowing for more diverse routes.

How they influence current travel

Since then, the U.S. has entered into open skies partnerships with more than 120 countries or organizations around the globe. As carriers became exposed to more competition they were forced to find efficiencies, innovate with new routes, and try new service models to provide greater value for customers. The cumulative effect on the international travel industry has been massive. Data from the U.S. Travel Association indicates that fares on routes covered by open skies agreements have fallen by as much as 30%, saving travelers billions of dollars each year.

They have also dramatically improved consumer choice, allowing you to select from a multitude of airlines competing for your custom, and travel to a huge variety of destinations as more international gateways open. And as more agreements are signed globally, the potential for business travelers grows.

Opportunities of New Agreements

The recent open skies deal between the U.S. and Brazil is an excellent example of how agreements can offer opportunities for growth. As a key emerging economy, and one of the growing powerhouses of the Americas, Brazil is becoming an increasingly important destination for U.S. investment, tourism and business travel. It is already the eighth largest market for U.S. overseas tourism, while Brazilian travelers spend more than $14 billion in America each year. The new agreement will allow for unlimited flights between the United States and Brazil, with the Brazilian tourism board predicting a 30% traffic increase in coming years because of the agreement, ensuring that U.S. business travelers can easily access the growing market.

As well as increased flights and lower prices, open skies also open the way for partnerships like the one being discussed by American Airlines and Chile-based LATAM Airlines group, opening up new opportunities for airlines and business travelers alike. Having frameworks like open skies treaties give carriers the stable regulatory environment they need to arrange alliances, codeshares and cooperation in order to find greater market efficiencies and better serve customers. 
But open skies agreements are not without their detractors. Although large U.S. carriers were initially skeptical of what they saw as foreign threats to their market-share, the commercial opportunities have brought them on board with most such agreements. But there is still opposition to some open skies compacts, especially in areas where competing carriers receive government subsidies. A good example of this is the Persian Gulf where large U.S. carriers object to competitors like Emirates and Qatar Airways, accusing them of using government support to unfairly skew the playing field. A recent deal between Qatar and the U.S. was focused on alleviating some of these concerns, with increased transparency on the Qatari side acting as a disincentive for any unfair practices or subsidies.


The Future

While many open skies agreements have already been signed, helping build the diverse range of options available to the modern traveler, there are still great benefits to be realized by future deals.

When Britain leaves the European Union, they will no longer be covered by the existing EU-US open skies agreement. That means either a new agreement will be drawn up, or UK airlines will no longer be able to fly freely on lucrative transatlantic routes, putting London’s status as an international hub at risk. They will also be negotiating with the EU for the same kind of treaty which would preserve the status of air travel between the EU and the UK.

Africa is an excellent example of how much potential there is still to unlock. For example, flights from South Africa to Botswana are eight times more expensive per mile traveled than between South Africa and the United States, despite Botswana being a neighboring country. The new Single African Air Transport Market could help open the continent to air travel. Not just opening new routes within the continent but improving competition and attracting more travelers from the rest of the world.

There are open skies agreements under negotiation worldwide involving the European Union, the Association of South East Asian Nations, Turkey and more.  These agreements all have the potential to open new regions for practical, affordable and convenient travel.

As the international travel landscape evolves, ongoing open skies agreements will be key in determining opportunities for business travelers. So, next time you go overseas for work, you might have an open skies agreement to thank for the price of your fare and the convenience of your route.