Some ten years ago, air travel between London and the United States was governed by an archaic treaty known as Bermuda II.
Signed in 1977 as successor to an agreement signed after the Second World War, it placed restrictions on who could operate flights between the UK and the US, and from where.
Flghts from London Heathrow to the US were restricted to two US airlines. These were American Airlines and United Airlines, who had acquired traffic rights from Trans World Airlines and Pan American World Airways respectively. What were then Continental, Delta Air Lines, Northwest Airlines and US Airways were forced to fly from London Gatwick.
From the UK, only British Airways and, from 1991, Virgin Atlantic could fly to the US from London Heathrow. Not only that, certain routes could not operate from London Heathrow. So BA had to fly to Atlanta, Dallas Fort Worth and Houston from London Gatwick. bmi which, at the time, held approximately 15% of Heathrow’s slots sat in deep frustration at being unable to fulfil its ambitions to fly to the US from the airport.
Some 30 years later, with negotiations no longer between London and Washington, the EU negotiated an Open Skies agreement the US. It officially came into force on 30 March 2008. Heathrow was opened up to all US airlines. And EU airlines could fly to the US from any airport in the EU.
However, access of European airlines to the US market and US airline ownership rules were untouched. They were officially parked into Phase II and remain so today.
So what has been the impact of EU-US Open Skies?
1. OK BA/AA
It was third time lucky for BA and American Airlines in securing approval to co-ordinate schedules and fares across the Atlantic.
BA and American had twice previously attempted to secure regulatory approval. In 1999, a three year long effort to secure approval proved futile. In 2002, BA and American balked at US regulator demands to hand-over 224 weekly take off and landing slots to new competitors.
In spite of vociferous protests from Virgin Atlantic, which once again emblazoned its aircraft with “No Way BA/AA”, BA and American finally secured regulatory approval with relatively modest concessions.
After the launch of their joint-venture, BA has launched new services from London Heathrow to San Diego, Austin, San Jose, New Orleans and Nashville. More new routes are expected as BA takes delivery of additional Boeing 787 aircraft.
2. Enter Continental, Delta and Northwest Airlines and US Airways
Continental, Delta, Northwest and US Airways all moved quickly to secure access to Heathrow.
And at a price. In March 2008, Continental paid a record-breaking $208m for four Heathrow slot pairs as airlines such as Alitalia were happy to handover their Heathrow slots for cold hard cash. Alitalia has since sold off all of its Heathrow slots, yet is still no closer to financial sustainability.
American also consolidated its operations at Heathrow transferring Dallas Fort-Worth and Raleigh Durham from Gatwick. BA transferred Atlanta, Dallas Fort-Worth and Houston to Heathrow, then leaving Orlando and Tampa as its only US routes at Gatwick.
However, not all were successful. Northwest suspended a route to Seattle. An Air France operated service to Los Angeles on behalf of Delta was also short-lived.
Somewhat ironically as the intention of Open Skies was to open up Heathrow more US airlines, the number of US airlines serving Heathrow only ultimately increased from 2 to 3 as US legacy airlines have consolidated.
3. US Airlines have significantly raised their game
Before Open Skies, unless you were wielded to a US airline frequent flyer programme or were bound by your employer’s corporate agreement or the US Government’s “Fly America” policy, BA and Virgin were always a clear preference across the atlantic. This is regardless of were you were seated in the aircraft. In business class, you were guaranteed a fully flat bed. In economy, you were guaranteed seat back in-flight entertainment. And only BA and Virgin offered premium economy.
US airlines have since raised raised their game with refurbished cabins, next generation aircraft and fully-flat beds in business class. American, Delta and United are either in the process of adding, or will shortly add, premium economy.
4. Some ambitions were never fulfilled
One of the strongest campaigners for EU-US Open Skies was Sir Michael Bishop, the former majority shareholder of bmi British Midland.
It even had a fleet of Airbus A330 aircraft ready but, for a time, these operated from Manchester instead. However, events overtook him. He exercised an option to sell his remaining share of his beloved airline to Lufthansa. A combination of the 2008 financial crisis and bmi’s routes to regions vulnerable to geopolitical events led to Lufthansa ultimately selling what was left of the airline to BA in 2012. This has ironically facilitated a significant expansion in BA’s long-haul network.
5. Gatwick reinvents itself as the home of low cost long-haul
For a time it seemed that post Open Skies Gatwick’s long-haul ambitions were resigned to hosting a “beach fleet” of of BA and Virgin flights to Florida and The Caribbean.
However, a combination of the ambitions of Norwegian and its CEO Bjørn Kjos and the Boeing 787 have changed all that. Norwegian now serves Boston, Fort Lauderdale, Los Angeles, New York JFK, Oakland, Orlando and Seattle from Gatwick. It will also add Austin and Chicago later this year.
This has made BA refocus on Gatwick, matching Norwegian on New York JFK, Fort Lauderdale and Oakland. BA is expected to add more routes next year as it puts its new “High Density” Boeing 777 into service from later this year.
6. From Open Skies came OpenSkies
Initially codenamed Project Lauren, OpenSkies was BA’s plan to launch new transatlantic services from across Europe using Boeing 757s cascaded from London Heathrow.
Whilst it got off to a positive start with its inaugural route from Paris Orly to New York being well received by passengers, subsequent routes from Paris to Washington and Amsterdam to New York were suspended. After a long period in limbo, BA announced that OpenSkies operations’ at Paris Orly will end on Saturday 2 September 2018. Its operations will be taken over by International Airlines Group’s new low cost long-haul airline LEVEL which will, amongst other routes, launch Paris Orly – New York Newark on Monday 4 September 2018.
7. Who were the winners and losers?
Undoubtedly, the biggest winners are two of the Heathrow incumbents: American and BA.
They finally secured a joint-venture. American’s distribution network and corporate customer base has helped make many new BA transatlantic routes a success. BA’s acquisition of bmi has also help facilitate expansion at Heathrow and stripped United and Virgin Atlantic of short-haul codeshares.
Arguably, the biggest loser was Virgin
Virgin’s attempts to set up Virgin America were subject to intense lobbying resulting in delays and changes to its structure. The US has given nothing away to relax its ownership rules. Virgin’s ambitions in the domestic US market have also been thwarted as the majority of US shareholders in Virgin America chose to sell the airline to Alaska Airlines.
At Heathrow, whilst some five years after Open Skies, Virgin Atlantic secured its own joint-venture with Delta and refocused its route network on North America, it appears to have hit a ceiling on North Atlantic routes. Its single daily service to Chicago could not compete with 4 daily United and 6 joint daily AA/BA services. In the absence of a third runway at London Heathrow, the only means of expansion is to pay tens of millions for new slots, which it seems unwilling to contemplate.
What next for Open Skies?
Open Skies has no doubt radically changed EU-US aviation.
In terms of what happens next, it can be said with confidence that under the current US administration there is not a chance of the US relaxing its airline ownership rules, nor giving overseas airlines access to its domestic market.
The UK will leave the European Union on 29 March 2019. Whilst aviation is one of the lesser complications of Brexit and UK airlines and regulators wish for the UK to remain fully aligned with existing European aviation structures, at the timing of writing nothing has been agreed in terms of transition and post-departure arrangements for aviation.
If the UK cannot remain party to existing EU agreements, then the UK will need to negotiate its own Open Skies agreement with the US. There have been soundings in the press that the US does not see this as straightforward as copying and pasting the existing EU-US agreement and replacing EU with UK.
It is unlikely any more airlines will enter the Heathrow transatlantic market before a third runway, if ever, comes into operation. Arguably, the biggest development to watch are the single aisle Airbus A321 Long Range and the Boeing 737-800 MAX which, combined with a third runway, may facilitate new entrants and new routes to secondary cities in the US.