Free European Carriers From U.S. Barriers

If the post-Communist world needs more proof that state-controlled businesses don't work, Europe's airlines offer plenty of it. Passengers pay stratospheric fares--double or triple those for similar distances in the U.S. Then at tax time, they often pay again to prop up pampered state-owned airlines made inefficient by limited competition.

Now, despite resistance by French-led protectionists, the European Community aims to gradually open its skies. The goal by the mid-1990s is to let EC airlines set fares freely and compete on any route in the 12-nation EC.

Although a painful shakeout awaits the industry, consumers will benefit. And so may U.S. airlines that have survived deregulation's mill. A free-market Europe, soon to be the world's biggest economy, is crucial to their new global ambitions.

For that reason, Washington should take the last step in American deregulation: dropping barriers to foreign carriers. As it stands, U.S. airlines can fly many routes within Europe, a legacy of post-World War II treaties. But the Europeans have no such rights inside the U.S. With their lower costs, U.S. airlines know they have little to fear from European competition at home and lots to gain from even greater freedom in Europe. Washington should open up, provided Europe does more of the same.

There's also no longer much reason for limiting foreign ownership of U.S. airlines to 25% on the grounds of national security. It's hard to see how a minority stake from a NATO partner's airline could harm U.S. security. But again, Washington should require reciprocity from Europe. Free skies, financially and otherwise, should be the world's goal. The only losers will be inefficient carriers. Investors, passengers, and taxpayers can live nicely without them.

Before it's here, it's on the Bloomberg Terminal.