Open Skies Dogged by Controversy

The treaty was meant to open the industry to competition, but foreign airlines say it will fail unless the U.S. drops its protectionist stance

The long-awaited Open Skies treaty that came into effect yesterday, opening transatlantic air travel to greater competition, incited an exchange of barbs between US and UK airlines and threw up fresh doubts about the viability of the pact.

European and American politicians are set to begin talks on the crucial second phase of the treaty, which eliminates the limits on which carriers can fly between America and Europe, in May. Phase one is valid for two years. Virgin Atlantic and British Airways lobbied hard against the treaty in its current form, which they say gives too much away to American carriers. Under the pact, US airlines can buy European rivals, but foreign ownership of American carriers remains prohibited.

European carriers have taken a hardline stance, arguing that the treaty will lapse completely unless the US fully opens its market by the November 2010 deadline. Sir Richard Branson said this month that the US must drop its protectionist stance. If not, the pact will be "ripped up".

Michael Whitaker, vice-president of regulatory affairs at United Airlines, argued that that view was not only incorrect but unrealistic. He said: "It doesn't automatically lapse. As a practical matter, this is going to be very difficult." Parts of the treaty can be stripped out and protected if not all of the details of the second phase are hammered out in time, he added. "The negotiation schedule is at least two years, but can be stretched to as much as four years."

It is a critical point. Airlines have invested hundreds of millions of pounds in preparation for the lifting of flying limits. Its cancellation would be hugely damaging. BA has announced a new airline, called OpenSkies, which will start flying between Paris and New York's JFKairport this summer. Continental Airlines paid an astonishing £30m for a slot pair at Heathrow; while Virgin has increased the frequency of its services.

Mr Whitaker said the British carriers need to soften their stance. "To be making negative declarations two months before we've started negotiations is not helpful. We should be thinking about how to get it done rather than complaining about how it is now."

He added: "The carriers that benefited from phase one are those that have been innovating, either through alliances or cross-border mergers. The UK carriers are laggards in this area, so they didn't get the benefits and they're not happy about it."

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