Deregulation on the Horizon for Europe’s Airlines

Question: Is it cheaper to fly between Los Angeles and New York, more than 2,600 miles, or between Frankfurt and London, only a few hundred miles?

Or is it cheaper to fly between Los Angeles and San Francisco, or between Paris and London, a journey that takes almost equal time?

Before you answer, read on.

At this time of year there are always some great bargains if you’re going overseas. In fact, this year the air fares between U.S. gateway cities and Europe have been deeply discounted.

A round-trip ticket between Los Angeles and Frankfurt costs as little as $593, and Lufthansa will even throw in a week’s free use of an Avis rental car, if two people travel together.

Air France and KLM have also marked down their fares to Paris and Amsterdam.

A Great Deal

There are other bargains as well. British Caledonian will get you to London and back for only $548 (on Dec. 12 it rises to $699, still a good deal).

While there are bargains now, the cheap fares are not a great surprise. In the off season the good news has been that fares traditionally drop between the United States and Europe.

But there’s some bad news too. Once you have arrived in Europe the air fares charged passengers flying within the Continent amount to nothing less than skyway robbery. If you’re going to be flying between cities in Europe, you’d better be prepared to pay a lot of money.

Inter-European air fares are not cheap. This is not a particularly new development. For 20 years people flying within Europe were charged outrageous fares. They had no choice.

There have always been charter operators and airlines that have dumped unsold tickets on the “bucket shop” market to discount travel agencies in Europe.

And airlines such as Aeroflot continue to sell under-the-counter tickets.

But for most travelers there simply are no published discount air fares in Europe. As a result, passengers flying between European cities pay an astonishing average of 73% more for their tickets than those flying between American cities over similar distances.

How did this happen? Without exception, the airlines shared an unwritten agreement to keep air fares high. If folks wanted to fly, they paid the money.

Now, however, a few cracks have appeared in the European air fares wall. While the United States tries to come to grips with the long-term effects of airline deregulation, the European Court of Justice ruled earlier this year that fare fixing by most European airlines is illegal.

The landmark decision sent shock waves through European airlines, and may have signaled the introduction of airline deregulation there.

“It will not be a tidy process,” says one chief executive of a foreign airline. “But I’m afraid it will happen.”

It began four years ago when a British government decision allowed British Midland, an independent airline, to compete on free market terms with state-owned British Airways on routes between Heathrow Airport and Glasgow, Scotland.

This was the beginning of true competition in air fares and service. Ticket prices dropped, in-flight service improved, and for once, passengers were offered schedule flexibility, convenience and choice at a reasonable price.

Neither airline is hurting as a result. It is estimated that traffic on that route has increased an impressive 50% since 1982.

Traffic Increased

Soon after British Midland got into the act, KLM began offering cheap flights (as low as $49) between Amsterdam and London, and British airways matched the fares. Again, passengers were happy, the airlines made money and traffic increased.

Right after the European Court decision, Air France proposed Europe-wide fare cuts (some as much as 34%).

Most recently, an air battle erupted over the Irish Sea. An airline called Ryanair discounted its fares between London and Ireland, prompting British Airways, Aer Lingus and Dan Air to cut their fares between London and Dublin, Cork and Shannon.

But the real test will come next summer when an estimated 5 million visitors, many of them Americans, will once again make their annual vacation pilgrimages.

Just recently the European Travel Commission (ETC) announced that traffic to Europe this year is expected to reach the third highest level in history although a 10% drop in transatlantic travel has been reported so far for 1986; 1987 travel by Americans to Europe is expected to soar.

The Tourist Season

With any luck, liberalization of air fares will coincide with the rush next summer. Already the transport ministers of 12 European countries have been working on a plan that will allow airlines to receive automatic approval to discount some fares to 45% of the normal economy fare. It will also allow European nations the right to each designate more than one airline to serve a route.

“The days of the price-fixing cartel of European airlines are largely behind us,” says Colin Marshall, chief executive of British Airways. “I’m in favor of liberalizing our air service agreements between countries.”

Under the new plan, foreign airlines can also implement new, presumably lower air fares unless the governments of both countries disapprove. “This double disapproval is the first step toward real deregulation in Europe,” Marshall says. “The tide is running and it’s no good trying to stop it. It will engulf us all in due time. So we support it.”

In the short run this can mean only great things for passengers who no longer will be quite as abused for trying to fly from one sovereignty to another.

Studies Under Way

But don’t expect across-the-board fare cuts. European airlines are studying which routes they’d like to initiate, probably with discount fares to promote their new services, and are looking at routes they already fly to determine if new competition may demand price slashing.

Liberalized routes and the ability to cut fares don’t automatically lead to lower fares and better service. Part of the transport ministers’ agreement gives the European carriers the option of imposing reservation and advance purchase restrictions on many of the fares. That imitates a similar process in the United States. Hopefully, the European airlines won’t eliminate the pain of high fares only to replace it with equally abusive discount fare penalties.

With any luck, those flights between Frankfurt and London and between London and Paris will become as sweet as they are short. Stay tuned.