Air Route Battle Likely to Benefit European Firms

U.S. airlines’ increasingly fierce contest for highly prized routes across the Atlantic to Western Europe could turn out to have an unlikely victor: Western Europe’s air carriers.

The American carriers are fighting over the routes in part because strict governmental regulations, which limit transatlantic seating capacity and set ticket prices, make them more profitable than most domestic routes and minimize the likelihood of fare wars.

But those same rules that make foreign routes so profitable make them difficult to acquire. Unlike domestic routes, overseas routes cannot change hands without governments getting heavily involved. That results, inevitably, in diplomatic wrangling.

And the governments of Western Europe are known to take tough stands.

“All countries jealously guard their turf,” says airline analyst Hans J. Plickert of the Transportation Group, an affiliate of Paine Webber. “Any request for an incursion into a turf will be responded to with an equivalent demand from the other side.”

Some of the European countries--notably Great Britain, Italy and Switzerland--have been particularly stubborn in their negotiations with the United States over air routes.

For example, under the Bermuda II Treaty between Britain and the United States, the two countries literally trade the rights to fly between their cities. A recent version of the treaty, which was first agreed to in the 1970s and is renegotiated every few years, gave American Airlines a nonstop route from Chicago to Manchester, England, in exchange for a corresponding nonstop route for Virgin Atlantic Airways from London to Boston.

The Europeans have insisted on tit-for-tat deals primarily because the United States is so big and has so many air travelers. Operating in the United States is like tapping a gold mine--a mine that foreign carriers would like to share in more intensely than they are able to do today.

In Europe, after all, those carriers have limited domestic markets to feed into their international service. The relatively short distances between countries and the Continent’s excellent rail service also deter airline growth within Europe.

So the newly launched competition among U.S. airlines for all or part of Pan American World Airways’ transatlantic route system--along with other such deals that are bound to follow--create some interesting opportunities for the Europeans.

For example: Existing agreements between Britain and the United States say the only U.S. carriers that can land at Heathrow Airport--the prime gateway to Europe--are Pan Am and Trans World Airlines. But if it is United Airlines or American Airlines that succeeds in acquiring Pan Am’s routes to London, the winner will want to fly to Heathrow, not Gatwick, London’s less desirable terminal.

That could lead to an aeronautical version of horse trading.

Observers say British Airways would urge the British government to insist that it be given the right to operate in the United States in exchange for any new landing rights for U.S. carriers at Heathrow.

Currently, British Airways flies to New York and can take its passengers on to other U.S. destinations, but cannot pick up travelers within the United States.