AIRLINES : European Pact May Result in Air Fare Hikes : Transportation: Those who crafted the EC’s deregulation accord hoped it would lower prices. Experts predict the opposite will happen.

Travelers hoping Western Europe’s airline deregulation will bring dramatic, U.S.-style reductions in air fares may be in for a surprise.

Industry experts said Tuesday that fares in Europe may rise now that airlines can pick their own routes and set their own fares under an agreement reached Monday by the transport ministers of the 12 European Community nations.

“Forget cheaper fares. Fares will go up,” said Ian Wild, transport analyst for the London-based bank Barclay’s de Zoete Wedd.

The accord lets European carriers fly to any EC state beginning next year and serve domestic routes outside their home countries starting in 1997.

The agreement was hailed for its potential to cut Europe’s high air fares by giving travelers a wider choice of carriers.

But Wild said raising fares “will be the response of the airlines, given their freedom to do it and given their financial situation.”

Europe’s airline industry has long enjoyed cozy, cartel-like arrangements under which carriers charge fares that are often twice as high as in the United States.

For example, a round-trip tourist-class ticket for the 800 miles from Rome to Paris on Alitalia is $1,185. A round-trip ticket from New York to Chicago--roughly the same distance--on United Airlines is $505.

However, European airlines suffered net operating losses of almost $1.3 billion in 1991.

Wild said major carriers could increase prices without fear of new, small airlines offering low fares because European air space and airports are too congested to allow much room for newcomers.

Peter Offerman, a spokesman for KLM Royal Dutch Airlines, said tickets may go up in Europe if air fares become subject to value-added taxes, similar to sales taxes.

“No VAT is paid now because crossing borders eliminates it,” he said. But he added that the EC Executive Commission wants to add VAT to airline tickets in 1993.

The new accord opens markets in EC states to foreign EC airlines.

At present, a British plane can fly to Munich via Frankfurt but cannot take on passengers at Frankfurt. That will change in 1993.

Until 1997, however, at least half the passengers must be on the leg originating at home. Thus foreign stopovers can fill only up to 50% of the seats.

That restriction helps local airlines stave off competition on domestic routes until 1997.

“It seems like deregulation, but it’s actually not because of all the restrictions,” said Yasmin Harrison of James Capel Investment Co. in London.

Under the agreement, European Community governments can still regulate fares and flights to and from non-EC countries.

Even on flights within the EC, governments can step in if they feel that airlines are posting fares that are too high or too low.

Governments also still control the allocation of landing and takeoff rights, helping them favor their flag carriers.

France sought a six-year transition period to free competition, while Britain and the Netherlands wanted a one-year transition.