Europe Moves Toward Airline Deregulation : Transportation: After 1997, European Community airlines will compete freely for one another’s domestic passengers.
Good news for consumers who may be flying in Europe next year: Thanks to a recent agreement among the 12 European Community nations, more flights and more routes are expected to be available beginning in 1993. The added competition, in turn, could also mean lower air fares. Welcome to deregulation, European style.
Late last month, after some debate, the EC countries agreed to liberalize air travel by allowing airlines a greater measure of freedom in setting rates and selecting routes between and within the borders of EC countries.
The 12 nations that currently make up the European Community are Belgium, Denmark, France, Germany, Great Britain, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain. Countries that have applied for membership include Austria, Finland, Sweden and Switzerland.
In effect, the EC countries exacted a compromise on air travel regulation. Some of the countries had favored total marketing freedom, i.e., deregulation, as soon as possible. Others wanted more time to protect their domestic routes. As a result, a four-year transitional period was agreed upon to satisfy both sides, meaning that 1997 will mark the start of total deregulation in EC countries.
In January, Lufthansa, for example, could offer a Frankfurt-London-Glasgow route, picking up passengers in London en route to Glasgow. Current rules prohibit an airline flying from one EC country to another from picking up additional passengers in another city within the destination country.
In the same way, under the new agreement British Airways would be able to offer a London-Frankfurt-Munich flight, picking up passengers in Frankfurt for the last leg to Munich. However, the rules prohibit foreign airlines on a domestic route from picking up more than 50% of the plane’s capacity in another EC country. This rule, enacted to protect local traffic, will be in force until 1997 when deregulation takes place.
The new rules still permit the government of each EC member country to retain some measure of control if it believes that fares have gone too high or too low. Thus, the EC hopes to prevent excessively high fares that might inhibit the market, or extra low fares used in a predatory fashion to force weaker airlines out of business.
While European carriers will have a great deal more marketing freedom, it remains to be seen what effect this form of deregulation will have on fares. Regular intra-European air fares have generally been on the high side. For example, Lufthansa’s regular round-trip economy air fare between Frankfurt and Rome, a distance of about 600 miles, is $1,020.
“I don’t think fares will go up, but I don’t anticipate any dramatically lower fares, either,” said Rolf Hoehn, a Lufthansa vice president. “There will be enough competition, especially on heavily traveled routes, to keep fares from rising.”
Hoehn did point out, however, that the cost of tickets will be affected by any increase in landing fees and other new taxes that might be imposed.
“Competition is bound to increase, and this means that fares will go down because of the restrictions on capacity and getting airport slots,” predicted Brian Clewer, head of Continental Travel, a Santa Monica agency that handles a heavy amount of European air travel. “The more protective governments may not allow new routes within their own countries.”
“Deregulation is a fact, but the pace of this deregulation is the real question,” Hoehn said. “It’s better to implement deregulation on an evolutionary basis rather than all at once. We won’t have the extreme fare wars that you have in the U.S., but there will be much more competition than now.
The new rules are expected to increase the number of flights from smaller cities that bypass major hubs. “New airlines may spring up from a number of new gateways, which will give travelers more options,” Hoehn said. “For example, in Germany, new entrants might launch service from such cities as Hamburg, Nurnberg and Bremen.”
According to Hoehn, the new rules have also spawned concerns about the additional congestion at airports and flight delays in European air space, stemming from the anticipated growth of flights.
Another problem that may arise for airlines could be finding enough landing slots at airports. The various EC governments will still retain control of airport slot allocations, as well as landing and takeoff rights. From a consumer standpoint, one potential consequence if slots aren’t available for new carriers at the major gateways is that the established airlines at these airports have less incentive to lower their fares.
In order to stay on top of the changing European air travel picture, consumers should check fare prices often with airlines and travel agents when booking for flights next year. The number of intra-Europe discount fares are likely to increase due to the greater competition. They also may become easier to purchase outside the United States.
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