By: John Rauser - Farecast Fareologist
What impact will Open Skies have on airfare prices to Europe?
For the impatient, here’s the quick takeaway: Fares for travel to London in April and May have been lower than expected, with some fares substantially below 2007 levels. This is probably due to the new Open Skies Agreement. Fares for peak summer travel in June and July have not yet been affected, but we may see lower prices for these tickets as the spring continues to unfold.
In more detail: On March 30, 2008, the EU-US Open Skies Agreement will go into effect. Both The New York Times and Wikipedia have good primers on what this might mean for European travel. One of the biggest changes under the new agreement is that London’s Heathrow airport will be opened to full competition. Under the old Bermuda II agreement, only four airlines are allowed to fly between Heathrow and the United States: British Airways, Virgin Atlantic, American Airlines and United. Since the Open Skies Agreement has been signed, a number of US airlines have announced service to Heathrow, including Continental, Northwest, US Airways, and Delta.
So what, if any, impact is this having on airfares? Below is a chart showing the average year-over-year increase in fares to London’s Heathrow from a number of cities in the US.
For departure dates before Open Skies takes effect, 2008 fares range from 5% to 15% higher than 2007. As the new agreement kicks in, the year-over-year increase drops below 5%, and even dips into negative territory for some departure dates in the spring shoulder season. However, fares rebound and the increase heads back to the 5-15% region for travel during the peak summer months of June and July.
Of course, all of the normal competitive pressures are still at play, and it is difficult to disentangle them from the new competition introduced by the Open Skies Agreement. That said, the timing of the kink in the year-over-year increase chart above implicates the new agreement as a likely cause.
The big remaining question is, will peak summer fares eventually be affected? As covered in my recent video: summer airfare seasonality, last year we saw significant discounting in May for flights to London in July and August. With fuel costs up 60% or more this year, any discounting may seem unlikely. However, with demand being dampened by flagging US consumer confidence and the historically low dollar/euro exchange rate, I would not be surprised if we saw a repeat of last year’s falling prices starting sometime in May.