Wednesday, 31 March 2010

EU and US Open Skies now a reality

Negotiators from both ends of the Atlantic have now struck a deal make permanent the 2007 open skies deal that expands the liberalization of the skies across the EU and U.S. - a pact once thought to be threatened over ownership rules.
Talks over the next phase of the three-year-old open skies agreement between the United States and the European Union were expected to be contentious primarily because of the reluctance by the U.S. to relax foreign ownership rules. Prior to the latest round of talks, Europeans had warned that the entire agreement could unravel if progress were not made on this particular issue. It appears that progress has been made, but one can hardly call it a promise by the U.S. to liberalize its airline ownership policy. Because changing such laws requires an act of Congress, U.S. negotiators could only commit to working toward some reform without giving a specific timeframe. Some airlines are disappointed that this latest agreement does not go far enough in this regard. The EU allows 49.9% foreign ownership of its airlines; the U.S. only permits 25%. What is new is that, under the new agreement, European carriers will be able to attract U.S. government business and U.S. airlines will be able to expand on their access to EU markets.

The current EU-U.S. opens skies agreement permits any carrier from the U.S. to fly to any EU city and beyond. EU carriers are allowed similar access to any U.S. city but do not have rights to operate between U.S. cities. The new accord promises future action by both parties to balance the access to each other's' markets and to cooperate on environmental and regulatory issues. One such issue is night curfews at EU airports that often restrict the operations of cargo carriers such as FedEx. If the EU lifts some of these restrictions, the U.S. is willing to allow EU carriers the rights to fly from the U.S. to third countries in the future.

In essence the two sides have agreed to make permanent the 2007 open skies deal as they work toward greater cooperation on various issues such as security, safety and ease of travel. EU and U.S. regulators have to approve these measures independently before anything becomes official. Though both sides touted the progress made, the International Air Transport Association (IATA) thought the agreement could have done more. "The agreement was not a step backwards, but it did not move us forward," claimed IATA director general, Giovanni Bisignani. – a pact once thought to be threatened over ownership rules. To paraphrase a famous quote attributed to Mark Twain, reports of the death of open skies have been greatly exaggerated.

Source: IAPA

Wednesday, 3 March 2010

The Executive Traveller Economist

Why we should worry about travel services and fees as we slowly emerge from the recession.
Travellers have to pay attention to what airlines are offering before they book their flights. Those were the days when airlines will move heaven and earth to ensure that you enjoy your flight with them. Once debts start straying into the economic growth of airlines, economic growth tends to slump and then airlines start finding ways to charge for almost anything.
There is something particularly compelling about charging for almost everything that services providers like hotels and airlines put at our disposal as soon as supply exceeds demand because of high debt and recession so much so that so that they likely consequences is shrewdness on the part of the traveller.
Competition is only indirectly relevant. The question is how responsive an airline or hotel’s customers are to price – this is to say their own price elasticity of demand. The thing is when elasticity if low, airlines can increase prices without losing many customers. Naturally, this affects the price they charge and one explanation for elastic demand and low prices is that customers could easily shift to another airline.
Is it any wonder therefore that American Airlines has decided to charge fees for blankets and pillows? According to IAPA, the airline passengers association, American Airlines will begin charging for pillows and blankets in economy class – US$8 to be exact. It appears that the airline business has gone fees crazy. You never know what next they will be charging fees for. American isn't the first to charge for creature comforts such as blankets and pillows, and it won't be the last. The airline will continue to offer them for free in first and business class, and on long international flights in all classes. In the U.S., JetBlue, US Airways and now American charge for pillows and blankets. As with their policy of not charging for the first two checked bags, Southwest Airlines has taken the opposite approach. They've gotten rid of all pillows and blankets. The airline says it's not to cut costs, but for health reasons – I suppose that is a clever way of explaining the economics.
Perhaps it is about time we carried our own pillows and dressed appropriately. Cabin air temperatures can vary between 18ºC - 29ºC (65ºF and 85ºF) and the low end of that range can leave some passengers feeling too cold for comfort.
American Airlines is also keeping it simple by only accepting credit and debit cards on board for payment of items like duty free and alcoholic beverages. American Airlines flight attendants carry onboard secure handheld devices to ensure your payments with credit and debit cards are recorded safely. A receipt for any in-flight purchases will be available on request. Most major credit and debit cards are accepted. American Eagle and American Connection flights will however, continue to accept cash only for payment.