Let European / Asian Airlines Fly U.S. Domestic Routes

Earlier this month, United Airlines spammed its customers and urged us to ask Congress to reign in oil speculators, whatever that means.

If Americans are going to get together to ask Congress to do something about the dismal state of domestic airlines, here’s a better plan: Urge Congress to take the EU-US Open Skies Agreement one step further. Let’s allow any European or Asian airline fly any U.S. domestic route.

The Open Skies Agreement, which just went into effect, allows any U.S. or European carrier to fly from any city in the U.S. to any city in Europe. This ended exclusive lockholds on lucrative routes to London Heathrow, among others. Right away Delta and US Air and Singapore Air among others started serving Heathrow, creating more competition (and thus lower prices).

Imagine what would happen if well-run European or Asian airlines with a younger fleet (such as the Lufthansa Group which includes their subsidiaries like Swiss Air) could start flying domestic U.S. flights. They would probably focus on longer haul domestic routes and could immediately attack the weak U.S. carriers and their hubs (US Air in Philly, United in Denver, and probably Delta’s secondary hub in LAX which has been a disaster).

I’m not optimistic the protectionist winds in Washington would allow for an open market in U.S. domestic routes, but certainly if American citizens are going to try to do something on the lobbying front to improve airline travel here at home railing against oil speculation isn’t the answer. Encouraging Congress to allow the better-run European and Asian airlines to compete probably is.

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The one bright spot among U.S. carriers remains Southwest Airlines which announced a remarkable 15% increase in profit last quarter. Here’s an analysis of Southwest’s new boarding policy. To me it signals a renewed commitment to business travelers who are willing to pay to get a 1-15 boarding number. Consider this plus their re-modeling of all gate seating areas (each gate equipped with big fluffy chairs and more power outlets than you know what to do with) and it’s clear that Southwest will start winning over business travelers on longer routes, not just budget-conscious, short haul flyers.

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I’ve now flown the new airline Virgin America several times between SF – NY, LA – NY, and SF – D.C., and have had a very pleasant experience. They offer low prices with professional staff and good in-flight amenities. But it’s hard for me to see how they’re going to maintain the low prices in the long run (I’m assuming now they’re loss leaders). I would expect Virgin America to follow the path of Jet Blue, though I’m not familiar with their oil / fuel hedge situation so maybe I’ll be proven wrong. Still, adding hip window dressing like JetBlue or the failed Ted or Song experiments of United and American without fundamentally changing the business model (VA operates a hub at SFO and competes on the cutthroat coastal routes) doesn’t strike me as a winning formula to an industry in need of innovation.

4 Responses to Let European / Asian Airlines Fly U.S. Domestic Routes

  1. Right on Ben – both parties say they believe in markets yet no one is willing to try a market solution like you are suggesting.

    Southwest has some nerve to complain about “speculators”. After all, their competitive cost advantages came from jet fuel futures – isn’t that what they’re calling “speculation”?

    Do you think Southwest really believes this, or is it more likely that they enjoy passing the buck to a scapegoat like the guys in Washington?

  2. Sean Ness says:

    Economically, this is a huge challenge. With fuel prices as high as they are, no one wants to fly more than 8 hours. Once you get past 8 hours, profits begin to diminish quickly as you have to have more fuel just to carry fuel…the plane becomes a flying gas station that only services its own engines. This will keep most of the long flights tied to the coasts…so not likely that you’ll have an International flight from Detroit, Denver or Dallas.

    The only time it makes sense to fly longer than 8 hours is if the plane is completely first/business class (more $$$), however Americans do not tend to fly those classes within the US.

    And I’m not sure how DHS would be with foreign carriers overseeing many of our routes. Under the current administration, DHS thrives on fear and foreigners scare the bejesus out of them.

    Also…to my knowledge…only Southwest was able to capitalize on the fuel hedge

  3. devan says:

    Hey Ben,

    Song was actually Delta’s experiment, not AA’s.

    Surprisingly, I recently flew from jfk to sea in a Delta plane, still in Song livery!

  4. Ben Casnocha says:

    Sean: This post referred to international carriers running domestic routes, not international routes. E.g. SF to Chicago. Not US cities to international cities.

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