Thursday, March 22, 2007

Open Skies treaty and business model innovation

Today the EU transport ministers unanimously approved the Open Skies treaty between the EU and US. This long negotiated treaty between the US and EU is a big step towards a global liberalised aviation market. It effectively allows any EU carrier to depart from any airport within the union to any US airport, and vice versa. The deal though fails to grant cabotage to carriers, in other words, allowing European carriers to operate domestic flights within the US market. A major sticking point in the negotiations was the limited access point to London Heathrow and the reluctance of the UK to ratify the treaty. Under the earlier aviation agreement trans-Atlantic flights between LHR and the US was limited to 4 carriers. British Airways and Virgin Atlantic were not keen on giving up this resource and lobbied hard to side track the treaty.

However, carriers are able to say one thing and work on contradicting strategies at the same time. This is just smart business. Virgin Atlantic recently announced that it is looking at offering trans-Atlantic flights from airports outside of LHR. Continental, on the other hand, has already filed an amended DOT application for trans-Atlantic operations, click here.

A new route is not considered a business model innovation, however the increased competition may lead to innovations throughout the industry, on both sides of the Atlantic. We may eventually see closer coordination with alliance partners or a reallocation of partners entirely. On-board services may be adjusted in an attempt to differentiate from competitors. So, don't hold your breath for any immediate changes to business models, but in the long run we may see some changes.

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