A fare break for Europe's flyers?
(FORTUNE Magazine) – In about the same amount of time -- 2 1/2 years -- it took Ronald Reagan and Mikhail Gorbachev to agree to eliminate an entire category of nuclear missiles, the Common Market's 12 transportation ministers came up with a scheme to deregulate Europe's airlines. But don't expect atomic impact: Those stratospheric European air-travel prices will descend only gently. Under the old regime a set of restrictive bilateral agreements between governments fixed ticket prices and split revenues fifty-fifty between national flag carriers. With the new agreement, officially sanctioned collusion is out, though real competition is not quite in. The accord, which will be phased in over three years beginning January 1, will allow Europe's flag carriers to offer discounted fares up to 45% below full-priced economy tickets without competitors' prior consent or government approval. Thus, Italy's state-owned carrier Alitalia or France's Air France, for example, can unilaterally drop the price of a round-trip ticket between Paris and Rome from the current full-fare economy tariff of $863 to a still steep $653, about double the cost per mile of a flight of similar distance on a heavily traveled U.S. route. The International Air Transport Association, an airline trade group, estimates that on average intra-European air fares could fall from 10% to 15% by summer. But what the ministers giveth, they also hem in with restrictions. Eurocrats and airline officials worry that unfettered U.S.-style deregulation would put an unacceptable strain on the Continent's already crowded airports and air traffic control system. So, to qualify for discount fares, business travelers will have to reserve weeks in advance, agree to minimum stays, and pay stiff penalties to change bookings. The accord should spark new competition. Some efficient, no-frills charter lines are considering scheduled service. Air Europe, a British charter outfit, will start flying eight routes this year. |
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