Heathrow and Open Skies: Free to fly

There will be no more poignant symbol of the new Open Skies agreement than when Air France flies in a Boeing 777 to start a daily service from Heathrow to Los Angeles on April 1. In one move, everything that symbolises the old order will be gone, when one of BA’s arch rivals lands in its nest and steals the food from its young. It seems incredible that it has taken until now to break an archaic agreement signed in 1952 known as Bermuda II. Born from a desire to protect the likes of Pan Am, TWA and BOAC, Bermuda II restricts the number of carriers which can fly between the UK and the US and means business travellers flying from Heathrow pay rates sometimes three times those from Paris or Frankfurt. Bermuda II, in its latter stages, meant that only BA, American Airlines and United Airlines could fly to the US from Heathrow, although lobbying by Sir Richard Branson saw Virgin Atlantic join the club in 1991. (The only exceptions are a few services operated by Kuwait Airways, Air India and Air New Zealand, which have special traffic rights, but these only amount to 21 flights a week in total.) But shortly after the EU took over British airspace – and the negotiations – a breakthrough came this summer. The new agreement, known as Open Skies, will see the arrival at Heathrow of new airlines, new routes and, almost certainly, lower fares, particularly for business passengers. Air France is likely to be one of the primary beneficiaries. Like all EU carriers, it will now have access to Heathrow – and unlike some of its US rivals, it has a handful of precious slots at the congested airport that it no longer needs. The Channel Tunnel has rendered some of its Charles de Gaulle services from London unnecessary, allowing the airline and its partners in Skyteam room to manoeuvre. Air France will become one of seven carriers flying from Heathrow to Los Angeles next spring, but Norman Gage, business travel director of travel agency consortium Advantage, doubts that one more will create a stir. “Why is Air France going to LA? To make money, not to start a price war,” he says. “It does not necessarily mean that prices will come down. There will be times of the year when fares come down and times when they won’t.” Skyteam has big plans to take on the dominance of the Oneworld alliance at Heathrow, where Oneworld’s big guns, BA and American Airlines, have had things too easy for too long. Skyteam’s other formidable players include KLM, which also has a major bag of slots at Heathrow. Between them, they can dish these out to their fellow members Delta, Northwest Airlines and Continental, three carriers until now confined to Gatwick. Air France’s major Skyteam partner is Delta, an airline whose predicament sums up the absurdity of Bermuda II. Delta’s base is Atlanta, whose domestic traffic makes it the world’s busiest airport, with 82 million passengers. Under Bermuda II, it was forbidden to fly from here to Heathrow, the world’s busiest international airport with around 62 million passengers. Tit for tat meant that BA’s Atlanta service was, like Delta’s, confined to Gatwick. From March 30 this will change, with Delta launching an Atlanta service from Heathrow plus two flights a day to JFK. It is cutting some frequencies at Gatwick, but maintaining services to both destinations there. Delta’s arrival at Heathrow will see it offer a £229 economy return to JFK, in line with other carriers’ loss leader. It maintains that it will offer a fully-flat bed in business class later in 2008, although it is embroiled in a copyright row with Virgin Atlantic. If this is sorted, it is likely to be priced slightly lower than BA and Virgin’s current tariffs. For another clue to what will happen next April, look to Amsterdam’s Schiphol airport. There KLM and Northwest have forged a fruitful partnership for more than a decade, sharing services to Northwest’s major hubs at Minneapolis and Detroit. Northwest serves both these routes from Gatwick and is seeking to offer them from Heathrow. It would make sense for both carriers to fly them in a joint agreement utilising some of KLM’s slots, particularly to Detroit, which BA abandons on March 30, perhaps seeing the writing on the wall. Sources within KLM indicate that this is on the cards, although nothing is likely to happen on April 1. Skyteam’s slot holding is vital, because Heathrow is full and a pair of daily take-off and land slots change hands for anything up to £10 million. Continental Airlines, another carrier confined to Gatwick, and deprived of Heathrow’s connection network, will attest to this. The airline was one of the first to announce plans to take advantage of Open Skies by breaking BA’s monopoly on the valuable Heathrow-Houston route, but it wasn’t until November that it obtained the necessary slots. Subject to approval, however, Continental will now be able to join its US rivals at Heathrow on March 30, with twice daily services to both Houston and Newark planned. Come April, it will be ironic that the airline that got the party started, Bmi, isn’t turning up. Bmi’s chairman Sir Michael Bishop has been a thorn in the side of governments for more than 20 years. In 1982, he broke BA’s monopoly on UK domestic services to Heathrow and four years later, did the same on European trunk routes. Bishop was also one of the strongest voices in condemning Bermuda II and bought a small fleet of long-haul aircraft in preparation for its dismantling. After several false starts, these aircraft now fly from Manchester to Chicago and from Heathrow to Saudi Arabia. However, Bmi has lost its appetite for the US while it absorbs Bmed, the airline it bought in January. Bmi’s chief executive, Nigel Turner, is keen to get the 17 routes it gained under its belt first. “We will not be flying to the US before April 2009,” he said. For the moment, Bmi must be content with extending its codeshare with United Airlines, its Star Alliance partner. Under Open Skies, Bmi can add its code to five United services from Heathrow, including Denver, which United will start non-stop daily flights to from March 30. Denver, a major United hub, is another former BA monopoly. Further ahead, Bmi has asked for permission to put its code on United’s flights beyond its US hubs, while another Star Alliance member, US Airways, plans to move its Gatwick flight to Charlotte, North Carolina, but has also yet to find slots. Other incumbents at Heathrow are marking their ground. Next spring, American Airlines will move two services from Gatwick to its major hubs at Raleigh/Durham and Dallas/Fort Worth, leaving Gatwick with only one American Airlines service, to Dallas. BA is moving its Gatwick flights to Dallas and Houston, and three Boeing 777s, to Heathrow, and will probably also shift its Gatwick-Atlanta service. It is also adding more Heathrow frequencies to Seattle, Washington and JFK. Virgin argues that it is already prepared, having launched a Heathrow-Chicago service and a sixth daily New York flight earlier this year. Then there are the wildcard entries. Singapore Airlines lobbied for a decade for permission to fly from Heathrow to New York. Ironically, a breakthrough agreement between SIA and the UK government came almost at the same time as Open Skies, curbing its enthusiasm. Lufthansa,  meanwhile, has kept its cards close to its chest. It has a raft of slots at Heathrow and is eyeing other competitors’ moves. “Watch this space” is all its UK office will say. The greatest impact of Open Skies will be felt on the biggest UK-US destination – New York. JFK and its little brother Newark are, depending on the time of year and the class of travel, either airlines’ biggest cash cow or their biggest nightmare. April 1 will see 11 flights a day from Heathrow to New York from BA, six from Virgin, five from American Airlines, two from Delta and probably another two from Continental, giving an overall projected increase of 15 flights a week compared with April this year. So are we likely to see plummeting fares and thousands of unsold seats? The answer is yes and no, depending on time of year and class of ticket. The back of the bus is already sold at cost during some months and some have fled the market. “Economy fares are already rock bottom,” said Paul Charles, Virgin Atlantic’s head of corporate communications. “We are not expecting anything to happen there.” Such was the pain at times, even before Open Skies was announced, that United axed its sole daily Heathrow-New York, while American Airlines has decided to move one of its JFK frequencies to Stansted from April 1, when it will drop to five flights a day from Heathrow. But if there is little hope of economy fares plummeting, there is considerable scope for premium rates to drop, particularly when Stansted is taken into account. The Essex hub has been part of the picture for transatlantic carriers for two years now, since Maxjet and Eos began trying to pillage the Heathrow-JFK premium market. Stansted was unhindered by Bermuda II, but previous attempts to make it work as a transatlantic airport foundered. American Airlines tried Stansted and gave up in 1992 and Continental’s brief attempt was scuppered by 9/11, but the airport has come of age. Its premium carriers (and Luton’s Silverjet) are taking business from the front cabins at Heathrow – hence American’s decision to return. The world’s biggest carrier fired a salvo in the form of an introductory £965 return business class fare (with Saturday night restriction). In fact, for those prepared to forego the fully-flat beds provided by BA and Virgin, there will be a flurry of cheaper premium seats offered by carriers at Heathrow and Stansted – and the fiercest battle zone could be the middle ground, among the likes of Maxjet, Silverjet, Continental, American and, until it refits its cabin, Delta. BA and Virgin are convinced, though, that what business travellers want is their frequencies and their fully-flat beds, and that they can continue to charge a premium until others up their game. BA also believes its customers want its network and that it can charge more for that too. Even after Open Skies, its Club World midweek return fare is sitting defiantly at around £3,500. Virgin is equally bullish, arguing that its Upper Class suite will keep attracting customers prepared to pay a premium. The carrier also has a secret weapon in its new premium check-in, which promises to get you airside in 10 minutes (go to businesstraveller.com/news for more details). “People will pay for a product and we have a better one,” said Charles. One final impact of Open Skies is the fact that it will allow Virgin and BA to fly from continental Europe to the US. Both have said they will do this and BA is already well ahead in its preparations. It will launch flights from major European cities to New York next summer using narrow-bodied Boeing 757s fitted with two cabins, likely to be Club World and World Traveller Plus. BA’s new venture will also allow it to circumvent Heathrow entirely, saving transfer passengers the hassle of queues and security checks. In the long run, direct flights from Europe may allow BA to cancel some of its flights from these cities into Heathrow, freeing slots for more lucrative long-haul services. For BA, the skies above the UK may be open, but it is already sending the cavalry into Europe to head the passengers off at the pass. Open Season - Air France Launching Heathrow to Los Angeles from April 1. - Delta Daily service LHR-Atlanta, plus two daily to JFK from March 30, some services at Gatwick cut. - KLM & Northwest Likely to replace BA’s LHR-Detroit service when stopped March 30, probably also LHR-Minneapolis. - Continental Starting Houston and Newark from LHR twice daily from March 30. - United Launching LHR-Denver, March 30 (Bmi codeshare). - US Airways Planning to move Charlotte NC flight from Gatwick to LHR, waiting on slots. - American Airlines Moving flights to Raleigh/Durham and Dallas/Fort Worth from Gatwick to LHR in spring. - BA Changing Gatwick flights to Dallas and Houston to LHR, more frequencies to Seattle, Washington and JFK; planning flights to New York from Europe, possibly with two-class business and premium economy.