While the signing of the Open Skies agreement between the EU and the USA has been hailed as a triumph for the consumer, with the prospect of more intensive competition and lower fares in the transatlantic market, the actual impact of the deal may be severely restricted because of limited airport capacity and slot shortages in the EU, according to a study by the independent economics consultancy Oxera.
“Although the skies may have been opened, there is still the physical restriction of limited capacity on the ground,” the report states.
New slots are rarely made available, so market entrants will in fact continue to find it difficult to offer fresh competition, especially under the current European slot-allocation system, which is based on “grandfathering rights”, allowing historical operators to hold on to their slots as long as they use them regularly, the authors note.
They suggest that the EU could help overcome this situation by reforming its current slots regulation – a move that is already being prepared by the Commission, with proposals due in 2008.
The authors see two main reform options – either a reform of primary slot allocation, with the introduction, for example, of an auction system, or a formalisation of secondary trading.
Indeed, slot trading currently takes place in a “grey market” with no formal property rights granted to buyers, enabling incumbent operators to abuse their dominant position if they wish, say the authors.
However in theory, both these reforms could nevertheless benefit airlines and passengers, the report concludes.