As Americans head into the summer travel season, there is a lot to be learned from the European Union (EU) about inexpensive airline travel, Mark Milke, director of research at the Frontier Centre for Public Policy, a Canadian think tank, says. His analysis in the latest American Enterprise Institute (AEI) Regulation Outlook's “What North America Can Learn from Europe” says consumers and airlines could benefit from changes. One key recommendation: rethink U.S. and Canadian open-skies policy.
Despite Europe's significantly higher taxes and fees on air travel, European consumers can find far better deals on airfare than can North American consumers, Milke says in his analysis. “The EU's open-skies policy lowers airfares by creating a single aviation market among all member countries; increased competition leads to greater choice and lower fares,” the analysis says. “Contrary to conventional wisdom, the airline market in North America is more regulated than in the EU, and as a result both U.S. and Canadian regulations prohibit foreign-owned airlines from offering domestic flights--that is, from picking up and dropping off passengers--within the United States or Canada. By comparison, the EU instituted an 'open-skies' policy in 1997, resulting in more routes, more airline competitors, and lower fares.”
One illustration cited in the study compared five U.S. and EU city-pairs. On a per-mile basis, a comparison of in-country flights in the U.S. (Los Angeles-San Francisco, New York-Boston, Chicago-Detroit, Denver-Las Vegas, and Miami-Orlando) to in-country flights in Europe (London-Edinburgh, Paris-Nice, Milan-Rome, Dusseldorf-Berlin, Barcelona-Madrid) reveals that U.S. air travel is significantly more expensive than European air travel.
“The total average fare per mile in the United States for the above five flights was twenty-three cents per mile; in Europe, it was 11 cents,” the analysis says. “Remove the taxes and fees, and Europe's cut-rate airfare advantage is even clearer: the base fare per mile in the United States for the five return flights is 19 cents; in Europe, it is just six cents per mile— one-third of the U.S. cost.
“Put another way, a traveler could book all five U.S.-based flights, travel a total (return) distance of 3,172 miles, and pay $722.98, all taxes and fees included (which constitute 16 percent of the cost),” the analysis says. “For the five European flights, the total distance traveled would be slightly more, at 3,338 miles, but the total price for flights on this European vacation would be just $379.28. That is almost half the similar five-flight deal in the United States. And in Europe, taxes and fees account for 51 percent of the total fare--far above the 16 percent for the five U.S. fares.”
While the United States and the EU signed an open-skies agreement in 2007, foreign airlines still do not have full access to the U.S. internal market, he notes, urging North American policymakers to follow Europe's example and establish open-skies agreements in the U.S.
On prices, the EU makes clear that its open-skies policy has benefited a wide swath of European society. The analysis says that consumers, airlines, employees of aviation-related businesses, and airports. “Moreover, as the European Commission notes, choices and quality are up and prices are down as prices have fallen dramatically, in particular on the most popular routes,” the analysis says.
Today, the U.S. retains some of the most restrictive laws on the foreign ownership and operation of airlines in the world, starving its airlines of capital and limiting their options for recovery, growth, and participation in a rapidly globalizing industry. The results, Milke notes, are "higher costs and lower employment for airlines, generating unrecoverable losses for consumers, aviation employees, investors and businesses."
The potential benefits of greater access to markets and foreign airlines are significant— for travelers and the airline industry, he argues, but says, prospects for airfare liberalization seem slim. In fact, the best chance of cracking open the U.S. market might be if the Canadian government reverses policy and pursues open skies with Europe on its own.