US Throttles Down Sky-High World Air Fares

Prices for international flights are rarely cheap. But if the United States has it its way, Americans may someday enjoy the same low fares going abroad that airline deregulation brought to US skies.

Already, the US has deals with 25 countries to open their markets. A round-trip flight between Newark, N.J., and Brussels, for instance, can be had for $296 on City Bird of Belgium. Another upstart airline, Martinair Holland, offers a $416 round-trip fare between Amsterdam and Orlando, Fla.

These prices are the kind proponents of airline deregulation say the whole world will enjoy if more so-called "open skies" agreements are adopted.

But not everyone is so sure. Governments often find a way to protect their often-subsidized national airlines. And travelers worry that cabin service may decline to domestic United States standards, where amenities like hot meals have yielded to fierce price cutting. And some analysts wonder what a combination of global deregulation and global alliances will really mean for competition.

The US, which led the way in deregulating its domestic air routes in 1978, has been making open-skies agreements with a number of individual countries. Earlier this month, the US and Japan concluded talks in San Francisco to liberalize the gigantic transpacific air-travel market and related air routes to the growing economies of Asia. American and Japanese negotiators sounded optimistic that a deal will finally be reached - one that might relieve the high prices and limited choices that have plagued international air travelers.

The two sides have reportedly been on the verge of reaching an agreement to increase transpacific air traffic for months. But with billions of dollars and dominance in the world's fastest-growing air-travel market at stake, they have yet to resolve differences over landing slots, airline alliances, and the right of American carriers to fly between Japan and other Asian destinations.

'A step in the right direction'

"So far, what the Japanese have been prepared to offer falls short of what we need to ensure substantial up-front liberalization of the market for our carriers," an American official says. "We're for 'open skies' worldwide, but since Japan adamantly refuses to accept a fully deregulated arrangement, we're seeing if we can't come to an agreement that takes a step in the right direction."

International cargo and passenger aircraft move the people, packages, equipment, and commodities needed around the world to keep international business in gear, as well as driving the worldwide boom in tourism. Air transport has undergone a dramatic expansion to meet the demands of an increasingly integrated planet. It accounts for an estimated 22 million jobs and $1 trillion in annual economic activity and grows at more than 6 percent each year. In the US, the Commerce Department estimates the industry accounts for $54 billion in direct output, making it one of the largest US industries.

It is also one of the few major industrial sectors in which the US dominates the world market. Since the US domestic air travel market was deregulated in 1978, American air carriers have become more efficient than their major European and Asian competitors. Their market shares have increased in most major markets, including Japan, where US carriers already have a 62 percent share of the passenger market. US air-express couriers like Federal Express and DHL also dominate the booming industry they have created.

"Here's one industrial sector where [American] companies are globally cost-effective and could dominate the market the way Japan took over the consumer electronics industry," says aviation analyst Scott Gibson of the Washington-based Economic Strategy Institute. "Our carriers would grow and prosper in an open-skies environment."

Not surprisingly, Washington has made opening the world's aviation markets a top trade priority. Until recently, most governments tightly regulated international air traffic to their countries in an effort to protect their national airlines, which are often government-owned or -controlled. More-efficient American carriers already dominate these protected competitors in many markets and stand to improve their position if markets are liberalized.

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