The British government will come under further pressure today to accede to US demands to liberalise transatlantic air services. A study will say that the strong airline alliances resulting from liberalisation could cut air fares by 27 per cent.
The failure of the two countries to reach a so-called open skies agreement has prevented alliance partners from the two countries, such as British Airways and American Airlines and British Midland and United Airlines, from applying for US antitrust immunity. This allows airlines to agree on setting fares in specific markets, giving them an edge over rivals.
Washington will only grant immunity to airlines from countries that have agreed to fully liberalise their aviation markets.
So far Star Alliance partners, Lufthansa of Germany and SAS, the Scandinavian airline, have won immunity for their alliance with United Airlines, as has Dutch airline KLM with partner Northwest. American Airlines was recently granted immunity for its co-operation with Swissair and Belgium's Sabena.
The research by Professor Jan Brueckner, an economist at the University of Illinois, looked at more than 50,000 fare and airline combinations in the transatlantic market for transfer passengers and found that alliances given immunity offered sizeable savings on ticket prices.
The Star Alliance resulted in savings of $100 mukkuib annually over the industry standard. Professor Brueckner said what was "a little surprising was that normally co-operation in pricing between firms shouldn't lead to lower fares. Such co-operation is usually thought to be anti-competitive."
He said a similar study in 1998, when applied to the KLM/ Northwest alliance, widely regarded as the most developed in the industry, showed savings of up to $185 million annually.
Professor Brueckner rejects criticism that his report ignores the different dynamics of the transatlantic market between the UK and the US, by far the biggest in Europe, where a large proportion of passengers fly direct between two destinations rather than transferring to another flight.
