Senate Should Not Disrupt Plans for Greater Competition in International Air Travel


Plans Backed by Clinton Administration and Free Market Conservatives Will Lower Passenger Fares and Create U.S. Jobs



FOR IMMEDIATE RELEASE: April 21, 1997

CONTACT: Amy Ridenour 202-543-4110 or [email protected]


News that the Senate Judiciary Committee will hold surprise hearings April 22 on the proposed alliance between American Airlines and British Airways is raising eyebrows among advocates of more competition - and lower consumer prices - in international air travel.

"As advocates of free enterprise and watchdogs for consumers we hope that this unexpected news doesn't mean that the Senate will attempt to prevent the alliance," said Amy Moritz Ridenour, president of The National Center for Public Policy Research. "The Clinton Administration has already signaled that it will approve the alliance subject to Britain's agreement to open it's skies to more competition. This combination will have many benefits for the United States. It would be ironic indeed if this Senate, generally regarded as more laissez faire than the Clinton Administration, failed to appreciate the benefits the Administration is correctly pursuing."

The American-British Airways alliance is regarded as the catalyst to acquiring Great Britain's approval of a so-called "Open Skies" agreement. Open Skies, if approved by Britain, would greatly reduce the labyrinth of regulations covering non-safety aspects of passenger air travel between the U.S. and Britain. For instance, it would end Britain's insistence upon the so-called "sum of sectors" rule, which mandates that U.S. carriers landing in Britain from U.S. cities set prices higher than necessary. This and other restrictions placed upon U.S. carriers have kept prices for U.S.-Britain air travel higher than market level since 1977, when the last international air agreement, known as Bermuda 2, was approved.

A comprehensive study of the impact of an American-British Airways alliance within the context of an "open skies" agreement has determined that the following benefits would result:

* More tourism and travel dollars for Americans: The artificially high prices presently mandated by Great Britain have reduced the flow of tourists from Britain and other locations into the United States. By the fifth year, the lower prices made possible by the Open Skies/AA-BA combination is expected to generate 9.4 million new on-board passengers annually between the US and London, amounting to $9.1 billion extra to the U.S. economy in annual expenditures by foreign visitors in the U.S.

* Economic benefits and new jobs: Over the next five years implementation of the AA-BA alliance with open skies is expected to generate a cumulative total of $108 billion in additional economic activity, including: $11.8 billion in expenditures by airlines, $28.9 billion in new U.S. aircraft purchases, $25.6 billion in additional annual exports of US-manufactured goods (and a substantial but unquantified increase in U.S. service industry exports), and $11.4 billion in additional annual job-creating foreign investment in the United States. This increased economic activity, combined with the $30.2 billion extra in the first five years to the U.S. economy in annual expenditures by foreign visitors will create 152,833 additional U.S. jobs.

* Traveling cost and convenience: Implementation of the alliance within the context of Open Skies will decrease ticket prices for air passengers while increasing traveling convenience. 6-12 U.S. cities will receive non-stop service to London for the first time; 12 U.S. cities will have a choice of carriers for trips to London for the first time; and 29 cities will see new or additional service to London Heathrow. This amounts to a total 86% increase in weekly flights between the U.S. and London.

"As the fact that the Clinton Administration and free market conservatives agree on this issue indicates, critics of the BA-AA alliance and Open Skies are few and far between, particularly in the United States," said Ridenour. "However, a few do protest based on their own economic interests. Airlines presently benefiting from the currently restricted market into Britain, such as Britain's Virgin Airways, do prefer the status quo. Some of American's domestic competitors have also protested, but since the U.S. government has already let United ally with Lufthansa, Delta with Swissair, Sabena and Austrian, and Northwest with KLM, it seems unfair for the U.S. government to stop only American from working with a foreign partner - especially as the alliance will benefit ordinary Americans. Big airlines should not try to get the U.S. government to do their competing for them."

The National Center for Public Policy Research is a free market conservative think tank operating on Capitol Hill since 1982. For more information, contact Amy Ridenour or visit their web site at http://www.nationalcenter.org

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