Bermuda II: it might sound like Stelios’ latest cruise venture, but in fact it’s an ancient relic that affects all of us who travel on a regular basis. Signed in 1977 – when Leo Sayer was a force to be reckoned with and a new film was on the verge of release set in a galaxy far, far away – Bermuda II has shaped the airline industry for the past 30 years.
Effectively, it’s a trade agreement that limits transatlantic access out of Heathrow to two British and two US airlines. Everyone knows that it’s uncompetitive, anachronistic and probably illegal (at least according to the European Court of Justice in November 2003), but those who profit from it have fought tooth and nail to keep the status quo.
And with good reason. The UK-US route is the holy grail for the airline industry – carrying 18 million passengers in 2004 (London to New York alone carried four million) and worth about $10bn a year. You can lose a lot of money if you get it wrong (just ask Freddie Laker), but stand to make a huge amount if you get it right. For the lucky few, this means that Bermuda II offers cosy protectionism. For the rest of the airline industry, it looks like a clear case of restrictive trade.
So far, so good, but why should we, as business travelers, care about who flies to where? On any given week day, we can now choose between 26 departures from Gatwick or Heathrow to JKF or Newark. If we’re in the Square Mile, it might just be easier, cheaper and quicker to start from London City and change at a mainland gateway – or to take one of two new flights from either Eos (a flat-bed business class-only Boeing 757 service) or Maxjet that have just started up from Stansted. And this is without even thinking about the airlines from the Middle East who are creaming off some of the London business by operating through Birmingham and Manchester to North America.
But when it comes to choosing who to fly with from Heathrow, the world’s busiest airport, we’ll still be pretty much stuck with the two big guns. This near-monopoly has gone on for almost 30 years, and has meant less air service, less competition, and higher airfares. And not just that, but it leaves the UK airline industry completely out of step with modern reality of open markets and free trade. America has Open Skies agreements with almost 60 counties, including almost all of Europe (even the French go further than we do in deregulating access to their airports).
Ireland, although currently in the same position as the UK, is set to join up to the Open Skies agreement with or without the UK. The Irish government is still the majority shareholder in national air carrier Aer Lingus, and with plans to privatise it next year, they are looking to improve share prospects by ensuring flight agreements to more US cities.
Even without this incentive, the move is essential for the airline’s long-term growth, even taking into account the added competition on routes into and out of Dublin that will result. Aer Lingus has come out of near insolvency to stage a remarkable recovery in the last few years, and they want to keep expanding. As Enda Corneille, European sales manager, points out, ‘We’re running out of airports in Europe, we have to start looking long haul…’
Since September 2005, Aer Lingus became the first carrier on an Atlantic route to sell one way air fares (and their seat occupancy shot up from 80 percent to 95 percent as a result). British airlines are looking at those results right now, and want to get in on the action – but Bermuda II is standing in their way.
Things could be worse, of course. When the agreement was signed, it was even more restricting, with just British Airways, TWA and Pan Am as the privileged carriers. The demise of Pan Am and the later take-over of TWA allowed United Airlines and American Airlines access, together with Virgin Atlantic from 1991. Due to a quirk of history, Air India and Kuwait Airways fly the route too, but while bmi run long haul flights from Heathrow, they are not allowed to use the airport for access to the US.
Richard Branson, despite having managed to squeeze a whole three percent of the traffic from Heathrow for Virgin, was vocal in his opinion to aviation experts ABTN. ‘It is ironic that of all the industries with which I am involved, aviation, the one that has done the most to open up the world to entrepreneurs and to encourage globalisation, is the one which is most regulated. Of course, some of these regulations, especially where they relate to safety and security, are important and necessary, but the ones relating to the nationality of the ownership and control of airlines most certainly are not.’
Noise about scrapping it comes and goes, but there is now real hope of a breakthrough. In October 2005, the EU and the US met in Brussels after a gap of 18 months (when the talks last broke down…), and industry word is this time they just might mean business, with an agreement expected early in the new year.
With a potential merger between British Airways and American Airlines on the horizon, the need to ensure some healthy competition has never been more urgent – and no doubt the decision makers are more than aware of this. For BA’s part, it says that it too wants the US market open further to European carriers, pointing out that the removal of foreign ownership restrictions that the US imposes would redress the advantage that their carriers have under the current arrangements (ie it’s not us, guv’nor, it’s them).
They also, unsurprisingly, want Heathrow to maintain its hub status. ‘The opening of Terminal 5 in 2008 will be a major step forward for the airport in terms of ease of use for customers, access and technology, allowing Heathrow and BA to remain the first choice for business passengers.’
The issue for business travellers and their travel organisers is where to fly from and with whom. As the choice gets even greater, those of us who are buying the tickets and getting on the planes aren’t asking for much – just access to good fares from the most convenient locations. It’s time that the battle of the Atlantic comes to an end.
