Australia, US Strike Open-Skies Deal

February 15, 2008

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Australia and the United States have agreed to open up trans-Pacific air routes between the two countries, prompting Australia's Qantas Airways on Friday to immediately increase its flights.

Australia's Transport Minister, Anthony Albanese, said talks with US officials in Washington had reached agreement on an open-skies pact, which could see more US carriers fly to Australia via ports in Asia, such as Tokyo.

"This agreement will remove restrictions on competition for the benefits of Australian jobs and consumers," Albanese said in a statement.

The deal helps clear the way for Australian airline Virgin Blue to begin flights to the United States on its carrier V Australia by the end of this year, edging open one of the world's most lucrative and protected long-haul routes.

But shares in Australia's flag-carrier Qantas dropped on expectations the airline will face tougher competition on the prized cross-Pacific leg, on which it has a near-monopoly.

Qantas chief executive Geoff Dixon said the airline welcomed more competition and would add three extra flights from March.

"It brings new opportunities for growth and competition. Importantly, it will assist the further development of Australia's aviation industry, as well as help increase trade and tourism with a major economic partner," Dixon said.

United Airlines is currently the only competitor to Qantas in non-stop flights to the United States. It runs 14 flights a week to Australia.

Qantas operates 48 flights a week, rising now to 51, and reportedly generates as much as 20 percent of its profit from the routes.

A 2006 report for Singapore Airlines said Qantas charged 38 percent more for flights from Sydney to Los Angeles than on the competitive "kangaroo route" from Sydney to London.

The open-skies deal replaces an aviation treaty between Australia and the United States under which airlines based in either country were capped at four weekly flights on the route in the first year.

Virgin's V Australia, which is 62 percent owned by Toll Holdings, has asked US transport officials for 10 weekly flights, having already placed an order for six long-range Boeing 777-300ERs with options to buy another six.

Australia's former conservative government rejected repeated requests from Singapore Airlines for permission to fly from Australia to the United States.

Albanese's Labor government, elected in November, has not yet said if it supports the entry of Singapore Airlines on the route. Singapore Airlines wants access to new markets to help offset competition from low-cost carriers in Asia.

Geoffrey Thomas, from Air Transport World magazine, said the pact would bring a significant increase to competition on the route, but said it had previously been served by up to four US carriers. "It's a very tough market," Thomas warned.

But Thomas predicted new routes would open such as Sydney-San Diego and Brisbane-Seattle.

Australian travel agents predicted a price war on US routes as competition increased.

Singapore Airlines estimates that opening the Pacific route to more competition could increase the number of travelers between the United States and Australia by up to 8 percent.

(Reuters)