The Impact of the EU–US Open Skies Agreement and the Resulting British Airway's Open Skies Initiative: Passenger Numbers in London, Amsterdam and Paris

Abstract

The advent of the EU–US Open Skies Agreement has been widely anticipated. A number of consequences have been predicted, for example, impacts on fares, passenger volumes, choice and consumer welfare. Airline costs are also predicted to fall as a result of increased competitiveness and increased cooperation among airlines. For the short period since the implementation of the Agreement, it is relatively easy to assess the supply-side changes that have been made, but more difficult to make wider judgements. This paper indicates the data that will be required to make these judgements and notes some methodological difficulties. Early estimates of the impact on passenger numbers are given using time series analysis focusing on London airports, in particular London Heathrow and airports served by British Airway's Open Skies Airline from Paris Orly and Amsterdam Schipol.

Impact de l'accord Ciel Ouvert entre l'UE et les États-Unis et de l'initiative Open Skies résultante de British Airways: nombre de passagers à Londres, Amsterdam et Paris

Résumé L'avènement de l'accord Ciel ouvert entre l'UE et les États-Unis avait été très largement prévu, et on a prédit un certain nombre de conséquences, notamment l'impact sur le prix des billets, sur les volumes de passagers, sur le choix pour les consommateurs et sur leur bien-être, entre autres. On prévoit également que les coûts des compagnies d'aviation devraient baisser, en conséquence de l'augmentation non seulement de la compétitivité, mais aussi de la concurrence entre les compagnies. A l'issue de la courte période qui s'est écoulée depuis l'implémentation de l'Accord, il est relativement aisé d’évaluer les variations qui se sont produites du côté de l'offre, mais beaucoup plus difficile de formuler des opinions plus générales. La présente communication indique les données qui seront requises pour formuler ces jugements, et souligne certaines difficultés sur le plan de la méthodologie. Des premières évaluations de l'impact sur le nombre de voyageurs ont été avancées, sur la base d'analyses à série temporelle concentrées sur les aéroports de Londres, notamment l'aéroport Heathrow de Londres et les aéroports desservis par la compagnie Open Skies de British Airway entre Paris Orly et l'aéroport Schipol d'Amsterdam.

El efecto del Acuerdo de Cielos abiertos entre la UE y EE.UU. y el resultado de la Iniciativa de Cielos abiertos de British Airways: número de pasajeros en Londres, Ámsterdam y París

Resumen El advenimiento del Acuerdo de Cielos abiertos entre la EU y EE.UU. era algo ampliamente esperado. Se han pronosticado muchas consecuencias, por ejemplo, los efectos sobre las tarifas, los volúmenes de pasajeros, las opciones y el bienestar de los consumidores. También se ha pronosticado la caída de los costes de las aerolíneas debido a una mayor competitividad y el incremento de la cooperación entre las aerolíneas. En el corto periodo de implantación del Acuerdo, es relativamente fácil evaluar los cambios que se han dado en el lado de la oferta, sin embargo, es más difícil realizar estimaciones mayores. Este trabajo indica que se necesitan datos para realizar estas estimaciones y hace referencia a algunas dificultades metodológicas. Los primeros estimativos del efecto sobre los números de pasajeros se han obtenido mediante análisis de series de tiempo centrados en los aeropuertos de Londres, en particular, el de Heathrow, y en los aeropuertos atendidos por la Aerolínea de Cielos abiertos de British Airways de Orly, en París, y Schipol, en Ámsterdam.

Keywords:

• EU–US Open Skies
• airline passenger numbers
• data requirements
• counterfactual
• ARIMA models

JEL classification :

• C32
• L51
• L93

Acknowledgements

The author is grateful for the comments of two anonymous referees on an earlier draft of this paper.

Notes

1. These results are repeated below in Sections 3.5 and 3.6.

2. Although no changes have been made at present in these respects, the Agreement has been affirmed (see http://www.dot.gov/affairs/2010/dot5210.htm and http://europa.eu/rapid/pressReleasesAction.do?reference=MEMO/10/103&format=H).

3. The start date throughout this analysis was taken as August 2008, just prior to the demise of Lehman Brothers. A longer time series might enable this impact to be revealed, but this is not the principal focus of this analysis.

4. La Guardia only has domestic traffic and London City had no transatlantic traffic at this time.

5. This is the only passenger traffic data for London–US airport traffic illustrated in this paper as each shows broadly similar movements, albeit at different scales. The other graphs can be obtained direct from the author.

6. As well as discontinuing the AMS service, the services at Milan, Frankfurt and Brussels, that were originally planned, were not started.

7. The graph of similar data for AMS can be obtained from the author.

8. The basis of the RMSE calculation and Theil's Inequality Coefficient U is with n–k–1 degrees of freedom. Systematic error is shown by U _m , the variance by U _s and the covariance by U _c . Ideally U _m and U _s =0 and U _c =1.

9. With regular differencing, the first difference of a pulse intervention, when used, is represented as a pulse.

10. This is the only residual autocorrelation shown. The others are available from the author. The only doubt about model validity is when Residual Autocorrelations become significant, but this never happens at a short lag or a significant seasonal lag, such as 12 or 24. A further test could be the more rigorous BDS test (Brock et al., 1996).

11. As there is no non-seasonal differencing, steps and pulses can be examined

12. The constant term is retained in these models as there is no regular differencing.

13. The first autoregressive parameter is not reported in the table as it is insignificant.

14. Another outlier in the Paris data that none of these models have been able to account for is found for November 2003. Investigating the traffic in detail suggests that this might be attributed to the activity of Air India on the route but the start of its service does not tie in exactly with the date of the outlier and these attempts to deal with this shift in level were abandoned.

15. This model is not particularly parsimonious but deals with identified outliers.

16. There is some evidence that the recession in the UK ended in the third quarter of 2009 (Sunday Times, 20 December 2009).