News Article - February 06, 2008

  If you're among the lucky few who can afford to pay $7,000 or more for a round-trip business-class ticket between Philadelphia and London, life is about to get even better. Starting March 29, US Airways and other U.S. airlines will be players in one of the most significant changes in decades in transatlantic travel, when they are allowed, for the first time, to fly between their hubs and London's Heathrow Airport.

   Heathrow, Europe's busiest international airport and the favorite gateway of business travelers willing to pay high fares, is becoming more competitive as part of an "open skies" agreement signed last fall between the United States and the European Union. Currently, airlines are restricted in routes between the United States and individual European countries under bilateral treaties. The new pact will treat Europe as a single country and allow U.S. airlines to expand their service to coveted destinations within it - especially, Heathrow.

   In return, European airlines will have greater freedom in flights to the United States. For example, Air France could fly straight here from London, whereas now it could only fly here from Paris, its home county. US Airways, which will offer one round-trip daily between Philadelphia International Airport and Heathrow, will have lots of company. The five other U.S. airlines with European flights - American, Continental, Delta, Northwest and United - also plan to start new service between their U.S. hubs and Heathrow by early April. As the new service cranks up, industry experts foresee some fare wars, involving both vacationers flying coach and business-class customers sitting up front in the plane.

   "Service options are going to improve, and prices are going to fall," said Kevin P. Mitchell, chairman of the Radnor-based Business Travel Coalition, which represents corporate travel managers on both sides of the Atlantic. Among the Philadelphia-area business travelers most likely to benefit - and to be pursued by airlines - are thousands of employees of multinational pharmaceutical companies, such as GlaxoSmithKline P.L.C., AstraZeneca P.L.C. and Shire P.L.C., all British-headquartered companies that have large U.S. operations here.

   For Shire, with headquarters in Basingstoke, west of London, "there is great value to flying into Heathrow," said spokesman Matt Cabrey. "At any given time, there are lots of folks traveling back and forth from Philadelphia to Heathrow" on both British Airways and US Airways. The U.S. airlines will find themselves competing fiercely with British Airways, the dominant carrier at Heathrow for years. It has flights to London from two dozen U.S. cities, including two daily round-trips between Philadelphia and Heathrow.

   Last week, the U.K. airline said it would start flying next year between New York and London City Airport - close to London's financial district - using Airbus A318 jets with just 32 business-class seats. British Air, using the new U.S.-EU agreement, also is about to launch a subsidiary carrier that it has named Open Skies that will cater to business travelers on nonstop routes between New York and other major European cities outside the United Kingdom.

   The market for U.S.-London flights is large enough that US Airways and the other airlines will continue to offer service from Gatwick, London's second-busiest airport. Gatwick is about 30 miles south of London, making it less popular with travelers and airlines than Heathrow, just 10 miles west of the city. "I don't think any U.S. carrier will have trouble filling these Heathrow flights," said George Hamlin, a Washington-based airline consultant. "You're going to be shifting some of the traffic from the other airport."

   A key measure of just how highly airlines value access to Heathrow is the price tag for landing slots, which technically aren't for sale but which carriers trade with each other in a kind of unregulated market. US Airways wouldn't say how much it paid for the privilege of operating its single daily round-trip, but according to sources quoted by the Financial Times last month, the cost was close to $60 million. Other carriers have paid similar amounts for access to Heathrow from their hubs, the newspaper said. For US Airways and the other carriers, paying for a Heathrow slot makes perfect sense because of the higher fares they can charge business- and first-class customers.

   Transatlantic airlines make virtually all their profit on passengers sitting up front, analysts say. British Air commands round-trip business-class fares of more than $10,000 between Philadelphia and London. US Airways has been charging just more than $7,000 for business class from Gatwick. In contrast, a round-trip in economy on many airlines may cost as little as $500 during the slow winter period.

   In the U.S.-Heathrow market, revenue per available seat mile - a standard measure of how much airlines charge on a route - "is substantially better than in other U.S.-U.K. markets," said Robert W. Mann, head of R.W. Mann & Co., an airline consulting firm in Port Washington, N.Y. "Because London is a financial center, with customers in the legal and financial fields, they're able to pay, and are used to paying, high fares." Andrew Nocella, US Airways senior vice president for planning, said the airline hoped to increase its revenue per seat-mile, also called its yield, by 15 percent by moving the Philadelphia flight to Heathrow and targeting pharmaceutical-industry travelers. "That's higher-yield traffic because those travelers have a strong affinity for Heathrow," Nocella said.

   Hamlin added that Heathrow is close enough to central London for many business travelers to justify taking a cab to and from the airport rather than a bus or a train. "It's expensive, but mere mortals can afford it," he said. The industry observers also noted that in Europe, open skies won't be considered complete until the United States agrees to let European airlines compete in the U.S. domestic market and to allow more control of its carriers by non-U.S. citizens. The issue is pending in Congress.

   Mitchell, of the Business Travel Coalition, said European airlines are "going to hold the European Commission responsible for better deals. If we don't deliver, the whole deal could collapse."

Source - Philadelphia Inquirer