Delta, U.S. Rivals Target Heathrow Amid `Open Skies'

Delta Air Lines Inc., Continental Airlines Inc. and Northwest Airlines Corp. began flights into London Heathrow airport today as a new Open Skies treaty expands trans-Atlantic air travel.

The European Union-U.S. accord ends a lock on flights between the U.S. and Heathrow for British Airways Plc, Virgin Atlantic Airways Ltd., United Air Lines Inc. and American Airlines under a 1977 agreement. The airport is Europe's busiest and attractive to other carriers as the continent's key hub for premium travel.

The main battleground is the corporate traveler using the business-class cabin, said Chris Tarry, an independent airline analyst in London. U.S. airlines which are new entrants to Heathrow can now offer their corporate clients a greater range of opportunities to London and via Heathrow.

Delta, Continental and Northwest are the third-, fourth- and fifth-largest U.S. airlines, respectively, and their Heathrow arrivals will be joined by a flight from US Airways Group Inc., the No. 7 carrier. Tomorrow, Air France-KLM Group will fly from the U.K. to Los Angeles.

The influx of flights means seating capacity between Heathrow and the U.S. for the summer season is up 21 percent from a year earlier, according to Aviation Economics, a London- based consulting company. Total capacity is up 3.1 percent.

Fuel Cost

The fuel cost increase will overwhelm the benefits of more competition, said Patrick Murphy, a Washington consultant and deputy assistant transportation secretary under Presidents Bill Clinton and George H.W. Bush. If anyone's looking for a price reduction overnight, that's not going to happen.

U.S. airlines have lifted fares or surcharges 10 times since Jan. 1 as jet-fuel prices rose 80 percent in the past year. EU carriers including British Airways and Aer Lingus Group Plc have also increased fees this year.

Delta's first flight into Heathrow departed last night from New York and landed at 9 a.m. today. Another flight from Atlanta, where Delta is based, was scheduled to arrive at noon. The service is part of a revenue-sharing partnership with Air France-KLM, Europe's biggest airline, announced in October.

Being able to add Heathrow to our portfolio was absolutely key for our corporate customers, said Armin Venencie, Delta's regional manager for Europe, Africa and the Middle East, in a telephone interview.

Heathrow Premium

Opportunities to fly from Heathrow are limited by a flight schedule that's already at 99 percent of capacity, forcing carriers to pay top dollar for operating rights. Continental paid $209 million for four pairs of takeoff and landing slots at the airport.

Continental and others are paying a gazillion dollars for slots at Heathrow, said James Higgins, an analyst with Soleil Securities Corp. in Solebury, Pennsylvania.

Continental's first flights today were scheduled to arrive from New Jersey's Newark Liberty airport and from Houston, its headquarters city, while Eagan, Minnesota-based Northwest was flying from Minneapolis. Tempe, Arizona-based US Airways was flying from its Philadelphia hub.

Open Skies also gives European Union carriers the right to fly to the U.S. from any of the bloc's countries instead of just their home nations. Air France will take advantage of that by operating non-stop from Heathrow to Los Angeles, while British Airways plans to start a subsidiary carrier -- called OpenSkies -- that will fly between Paris and New York from June.

British Airways has also shifted some trans-Atlantic services to Heathrow from London Gatwick as Open Skies lets it fly to more U.S. destinations than previously allowed.

Mergers, Partnerships

The weak U.S. dollar and high fuel prices are preventing bigger changes under Open Skies, which may include mergers and more airline partnerships by 2009 or 2010, said William Swelbar of the Massachusetts Institute of Technology's International Center for Air Transportation in Boston.

We are caught in a transformational period, Swelbar said. We're going to see carriers emerge and begin to do some new and different flying from what is done today.

The EU and U.S. introduced Open Skies amid hopes it would encourage competition and reduce ticket prices. The U.K.'s Civil Aviation Authority forecasts fares across the Atlantic may fall by as much as 10 percent as a result of the treaty.

EU governments say they may suspend traffic rights for U.S. airlines in the future if a second-stage Open Skies agreement allowing greater access to North America is not reached. Such a deal would allow European carriers to fly domestic U.S. routes and acquire more than 50 percent of U.S. competitors.

The start of the new Heathrow services came as British Airways canceled 37 of its flights from the airport's new Terminal 5 amid disruption to its baggage-handling operations.