Bermuda II and its consequences rumble on with the Dublin summit later in June a possible target for some sort of announcement. The Transport Council meeting in Brussels on 10-11 June, which UK Transport Secretary Alistair Darling will attend, will set the scene. The UK speaks from a position of strength. We supply 40% of the passenger traffic from Europe across the Atlantic with Germany and France on around 20% each and the rest far behind.
The more complex it gets the penalty of a wrong agreement from a British point of view becomes more and more serious. Sir Michael Bishop has put up a very good case for bmi to operate from Heathrow (and so also has Continental from the US) and there is little doubt that the introduction of his airline would not have much effect on the massive BA Transatlantic operation. In fact it probably would improve it, level completion always a positive move.
In any event British Airways has rejected the latest proposal from the US calling it ”one-sided” and ”protectionist” and providing no meaningful access to the American domestic market which is the crux of the whole matter. American carriers stand to gain unlimited freedom to fly within the European Union says BA whilst such rules as ”Fly America” and 25% ownership still remain (see Virgin below). Where it gets really complicated is with the traffic rights. As things stand the EU is vested with negotiating on behalf five European member states and the US on ”open skys”. Just suppose the EU takes on the rights to look after all bi-lateral agreements between the member states and every third party country (as it clearly wants). A liberal Commissioner could throw away all Britain”s bargaining rights over Heathrow, the jewel in the crown, the world”s busiest international airport. Forget about the worries BA might have regarding bmi and Continental. What would happen if Emirates and other aggressive carriers came on the North Atlantic en masse? Money will buy the slots, doing a sort of Chelsea to try and become number one on the North Atlantic. And yes there are (new) regulations published by the EU ”Protection against subsidisation and unfair pricing causing injury to EC carriers”. But proving and implementing the case is another story.
Charles Powell is perhaps best known as British Caledonian”s international relations manager, although he also served at a later date as sales director of both Dan Air and Air Europa. He was one of the team that negotiated the 1977 agreement. Now a management consultant he contends that Bermuda II is not a restrictive agreement and has been good for UK Ltd. The original agreement of 1946 was updated in 1966, which was when Miami services started and when BOAC was granted trans-pacific rights from the USA.
His comments are well worthwhile taking in. ”In 1976 Britain had very much a minority share of UK ” USA traffic. The market was dominated by Pan American and TWA, both of them then highly respected global brands. Pan Am was then by far the most prestigious airline in the world. British Airways persuaded the British Department of Trade (which was then responsible for international air services) that the cancellation of the 1946 agreement (as updated in 1966) should be replaced by an agreement under which British Airways would be entitled to half the capacity operated between the two countries. The negotiations over Bermuda II took just over a year and were signed by ministers from both countries on 23 July 1977.
The new agreement was far from the restrictive agreement that British Airways had been seeking. It immediately allowed new routes to be started between London and Atlanta, Dallas/Ft Worth, Houston and Minneapolis. It also allowed more double designation opportunities. British Airways was also allowed to start services to Seattle, Philadelphia and to a second city in California. Within a few months of the agreement being signed new services had been started on those routes and Laker Airways had commenced its short-lived Skytrain operations.
In 1980 routes to New Orleans, Newark, Orlando, Anchorage, Denver and St Louis were added. Subsequently Tampa, Charlotte, Raleigh/Durham, Baltimore, Pittsburgh, Phoenix, San Diego, Las Vegas, Nashville, Cleveland, Cincinnati and Newark have either been substituted for other routes or have been included in the approved schedule.
US registered airlines that have attempted to operate some of these routes include Braniff, Air Florida, Piedmont, World, Eastern, Western and People Express. The agreement also liberalised the process of setting airfares and subsequently all controls on air fares were eliminated.
But the real test as to whether the agreement is effective or not is whether it allows enough capacity to be provided to meet customer demand. Today United, American, BA, Virgin, Northwest, Continental and Delta operate an average of nearly 100 flights a day from London alone to the US. This is vastly larger than the number of flights from any other intercontinental destination anywhere in the world.
I suspect that the real problem with Bermuda II is not that it is anti-competitive but that Britain has done so well from it. British carriers have come from being very much the underdogs to having a 60/40 advantage now. American and United have done far less well out of London than their predecessors. I also suspect that United wants to offload some of their LHR services to their Star Alliance partner bmi. That is something the American unions are unlikely to accept under any circumstances”.
Powell might well be right. He is not biased either way. United, in Chapter 11, nor American Airlines have got their act together on the North Atlantic in recent times. They have also received massive government subsides. Clearly these two airlines have enough problems fighting the rising budget carriers back home. UA has recently dropped Miami to Buenos Aires and Sao Paulo. The last thing they want is an aggressive British Airways pitching in their own back yard.
One could argue that a way out of the impasse is for UA and AA to sell some of the routes or dispose to partner airlines. However the loss of the North Atlantic virtually signalled the end of Pan Am and TWA. It will take a brave man even to suggest it this time around.
Who would have thought in the 1980s that Bermuda II would still be with us in the 21st century? Maybe there will be a fair and reasonable breakthrough before the end of June. Maybe the whole thing will rumble on until the 22nd century.