Why Airfares in Europe Are Lower Than in the U.S. by Mark Milke

What can North America learn from Europe about air travel?

Globalist Analysis > Global Society Why Airfares in Europe Are Lower Than in the U.S.
By Mark Milke \| Wednesday, June 30, 2010

As Americans head into the summer travel season, there is a lesson they could learn from the European Union: How to make airfare cheaper. The EU instituted an “open-skies” policy in 1997, resulting in more routes, more airline competitors and lower fares. North American policymakers would do well to follow Europe’s example and establish open-skies agreements, argues Mark Milke.

he European market is distinct from the airline market in North America, where both U.S. and Canadian regulations prohibit foreign-owned airlines from offering domestic flights — that is, from picking up and dropping off a passenger in-country — within the United States or Canada.

In contrast, in Europe, this restriction on consumer transportation choices began to weaken in 1987, when the EU began to liberalize airline-competition policy.

The lack of an EU-style open-skies agreement among all three entities — the United States, Canada and the EU — still means all consumers lose.

The European market contrasts sharply with the airline market in North America. Currently, Air France can fly a passenger from Paris and drop him off in New York City or Los Angeles (or any other U.S. destination to which the airline flies), but Air France cannot pick up a New York passenger and fly him to Los Angeles.

As a result of this restrictive and anticompetitive policy, both the airline industry (which might otherwise expand) and the American consumer suffer.

There is no question about which continent’s passengers are better served. In Europe, consumers can find a far better deal than American consumers can in their home market.

For proper comparisons, I used the same assumptions for all flights: A 25-day advance booking and a six-day trip beginning on Wednesday, May 5, and returning on Tuesday, May 11. All fares come from Kayak.com, a website that tracks cheap airfares.

The cheapest airfare was selected for each flight. I used TravelMath.com to calculate the flight distances between cities, doubling them to reflect the return-ticket nature of the fare, a total distance I then used to calculate both the base fare per mile (before taxes and fees) and the total fare per mile (including all taxes and fees).

An in-country UK flight between London and Edinburgh can be found for as little as $61.37 on EasyJet. With a total return flight distance of 666 miles, that is akin to a Los Angeles–San Francisco flight (694 total return miles), but the cost for the latter is $119.38 on Virgin America.

Both U.S. and Canadian regulations prohibit foreign-owned airlines from offering domestic flights — that is, from picking up and dropping off a passenger in-country.

On a per-mile basis, a comparison of in-country flights in the United States (Los Angeles–San Francisco, New York–Boston, Chicago–Detroit, Denver–Las Vegas, and Miami–Orlando) to in-country flights in Europe (London–Edinburgh, Paris–Nice, Milan–Rome, Dusseldorf–Berlin, Barcelona–Madrid) reveals that U.S. air travel is significantly more expensive than European air travel.

The total average fare per mile in the United States for the above five flights was 23 cents per mile, while in Europe it was 11 cents. Remove the taxes and fees and Europe’s cut-rate airfare advantage is even clearer: The base fare per mile in the United States for the five return flights is 19 cents, while in Europe it is just six cents per mile — one-third of the U.S. cost.

Some European fares are likely loss leaders, but their existence highlights the lack of open skies in North America.

In 2006, talks between the United States and Europe about bringing an EU-style open-skies policy to the United States temporarily stalled when the Bush Administration stuck to existing rules for what makes an airline “U.S. controlled.”

The rules required that U.S. citizens own or control at least 75% of the shareholders’ voting interest and that the president and two-thirds of the directors and the managing officers must be U.S. citizens.

The lack of an EU-style open-skies agreement among all three entities — the United States, Canada and the EU — still means all consumers lose, both those living in the United States or Canada and those in Europe who travel in North America.

The base fare per mile in the United States for the five return flights is 19 cents, while in Europe it is just six cents per mile — one-third of the U.S. cost.

The then-EU ambassador to the United States, John Bruton, estimated in 2006 that the savings to all consumers under a truly open-skies policy would amount to $5 billion annually once the agreement was fully implemented.

Consumers are not the only ones who lose because of continued protectionism in North America. The airlines take a hit to their bottom line as well. As the EU experiment has shown, lower prices lead to a significant increase in passenger traffic, which benefits airlines.

But there is one possibility for hope. Back in the 1970s, it was a left-leaning president from the Democratic Party who first began to deregulate the airline industry. The boom that followed was proof enough of the wisdom and usefulness of competitive markets. There is no reason why, over two decades later, another left-leaning president, Barack Obama, cannot finish the work Jimmy Carter began.

Editor's Note: This essay has been adapted from Mark Milke's Regulation Outlook for the American Enterprise Institute for Public Policy Research published in May 2010.

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