“Free Skies” Agreement Should Lead to Lower Air Fares

A new US-EU agreement is welcome news for air travelers. As explained in an article at American.com, allowing US and European carriers to fly on any transatlantic routes will boost competition and lower fares. It also will facilitate tax competition, which is bad news for nations like the United Kingdom that impose high taxes on air travelers.

Good news for free trade and free travel: on April 30, the United States and the European Union signed an “open skies” agreement designed to liberalize transatlantic air travel. Scheduled to take effect in March 2008, the agreement removes most restrictions on routes and fares between the United States and Europe… The other interesting effect is on tax competition. With routes free and open, countries can compete for flights by lowering taxes. With routes opened up, countries will be able to tailor their taxes to attract flights, promoting price competition throughout the continent. Britain’s recently doubled air passenger duty raised fares to London by as much as £160.00 round trip, which has caused shifts in traffic away from London (traditionally a cheaper European gateway) to Amsterdam, Frankfurt, and other European hubs. When countries compete to cut taxes on air travel, the traveler wins.

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