International Aviation

With nearly 30 million passengers flying to and from Europe each year, transatlantic service is the largest international market for U.S. airlines. The European Economic Community (EC), however, is changing the way that individual aviation markets of its member nations are regulated. This report assesses (1) changes to air transport regulations that the EC has undertaken; (2) the effect of those changes on competition in the European air travel market; and (3) the implications of those changes for U.S. airlines, including the possibility of granting cabotage rights to a unified EC, which would allow EC airlines to provide air service between points in the United States in exchange for allowing U.S. airlines to serve more routes in the EC. GAO notes that U.S. airlines' ability to compete in the EC could be limited by recent measures that ban non-EC carriers from dropping fares below existing ones on routes within the community and that make it harder to acquire more takeoff and landing slots.

GAO found that: (1) since 1987, EC has made modest progress in implementing measures to create a more competitive air transport market; (2) EC air transportation liberalization efforts have had little effect on reducing airline restrictions, prices, or access to EC routes and markets; (3) EC airlines remain subject to significant member states and EC Commission regulation; (4) industry analysts believe EC liberalization measures will have little effect on airline competition unless EC addresses limiting government airline subsidies, redistribution of routes, and the development of uniform technical standards and regulations; (5) the EC Commission has planned to to address internal market conditions and foreign competition in 5 to 10 years; (6) future EC airline competition can be limited or reduced because of the significant control EC airlines retain over domestic airline markets, the relatively few number of new airline entries allowed, and EC airline merger, acquisition, and investment arrangements; (7) EC member states are considering increasing their transatlantic market competitiveness by expanding global routes and privatizing state-owned airlines; (8) U.S. airlines' ability to compete in the EC market could be limited due to regulations prohibiting low fare initiatives and efforts by some member countries to restrict access to the U.S. airline market; and (9) although the United States has undertaken initiatives aimed at reducing U.S. and foreign airline access restrictions, the United States and EC will continue to negotiate international aviation relations through bilateral agreements, since the United States is not likely to grant cabotage rights to EC countries and some EC members are unwilling to concede their negotiating authority to the EC Commission.