Reflection on Open Skies Policy: Where are the benefits?

The Open Skies agreement that came into force in 1997 promised us (consumers) an increase in competition which would drive prices down and challenge the established carriers on routes. Foolishly, we expected a surge of new airlines that would operate on the US-UK routes. We were promised a better quality product at a substantially lower price. 15 years later, I must confess: I see little change. When the agreement came into the effect, we indeed had the emergence of new low-cost long haul carries such as EOS or SkyJet that offered an all premium service for not-so premium prices. The UKs international hubs such as Gatwick and Heathrow saw the arrival of new US and European carriers. Following simple economic theory, an increase in market supply was supposed to reduce prices for tickets. It did! However, the major carriers adopted aggressive techniques to retain their market share. It's not surprising that ZOOM airliners along with EOS and SkyJet went into bankruptcy soon after commencing their services. The orthodox carriers charged prices below that of the marginal cost as their significant scale allowed them to recoup their costs. They purchased take-off/landing slots to create a capacity barrier. A sudden surge in demand for these slots drove their prices up to levels that could only be afforded by large airlines.

Let me us an example to illustrate the result of such tactics. I was hoping to book a flight to New York this Christmas at an affordable price. Prior to making a booking, I searched what carriers operate the London-New York route. To my surprise, there were only 5 airlines. Looking up prices, I was shocked. The minimum price for a return Economy Class ticket was £1200. It appears to me that all benefits from an OpenSkies agreement had insofar been limited. We now have a market whereby unconventional competition has been removed and it resembles highly a structure that is costly to the consumer. I am in favour of OpenSkies agreement but I think the government must monitor the actions of major players in the industry with more vigilance and foster start-ups such as ZOOM UK.