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Australia, US ink aviation pact

Australia and the US have reached a bilateral "open skies" aviation agreement, the countries announced yesterday, clearing the way for increased competition on one of the world's most lucrative and protected long-haul routes.

The bilateral agreement abolishes all restrictions on US and Australian air services for carriers of both countries, ending a virtual duopoly on the route held by Qantas and UAL Corp's United Airlines. Qantas controls 75 percent of the market share on the Australia-US route, from which it derives around 15 percent of its net profit.

The deal will allow Australian carrier Virgin Blue Holdings Ltd to begin flights to the US by the end of the year -- but leaves Singapore Airlines Ltd, which has long coveted the route, still without access.

It would also "provide certainty" for Australia's Qantas Airways Ltd and its budget offshoot Jetstar, allowing them to widen the network of US cities they currently serve, Australian Transport Minister Anthony Albanese said in a statement.

"Airlines from both countries will be allowed to select routes and destinations based on consumer demand, without limitations on the number of U.S. or Australian carriers that can fly between the two countries or the number of flights they can operate," a US Department of Transport statement said.

"The agreement also removes restrictions on capacity and pricing, and provides opportunities for cooperative marketing arrangements, including code-sharing, between US and Australian carriers," the statement said.

The agreement only applies to US and Australian carriers.

The Australian government last year denied Singapore Airlines' request to start services in the corridor on the grounds that opening up the route to the Asian carrier would bring only minor tourism benefits and could hurt the economy.

The carrier had hoped a change in government in Australia last November would see a softening of opposition to its ambitions.

Singapore Airlines said that hope had been squelched by yesterday's agreement.

"The agreement to liberalize for Australian and American carriers on the US route is long overdue," Stephen Forshaw, Singapore Airlines's vice president for public affairs said in a statement. "But it is only half a step."

The company repeated its accusation that the Australian government was unfairly protecting Qantas from competition by denying Singapore Airlines access to the trans-Pacific route.

Qantas Chief Executive Geoff Dixon welcomed the agrement and said the airline would increase its flights on the route to 51 a week from March from 48 a week now.

He urged the government to persue similar agreements with other countries.

"Further liberalization of air services arrangements with a number of counries if needed if Australian carriers are to grow operations and match opportunities available to foreign competitors," Dixon said in a statement.

The agreement comes after three days of negotiations in Washington and will take effect once formal approval from the US and Australian governments is granted.

Virgin Blue, Australia's second-largest airline by revenue, wants to fly 10 Boeing 777-300ER services a week to the west coast of the US through its new international carrier, V Australia.

The airline last year got approval from the Australian government to add trans-Pacific routes, but an agreement with the US was still needed.

"The new agreement will provide great opportunities for increasing trade and commercial links between Australia and the US," Albanese said.

Shares in Qantas fell as investors mulled the increased competition threat but recovered some ground to finish 2.53 percent lower at A$4.63 (US$4.19). Virgin Blue surged 2.76 percent to A$1.49.
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