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Business Traveller

Open Skies Across the Atlantic Arrives. A Look at Major Players and the New Routes. Airlines Move Terminals, Making Alliances Stronger on the Ground. Surviving the Red Eye. Crossing the Atlantic with Heathrow's New Delta Airlines.

Aired April 12, 2008 - 09:30   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

RICHARD QUEST, CNN HOST: Hello, and welcome to "CNN BUSINESS TRAVELLER." I'm Richard Quest, this month, reporting from both sides of the Atlantic Ocean. Look at it -- majestic -- the 3.5 thousands of miles of water that separates the United States, where I am at the moment, from Europe, and where the airways above are about to get much busier.
Open Skies across the Atlantic has now arrived. That's the new treaty that offers so much for the traveling public.

Coming up, from New York to London, from London to L.A., and New York back to London, we'll be talking to the major players. And most importantly, we'll be trying out the new routes.

Balloons, Big Ben and a Beatles tribute band, all at Newark Liberty Airport on the eve of Open Skies. Continental Airlines was celebrating and for good reason. The aircraft bound for London Heathrow will be the first transatlantic flight under the new treaty.

The ribbon cutting symbolized a milestone for Continental. Landing at Heathrow is something it's wanted for 23 years.

Passport, boarding pass and champagne, we can truly celebrate the arrival of Open Skies. In just a moment, we'll be talking to the president of Continental Airlines about what it means for the airline and the aviation industry.

First, let us remember how we got here in the first place.

From anyplace on one side of the pond to anywhere on the other -- that's the idea of Open Skies. Rules that are decades old will be swept away. It will allow American and European airlines to fly where they want.

So any airline from here to any country in here and vice-versa?

DANIEL CALLEJA, CHIEF E.U. NEGOTIATOR: That's right.

QUEST: In short, national boundaries will no longer determine where planes can fly.

CALLEJA: We are going to have more to offer. We are going to have more possibilities in terms of choice, in terms of reduction in the price of the tickets.

QUEST: The Europeans still want more rights to fly within the United States and the right to buy U.S. airlines, so further negotiations are planned. If by 2010, no agreement has been reached, either side can cancel the whole treaty.

As the sun sets on the eastern seaboard, there was time to talk to the president of the airline before we settled down.

You have been the carrier more than most that has been dying to get into Heathrow and really struggling.

PRESIDENT, CONTINENTAL AIRLINES: Absolutely. It's a big deal.

QUEST: Have we made too much of a fuss about Open Skies or is it really something that's significant?

JEFFERY SMISEK, PRESIDENT, CONTINENTAL AIRLINES: I think it is really significant because it opens up what is essentially a fortress, London Heathrow. We've been able to cross the moat. We've breached the walls and we're inside the fortress. And candidly, I understand why, you know, the royalty that lived in the fortress didn't want us in, but we're in and we're bringing competition. And I think that's viable for customers.

QUEST: Are you going to bring cheaper prices? You have paid more than $200 million for your Heathrow slots. The investment in personnel and everything, you've got no interest, none, in cutting prices, certainly when oil's at $105 a barrel.

SMISEK: I will tell you, we are always competitive in our prices. There is going to be additional capacity coming into Heathrow. Typically, with additional capacity, does come lower prices. However, I will tell you that all carriers today are burdened by $135 per barrel jet fuel. And we all have to take that into account in how we price our product.

QUEST: So, looks like there won't be a price cut for now. Continental will operate double daily services to Newark and Houston.

Continental 28 arrived, bang, on time, so did Open Skies.

Five hours and forty-five minutes -- that's how long it took us to make the journey from New York to London, a fast crossing indeed.

The Continental tail is a new sight at London Heathrow. But many older, familiar tails will also be using the Open Skies Treaty to open up new routes. Air France, for instance, has been flying into this airport for decades. And now it's going on a brave new journey to the United States.

It's not only the Americans going east. European airlines, like Air France, are taking advantage of the treaty.

We're off to Los Angeles from London on a French airline. It's a classic example of what can now be done with Open Skies.

Air France has one advantage over its U.S. competitors -- it didn't have to buy its slots. It merely switched some it was using elsewhere.

PIERRE-HENRI GOURGEON, EXECUTIVE VP, AIR FRANCE: We arranged to take some of the lots we were using to connect Heathrow to Amsterdam or Heathrow to Paris, and we realized those slots that they are good for the transatlantic version of Delta and Northwest. And we share that in our joint venture.

QUEST: Air France is running its London-L.A. flight as part of the joint venture with Delta Airlines. Delta is shedding its domestic skin for good and focusing on being a strong international headquarters out of its hub at JFK.

GLEN HAUSENSTEIN, EXECUTIVE WP, DELTA AIRLINES: Our inability to transit our customers, our Frequent Flier base, our corporate customers to the most important market in the world has really been a hindrance to Delta for many years.

QUEST: So much fuss and so many new flights, but what does it mean? Other journalists on board this Air France believe we won't see too many new flights.

TOM OTLEY, EDITOR "BUSINESS TRAVELLER MAGAZINE": Fuel has never been so expensive. And also there's a shortage of planes. I think that many of them are staying out at the moment. So then, within six months, we'll see how things turn out for the airlines.

QUEST: Look at that. Ah, there's nothing quite like a sunset when seen from 35,000 feet in the sky. You never get tired of it.

We're almost at Los Angeles. And it's now clear that Air France hasn't wasted a moment in talking advantage of Open Skies and the freedom to fly.

Other carriers have been far more circumspect about spending the money. And there's a very good reason for that. So far, the E.U. and U.S. have only negotiated phase one. There's a big thumping treaty still to be agreed. And it's by no means clear that Brussels and Washington will ever come to terms on really difficult issues.

It was a fierce fight, 11 rounds of negotiations with some bumps and bruises along the way. And still, there's more to play for. The last round in Open Skies is the crucial make-or-break knock out. And the Europeans won't stop until they get their end of the bargain.

Phase one is signed, sealed and now in force. And I've come to Washington to meet the chief U.S. negotiator, John Byerly. I want to find out if the U.S. will indeed make the concessions it promises.

JOHN BYERLY, CHIEF U.S. NEGOTIATOR: Negotiations is the art of the possible. It took us four years to get a big breakthrough in market opening. And, yes, there are some issues we didn't fully resolve, whether it's investment, the environment, some traffic rights that we didn't include in the agreement. We're going to tackle those hard with good faith, a lot of energy in the second phase of negotiations.

QUEST: At the moment, carriers on both sides of the Atlantic are protected from foreign ownership. You can only buy up to 25 percent. European airlines want the right to buy U.S. airlines. Byerly insists that will be difficult, but perhaps doable.

BYERLY: There are Homeland Security issues that we're going to have to deal with. And finally, there's some concerns in our labor unions that work for airlines, serious concerns, about how do you maintain a level playing field if you've got two unions, one in Europe, one in the United States, working for an airline? I'm not saying we can't do it. I'm just can't say at this time we will be able to move forward. If we do, however, we will insist upon full rights for U.S. investors also to invest in European airlines.

QUEST: For airlines, like Virgin, this is a major sticking point. They already have a presence in the U.S. through Virgin-America. It was done through the back door by licensing the Virgin brand. They don't own Virgin-America. They want to.

STEVE RIDGEWAY, CEO, VIRGIN ATLANTIC: It's crazy that we have all these restrictions about who can own an airline, what percentage of an airline can be owned. I mean, an airline is no different to any other business. It's no different to a car company, a computer company, a telephone company. And then also the airlines need to be able to fly wherever they want. As long as there are proper competition rules in place and dominance is not allowed, there is competition protection, they why does there have to be all this artificial restriction around that?

QUEST: If, at the end of the negotiations for phase two there's no agreement, either side can pull the plug on the whole Open Skies Treaty.

BYERLY: That would be a tremendous disservice to consumers on both sides of the Atlantic. We think it's better to focus on a win-win, a positive outcome than even before the negotiations and we'll have begun to focus on the dire consequences of what if, within three years, we don't succeed.

QUEST: Open Skies will clearly benefit the flying public on both sides of the Atlantic. But there's still an enormous amount of work to be done.

When we come back, shipping the planes. We'll look at how airlines are moving terminals to make alliances stronger on the ground.

(COMMERCIAL BREAK)

QUEST: Welcome back to "CNN BUSINESS TRAVELLER," where I'm at Los Angeles International Airport.

We all have our favorite airline alliance, whether it be Sky Team, Star Lines or One World. The big problem has always been that at large airports like this, well, they're dotted around. One's over here. Another's over there. And the anchor airline could be somewhere else. It's failed to give us the seamless connections that we've been promised.

That is all changing as airports are getting organized.

LAX is one of those pioneering new, dedicated alliance terminals.

MARK THORPE, LOS ANGELES WORLD AIRPORTS: What you see today is what is the state of, you know, LAX for the past 20, 30 years, where you don't have that focus on having alliance partners together. I mean, we have to keep in mind that alliances are about 10 years old. So the airport facilities have not caught up to the business model yet. That's what we're looking to do with the new facilities we're building.

QUEST: And the alliances themselves are set to get larger. Star, for instance, recently grew from 17 to 20 members.

Besides the first and business-class passengers, these lounges are also used for the top-tier elites, the so-called Star Alliance Gold. Now, here at LAX, there are at least seven airlines that use the lounge. So it may be a peaceful haven of quiet at the moment, but it doesn't take much before it gets seriously busy.

The alliances, Sky Team, One World and Star, carry two-thirds of the world's traffic. And with these partnerships come perks. Coach-sharing (ph), sharing lounges and the endless route possibilities all make joining an alliance highly desirable.

The chief executive of Star Alliance, Joan Albreacht, sees even bigger opportunities.

JOAN ALBRECHT, CEO, STAR ALLIANCE: Open Skies allows the carriers to enter into deeper collaborations to enter into competition to offer the customers more options, say, everyone to fly from one destination or one geographical area to the other one.

QUEST: Back at London's Heathrow, we get a good idea of how difficult it's going to be to create these clusters of alliance terminals.

Terminal 5 may be big, but it's not big enough even for British Airways. Some of its flights will still leave from other parts of Heathrow Airport. And there's certainly no room for One World Alliance Partners in here. They're still spread out in other parts of Heathrow. That goes against the current trend of locating all alliance partners in one building. And ultimately, that could prove a problem for One World.

The reality is at the major hub airports, like Heathrow or LAX, it will be impossible for the dominant carrier to fit all their alliance partners within. Ultimately, co-locating does make sense. But for you and me, the traveling public, it will mean years ahead of confusion and chaos. Get ready for the terminal two-step.

It is time to return to London on another of the new services introduced as the result of Open Skies.

Good evening, to London, please.

Delta Airlines will carry me tonight from New York Kennedy to London Heathrow. Like other carriers, Delta is targeting the business-class passenger. And, of course, with Open Skies, that means many more seats available.

What does this mean for the all business-class airline, those niche players that have found a new market? Can they thrive or even survive with all this competition?

They were born out of the frustration of today's travel, long queues, scrums (ph) at the gate and planeloads of passengers, hardly premium stuff. But you are paying up to 10 times as much for the privilege. It was to bring back some of the exclusivity of travel that the all-buisness-class carriers began. No grubby students cluttering up the aisles.

The best way to describe it is to see it for yourself. At Silverjet's terminal at Luton, from entrance to lounge, it's just a handful of steps.

UNIDENTIFIED SILVERJET EMPLOYEE: Good morning, sir. How are you?

QUEST: Good morning, good morning, good morning.

UNIDENTIFIED SILVERJET EMPLOYEE: How was your check in, sir?

QUEST: Great. Great.

UNIDENTIFIED SILVERJET EMPLOYEE: I just need your passport.

QUEST: My passport.

And only 100 passengers to look after. Silverjet's chief executive is about getting back to business.

LAWRENCE HUNT, CEO, SILVERJET: Well, we try to take all the anxiety, the hassle and the time factor out. We believe you can make the experience much more, much more civilized by shortening the time for you to get from the airport to your plane. People don't want to come to an airport and shop. They want to come and get on a plane and travel in some degree of comfort and style and arrive refreshed and relaxed. And that's what we're trying to recreate, how it used to be 30 years ago.

QUEST: Silverjet is one of a handful of airlines dedicated to this business-class service. There are common (inaudible) amongst them all, a niche market. All the airlines fly from secondary airports such as Luton, (inaudible). And they undercut the legacy carriers on price.

It's a very, very nice cabin, lovely colors, feels quite, nice and refined. This feels like quality.

Silverjet targets smaller companies and premium leisure travel. It has yet to make any money. And reflecting the troubled times in aviation, Silverjet admitted late last week it was in merger talks with unnamed partners.

EOS established itself with 48 fully flat (ph) suits and enticing the banking and needier industries.

MAX Jet, which started at the same time, never found its market and went bankrupt.

Lavial (ph) in Paris, well, has the market all to itself.

KIERAN DALEY, AIR TRANSPORT INTELLIGENCE: The reality of all-business class is whether you can get people to fly in that jumbled maze, whether you can get them to defect in significant numbers from the mainline carriers. In a way, it doesn't actually matter how many mainline carriers there are because people are going to make their choice between flying with an ordinary carrier and flying with an all-premium-class carrier. So the premium-class carriers are going to stand or fall, but they're not going to stand or fall because of these new mainline carriers coming in.

QUEST: The success of these new airlines has started to worry the big carriers. Open Skies mean more competition. And airlines, like BA, can't afford to have their premium traffic reamed off. So BA is planning its own all-business-class flights starting next year.

All-business-class airlines tap into the desire of premium passengers to be treated differently. So it's not surprising that Singapore Airlines is introducing an all-biz-class service from Singapore to New York and Los Angeles.

Premium traffic, exclusive travel, that's what this is all about.

Coming up after the break, surviving the red eye. We cross the Atlantic with Heathrow newbie Delta from "Sunset to Sunrise."

(COMMERCIAL BREAK)

QUEST: And welcome back to "CNN BUSINESS TRAVELLER."

The busiest time at Kennedy International is the early evening as the planes start heading back to Europe. It's rush hour and we're heading across the ocean from "Sunset to Sunrise."

It's 90 minutes before Delta 1 is scheduled to leave and Captain Tray Williamson arrives to take charge. With First Officer Lee Colby, together, they'll fly this Boeing 767 into the night and across the Atlantic.

It's a tough one for both cockpit and cabin crew, a flight of less than seven hours. And everyone will lose a night's sleep. From North America, there can be up to 100 planes crossing the Atlantic overnight. It's a virtual motorway in the sky.

And Captain Williamson wants to make sure he gets a good slot, with a favorable wind at the right altitude so he can use less fuel.

CAPTAIN TRAY WILLIAMSON, PILOT, DELTA AIRLINES: We're on a northern- most track, and coming out Gander, Newfoundland, heading out this way -- this is turbulence. And we're going to be at 35,000 feet so hopefully we're going to be in-between it.

By taking Tango, we now know the flight will take six and a half hours, long enough for the crew to make sure everyone gets a decent meal and some sleep.

Why is at the back of the plane we find these two flight attendants, the newbies, on their first international flight.

What do you think of it so far?

LAUREN HOWELL, DELTA FLIGHT ATTENDANT: It's been very well. It's really nice to be able to offer such a great service and serve the passengers. This is (inaudible) destination first. We're excited about it.

QUEST: Have you been doing it before?

HOWELL: Have I been doing it before? I have not. I have not.

QUEST: Two hours aloft and we go (inaudible). Despite what you've heard, there's no radar coverage over the Atlantic. We are given a time to start our crossing. Along with the other nearby aircraft, like a flock of birds, we head east, always letting each other know where we are and where we hope to be next.

The first shafts of sunlight can be seen while we're still over water. Delta 1 has made good progress on Tango track. And as we approach the west coast of Ireland, 30,000 feet beneath us, the air traffic controllers in Shannon take charge. We are once again back under radar control. Within an hour, we're at the top of the accent in European skies. We join the stack circling over southern England. And welcome to London Heathrow where the local time is -- bah, for the crew of Delta 1, it's been a long night.

Let's have a look. Yes, they're red.

How is it for you, as they say?

UNIDENTIFIED FEMALE: Excellent. I've got toothpicks under here.

QUEST: There may be more planes crossing the Atlantic with Open Skies, but they still haven't found a cure for red eye.

And that's "CNN BUSINESS TRAVELLER" for this month. I'm Richard Quest, crossing the Atlantic. Wherever your travels may take you, I hope it's profitable. And I'll see you next month.

END

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