Why are we asking this question now?

Because last weekend, after years of negotiations, the European Commission finally reached an agreement with the US about “open skies” across the Atlantic – in other words, removing the decades-old rules designed to thwart free and fair competition. Within Europe, open skies already exists. Any EU airline can fly between any two European airports, assuming it can get the slots. The last restrictions were removed 10 years ago, and since then the policy has brought huge social and economic benefits – notably to the UK, which was ahead of the pack in liberalisa-tion and is now the main operating base for Europe’s two largest no-frills carriers, easyJet and Ryanair.

No open skies yet across the Atlantic – so what do we have?

A series of bilateral aviation treaties negotiated between individual European governments and Washington. The most significant is Bermuda II. This agreement is a ludicrous tangle of restrictions that governs – or rather stifles – flights between Britain and the US. It is impossible, for example, to fly non-stop from Heathrow to the state of Texas; Bermuda II stipulates that Dallas and Houston can only be served non-stop from Gatwick. The 30th birthday of this anti-competitive treaty is on 23 July. Almost everyone deplores its very existence, but four people will be celebrating: Martin Broughton, chairman of British Airways; Sir Richard Branson, chairman of Virgin Atlantic; and their counterparts at American Airlines and United. They are the beneficiaries of the central tenet of Bermuda II, which allows only two British and two American carriers to fly between Heathrow and US cities. With supply constrained in the world’s biggest intercontinental air-travel market, fare are maintained at artificially high levels.

But British Airways has today dropped its Heathrow-New York fare to £229 return¿

True, that is barely more than a standard open return between London and Manchester on Virgin Trains. But at peak times you could pay three times as much. And if you care to peek beyond the curtain into the Club World cabin, you will see the full effects of Bermuda II.

A business-class return between Heathrow and JFK costs £4,384. Compare that with Heathrow-Bangkok, where Qantas and Eva Air compete with the “home teams” of BA and Thai: the Club World fare is £200 less than to New York, for a journey nearly twice as far.

Demand for premium-class travel between the world’s two big financial centres, London and New York, is intense. And with supply constrained by Bermuda II, the only way that fares can go is up. BA makes 70 per cent of its profits on the North Atlantic, much of that attributable to strong earnings from premium traffic from Heathrow. For further proof of the madness of Bermuda II, look at the Heathrow-Los Angeles fare of £6,550. Since London-Auckland is more than twice as far, you might imagine that a flight to New Zealand’s biggest city would cost about twice as much. Wrong: it is £300 cheaper.

So how much difference would open skies make?

BMI would be free to deploy some of its ample supplies of precious slots at Heathrow, presently used to shuttle to places like Palma and Teesside, to launch services to key US cities: New York, Washington, Boston, Chicago, San Francisco and Los Angeles. Continental and Delta, two US giants currently excluded from Heathrow, would switch their present operations from Gatwick. In addition, they would launch new services from Heathrow to destinations such as Miami and Salt Lake City.

Besides those alarming prospects for Messrs Broughton and Branson, there is the spectre of Air France and Lufthansa muscling in on the high earnings from Heathrow. Both carriers have a healthy collection of slots at the world’s most desirable international airport.

The result: more choice and lower fares, especially for business passengers – which should help make British industry more competitive.

Sounds good – so when does it start?

As early as October, according to Brussels. But the UK has the option to veto the agreement on the grounds that it is unfair and would damage Britain’s national interests. Despite the prevailing iniquities of Bermuda II, the Government has a reasonable case for blocking the new agreement. Essentially, each side’s view of what constitutes “free and fair competition” is different – and Washington has emerged from the negotiations with demonstrably more than the Europeans.

The deal allows US carriers to fly between European points. This is nothing new; before the unification of Germany, Pan Am and TWA were allowed (along with Air France and British Airways) to shuttle to and from Berlin, and to exercise various other freedoms. Indeed, for a time the cheapest way to Frankfurt was on one or other of the US airlines. Yet while European airlines would be opened up to America, the new settlement does not allow for European carriers to fly domestically within the US, nor for non-Americans to have a controlling interest in a US airline. Furthermore, a chauvinistic piece of legislation known as the “Fly America” policy mandates anyone travelling internationally on US government business to use an American carrier unless they can prove conclusively that no suitable route exists. This absurd favouritism would be allowed to continue.

Why should US airlines be allowed to fly within Europe, if we don’t have the same rights there?

Because, in reality, US airlines will have a negligible presence within Europe. Most of them are economic basket-cases, propped up by indirect financial support from Washington. They cannot possibly compete effectively against Europe’s lean and hungry low-cost airlines such as easy-Jet, Ryanair and Air Berlin. The only enduring success in US aviation, Southwest, has never expressed interest in straying beyond the 48 states of continental US to Alaska and Hawaii, let alone to Europe.

And British Airways, for all its posturing, has no real future in shuttling Americans between, say, New York and California, when a nimble US upstart such as jetBlue has a far more attractive cost base, profile and schedules. But if the British Government agrees that the terms are unfair, the result, conveniently for BA and Virgin, which have been lobbying the Government to block the treaty, will be several more highly profitable years of foot-dragging.

Should the UK veto the proposed agreement?

Yes...

The terms are manifestly slanted in America’s favour, giving their airlines rights to operate in Europe while not returning the privilege

An unbalanced deal would encourage inefficient US airlines, to the detriment of commercially more deserving competition

The present constraints lead to fewer planes flying than there might otherwise be, which benefits the environment

No...

The present arrangements enable favoured carriers to profit from flying partially full planes, to the detriment of the environment

The protectionism at the heart of US aviation policy is unlikely to change, so the present deal is probably the best one achievable

Travellers, both leisure and business, would get wider choice, cheaper fares and better service under the new agreement