Trans-atlantic air fares seen falling on open skies

By Chris Reiter

NEW YORK (Reuters) - Trans-atlantic air fares are expected to tumble when an agreement between the European Union and the United States takes effect next spring, posing a fresh challenge to the airline industry.

Traditional U.S. airlines like AMR Corp's (AMR.N) American Airlines and UAL Corp's (UAUA.O) United Airlines, are seen as particularly vulnerable. In recent years, big U.S. airlines have turned to lucrative international routes to escape tough competition from low-cost carriers domestically.

Competition on flights between the U.S. and Europe is expected to heat up after the "open skies" agreement takes effect on March 30, 2008.

"As it gets into its real swing, we will have fare wars," said Terry Trippler, airline expert at U.S. travel club myvacationpassport.com. "It's going to get bloody."

"It's bad news for airlines," said Trippler. "It's been one area where they could make a buck."

The open skies agreement, which was approved by EU transport ministers on Thursday, will allow EU airlines to fly from any city in the 27-nation bloc to any city in the U.S. and vice versa.

It will also open London's busy Heathrow airport to other trans-atlantic carriers. Currently only British Airways (BAY.L), Virgin Atlantic VA.UL, United Airlines, and American Airlines have access to Heathrow to serve U.S. destinations.

Airlines broadly welcomed the agreement touting the new opportunities it will offer.