Benefits flowing from a new aviation agreement between Canada and the European Union (EU) are expected to be temporarily grounded by a downturn in the global economy.

A new Open Skies agreement - liberalizing passenger travel and cargo transport - has been cited as a strong economic driver that would create jobs and bring about millions in consumer benefits. But for now, there are no immediate announcements of new flights or economic activity being generated from the deal the two sides reached late last year.

A study by the European Commission (EC) shows the number of passengers flying between the EU and Canada would reach 14 million by 2011 - up from eight million in 2007 - and result in consumer benefits of at least $110 million through lower fares for both Canada and the EU.

The EC, which is the executive branch of the EU, also says 3,700 jobs would be created in the first year of the deal, but does not say where these jobs would be located.

Barry Rempel

Airport and tourism industry officials are still hailing the deal as a positive, long overdue step, in part because more than half of Canada's overseas tourists arrive from Europe. The EU is also Canada's second-biggest trading partner after the U.S., with $84.2 billion in imports and exports.

"It's an agreement we've been seeking with the EU for some time. It's not only good for Canadians, it's good for attracting visitors to our country," says Randy Williams, president and CEO of the Ottawa-based Tourism Industry Association of Canada.

"When we will see benefits is tough to assess, only because we're in an economic slowdown right now. If we were in a boom economy and not this downturn, we would say we would see almost immediate results."

The Council of Tourism Associations (COTA), representing British Columbia's major tourism organizations and businesses, says a long-term view is needed when looking at the new deal.

"We want our cake and to eat it, too, but sometimes you just can't have it at the same time," says Stephen Regan, COTA's president and CEO. "We can negotiate good agreements now so that when markets do turn around - and consumer confidence rebounds and consumers look to travel and businesses are ready to expand their opportunities - that air capacity will be less of a constraint than it has been historically."

At Edmonton International Airport, which boasts strong growth in airline passenger traffic, officials believe the deal will be beneficial to all Canadian airports.

"It's something we'll see slowly and gradually over time," says Peter McCart, vice-president of marketing and business development for Edmonton Airports.

"Canada still is a small market on a global scale; that said, we do have much interest. It's not going to be something where we have a rush of carriers to Canada," says McCart.

"But the change in the restrictions will bring more players more access to Europe and to Canada than we've ever had before," says McCart.

The Open Skies deal with the EU removes a number of restrictions on air travel between Canada and Europe, which was tightly regulated under the earlier bilateral agreements.

Now, direct air service between Canada and EU member states no longer faces restriction on the number of flights, routes or on pricing.

In addition, prior to reaching this new deal, Canada did not have agreements with eight of the 27 EU member states. That changes as Cyprus, Estonia, Latvia, Lithuania, Luxembourg, Malta, Slovakia and Slovenia are now included.

"It means opportunity in a number of ways for local communities that were precluded from previous bilateral agreements," says Barry Rempel, chairman of the Ottawa-based Canadian Airports Council, whose 48 members represent more than 180 airports.

Rempel says the market can now determine what communities should be served on a non-stop basis.

"It also puts the power more directly into the hands of the consumer," he adds. "And practically, it means carriers will be able to start planning for summer schedule changes."

Airline analysts, though, hold a more pessimistic view about the deal.

"It will have very little impact in the short run," says Joseph D'Cruz, a professor of strategic management at the Rotman School of Management at the University of Toronto.

"Essentially, the whole transatlantic business is facing the same economic difficulties all the countries are facing: Travel is down and business travel is down as well.

"In that kind of situation, it's highly unlikely we'll see new entries into this market triggered by the Open Skies agreement."

Unless there are new entries, there is not going to be any impact on prices, D'Cruz adds.

"There will be some developments, (but) I think they will be relatively small after the recession is over, particularly because the transatlantic routes are well served. I don't see a lot more business opportunities for the airlines than what currently exists. It's a deal of minimal importance in my opinion."

Jacques Kavafian, an airlines and aerospace analyst with Toronto-based Research Capital, agrees the new deal has little significance.

"Canada and many European countries already had very liberal bilateral air travel agreements," he says. "Any point in Europe that already had a market has already been served.

Although it's good (the deal), we don't think it will frankly increase service."

Kavafian believes the agreement's second phase, one that will allow European investors to take up to 49-percent ownership in Canadian carriers, is likely to take place in the near term.

The federal government has previously indicated that it plans on increasing foreign ownership in Canadian airlines from the current 25 percent to 49 percent.

"It should have happened a long time ago," he says. "We think it has no downside and only upside because it increases the availability of funds to airlines wanting to raise money."

But Kavafian says the deal's third and fourth phases are not going to make it off the tarmac. These include allowing investors to set up new airlines in the other party's markets and entering into cabotage - flying point-to-point in the other country to transport passengers or goods.

Rempel says he's encouraged by the federal government's apparent willingness to increase foreign ownership to 49 percent.

"Overall, in terms of an agreement with the EU, it puts us in the front of the pack ... but we're nowhere near having the amount of open-skies agreements as the EU and the U.S. have," says Rempel.

The Open Skies deal also includes the right to carry cargo between two foreign countries. A flight can begin in its home country, go to an intermediate country to pick up cargo and then fly to a third country.

(Laura Severs can be reached at laura@businessedge.ca)