The British government appears to have gone cold on the idea of championing greater competition and cheaper fares in Europe's protected aviation industry.

The rhetoric of the "open skies" policy is still in place. "We wish to press forward with creating more genuine conditions across the world. We want Japan to be as accessible as the United States. We want to see the ludicrously high fares within Europe cut down to size," Michael Spicer, aviation minister, boasted last week.But his colleague, Transport Minister John Moore, passed up a golden opportunity to do just that at a meeting of European Community Transport Ministers in London a few weeks earlier. Mr Moore, president of the EC Transport Council, proposed a series of tame reforms that are much less liberal than those suggested by the bureaucrats of the European Commission two years ago.

The commission moved against the cozy European airline cartel after the European Court of Justice ruled that aviation was subject to the competition rules of the Treaty of Rome, the EC's founding charter. The commission made threatening noises about sweeping away the entry restrictions, price fixing and capacity ceilings that force European air travelers to pay the highest fares in the world. It even threatened to sue European airlines and their governments if they had not made clear moves to unshackle the industry by July, 1986. Nothing has happened yet, prompting accusations that the bureaucrats in Brussels predictably are going soft on the issue. Meanwhile, European air fares keep on rising.

The commission appeared to be heading towards a dead end given its lack of political clout to override the implacable opposition of member states for whom protection of their flag carriers at the expense of air travelers has become a way of life.

The commission's main hope of pushing through the reforms rested on the support of its two allies, the UK and the Netherlands, which had signed a trailblazing bilateral agreement permitting increased competition on routes between the two countries, with a pledge that this was only the start of a campaign to open up air routes throughout Europe.

But Mr. Moore seems to have had second thoughts about supporting the

commission's bid to smash the capacity sharing agreements, the major contributor to high fares and inefficiency in Europe. The commission has rejected 50:50 capacity sharing between flag carriers under government-to-go vernment deals. It says no airline should be guaranteed a market share of more than 25 percent.

Mr. Moore has proposed 55:45 capacity sharing over the next two years, possibly followed by 60:40 over the next three. He has also watered down proposals for maximum discounted fares. This is in line with proposals by France and West Germany that have never favored effective liberalization.

The UK position has angered the Netherlands whose transport minister, Neelie Smit-Kroes, boycotted the London meeting. She has accused Mr. Moore of ''adding too much water to the wine and too fast."

The UK government's excuse is that step-by-step reform is preferable to no agreement at all, compromise better than confrontation. But critics argue it should have pushed for greater liberalization while the issue is still on the boil. As time passes the European Court ruling will lose its impact and protectionist-minded member governments will stop at 55:45 or 60:40 capacity sharing claiming it conforms to the Treaty of Rome.

The UK scored significant breakthroughs with the liberal air service agreements signed with five European governments. But this piecemeal approach is limited because the number of willing partners has run out.

The privatization of British Airways in early 1987 will significantly reduce the state's involvement in the airline industry but won't create a truly independent carrier as the government will be standing behind it with a 49 percent shareholding.

No European government can bring itself to let its flag carrier sink or swim under complete private ownership. British Caledonian and UTA of France are Europe's only scheduled intercontinental carriers entirely without government shareholdings. Even governments committed to the free market are

loathe to let go of their flag carriers. Air France was absent from Prime Minister Jacques Chirac's list of companies to be privatized and West Germany has shown no inclination to de-nationalize Lufthansa.

While governments retain an interest in airlines, the chances for sweeping reform are virtually nil, according to industry observers.

The airlines themselves don't welcome more than a dose of real competition. The proposals for cheaper fares put forward by the Association of European Airlines, the main lobbying group for West European airlines, have already been outdated by the air service agreement between the UK and the Netherlands.

An "open skies" policy that relaxed route entry and pricing restrictions would actually be good for some flag carriers, according to air transport economists. The efficient would benefit, the laggards would lose out. There are also many European charter airlines waiting to break into scheduled routes, with the planes, staff and operating experience ready to take on the established flag carriers.

The Netherlands is pushing for a more liberal regime because its flag carrier, KLM, is better placed than most of its European rivals to benefit

from the rise in air travel that would result from deregulation. It has a modern fleet and its hub at Amsterdam Schiphol airport is one of the most attractive and convenient locations in Europe for continental and intercontinental connections. It is also in a very strong financial position with total equity equivalent to 65 percent of long-term capital.

The Netherlands is continuing to set the pace. KLM is seeking permission

from the government to cut fares between Schiphol and London's Gatwick by a half to match those offered by Transavia, a domestic charter airline embarking on its first scheduled route. British Caledonian, the third carrier on the route, is also considering a matching cut.

Unfortunately most European air travelers will have to wait a long time before they too can enjoy such a bonanza.

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