Select Committee on Environment, Transport and Regional Affairs Minutes of Evidence


Examination of witnesses (Questions 160 -179)

WEDNESDAY 16 DECEMBER 1998

MR COLIN CHILD and MR RICHARD GOLDSON

Mr Donohoe

  160.  Just how many long-haul passengers do you think you are going to accrue, for instance, coming into Heathrow faced with the alternative of a 40-minute plane journey to over three hours of a train journey? Just how many do you think are going to transfer over long-haul, and do you think that there is any possibility of any trade whatsoever for, say, the shuttle passenger coming from Glasgow or Edinburgh coming down in an hour and then jumping on a train that is going to take them over three hours to get to Paris?
  (Mr Child)  On the first part of your question, personally I find it quite difficult to see the attractiveness of a three or three and a half hour train journey starting at Heathrow after a long-haul flight once a passenger has had to clear baggage, clear Customs and then get on to a train. Clearly it depends on the frequency of the service and, indeed, the alternative in terms of the air services and it could be attractive depending on those factors, but in the round right now it is difficult to see how attractive that would be for a long-haul passenger. Equally, on the second part of your question, it is difficult to see how it would be attractive for an airline passenger to fly from Glasgow to Heathrow, to go through all of that process just to get on to a train when actually, albeit he has to make a stop at Birmingham International Airport at the moment, that passenger could fly in two hours direct and have a much more convenient journey. Those are the markets that we think will be served by a potential Heathrow service. There is a big catchment area at Heathrow for point to point or end to end passengers originating in the Home Counties and travelling to Paris and not actually connecting with other flights or services.

  161.  Are you trying to tell me that you are going to use Heathrow, in addition to it being an airport, as a railway station that would gather up people from around it to go by train instead of going by plane?
  (Mr Child)  Those passengers are currently travelling by plane. We have not yet concluded our investigations into the Heathrow service, but there may be a level of interest there that warrants a Heathrow service and makes it viable to those passengers. You have got something like 1.5/1.8 million passengers a year making that sort of journey.

  162.  How many have you estimated? You seemed to suggest that you have done no work on that, for instance, as to how many passengers you would be able to get and what the cost would be from Heathrow to Paris by train.
  (Mr Child)  The numbers that we have included in our report suggest that we would have something like 750,000 passengers a year from that catchment area. Indeed, when we have been looking at the Watford/Kensington type of product and service that ties in with those numbers. In terms of the fares that we have assumed at the moment we would be looking at fares consistent with the existing Waterloo services.

  163.  Is it possible that British Airways is a partner in this even though it has limited itself to ten per cent on the basis of it being able to free up some of its slots that it uses at present in order that it can go into the more lucrative of its travel arrangements?
  (Mr Child)  I am not an expert on Heathrow airport but these slots are limited, there is a limited number of them, and as a consequence they are much sought after. To the extent that British Airways or, indeed, any of the other airlines that are currently operating on the Paris service—Air France and British Midland—chose to withdraw services and encourage passengers to use the rail service if there is one then their slots would be freed up. I think there are procedures in terms of re-allocating slots and process there and those would have to be dealt with in the normal manner.

  164.  Does not an awful lot of sense and logic apply to this? You have just explained that it would make as much material sense if you were to apply to the regions and if you were to run trains to Heathrow from Glasgow, from Edinburgh, that you could free up more slots in that sense and you would be in a position to be able to reduce the number of plane journeys in a domestic sense in that it would all be tied into trains?
  (Mr Child)  I think it is fair to say that a number of operators, and I am sure a number of airlines and indeed airport operators, are looking at some of the domestic services from the regions to Heathrow to see whether they can achieve that very end.

  165.  But you do not see it as practical based on the plan that was put to us last week by Virgin?
  (Mr Child)  Although I was here I did not hear all of their evidence, I hope they can hear me today. Some of the connections will be attractive if there is a fast reliable high quality rail service, domestic rail service, from Manchester, for example, to Heathrow. That indeed, as you have quite rightly said, would inevitably free up slots that are currently used by an aircraft making that journey.

Chairman

  166.  But you can see our interest, Mr Child. If one of your backers has a different reason for wanting to move people off its air services for short haul, that would be a matter of some interest, would it not?
  (Mr Child)  It would indeed and it would also be a matter of interest to the remaining members of the consortium. I think we have two or three safety nets to provide any exploitation of those issues. Firstly, I think British Airways would have to persuade the other 90 per cent shareholders that it was in their interest to provide that sort of service when they, British Airways, were getting some sort of commercial benefit elsewhere. They would have to encourage us to go down that path. Unless it was in line with our contractual obligations I think that might be a little difficult for them. If we assume that they were able to bully us into that sort of stance——

  167.  No, I am sure they would never dream of doing that.
  (Mr Child)  I am sure they would not. We would have to then go to Eurostar (UK) and the LCR board who would then have to approve this introduction of the new service and they would have to be satisfied as well. British Airways have no direct contact or representation with that board so they would find that quite difficult. Overlaid on top of all of that the competition authorities in Brussels have said that they are content at the moment with British Airways having a ten per cent interest but if the structure and terms of their involvement changes then they will wish to re-examine the matter. I think a combination of all those safety nets should give the Committee some comfort.

Mr Stevenson

  168.  When did the option of using the regional sets and operating the Eurostar service from Heathrow emerge in your potential plans?
  (Mr Child)  During the course of the bidding process earlier this year in April and May we were aware of the regional sets and tried to identify alternative uses.

  169.  When did British Airways take the ten per cent?
  (Mr Child)  They committed to taking a 10 per cent interest at that time back in June.

  170.  So we had this interest in Heathrow emerging at about the same time British Airways took over the formal interest. Is that true or not?
  (Mr Child)  Yes, it is true.

  171.  There is an interesting coincidence there which I am sure you would perhaps argue is a coincidence. Are we then to interpret that, and this is where you might be able to help us because you are at the sharp end, and would we be fair in interpreting that as a coincidence because British Airways saw a commercial opportunity, which is fine, as British Airways acting in their own self-interest or simply a matter of your consortium having accepted that Heathrow was an important factor, in fact a vital factor, in getting British Airways on board? Which of those three would you think would be fair, or a mixture of the three?
  (Mr Child)  Working in reverse, if I may, I do not think it was vital because clearly we have made no commitment to a Heathrow service and yet British Airways have committed to a ten per cent interest in the company. I think in terms of the comment about whether or not it is a coincidence, we had a number of discussions with British Airways at the time, including discussions around the potential for a Heathrow service.

  172.  I am seeking your help so that I can understand a little better. You have been kind enough to identify exactly when British Airways came on board, you have been kind enough to identify when the Heathrow possible option was. Would it be fair or reasonable for any interested outside observers, which is this Committee, to assume that if the Heathrow option hardens up then British Airways will be interested in taking a greater stake in your company?
  (Mr Child)  That is absolutely fair.

Chairman

  173.  But you are also saying that the safeguards would come into play at that point?
  (Mr Child)  Yes, indeed, they would.

  174.  And it would need to be re-examined by the competition authorities?
  (Mr Child)  Indeed, yes.

Mr Stevenson

  175.  When you say the safeguards would come into operation at that point, is there a trigger mechanism in your set-up that says if British Airways doubles its stake, let us say Heathrow hardens up and British Airways says "Goody, goody, that is great for us, we will take another ten per cent" it will come into operation? Where is the trigger?
  (Mr Child)  In practice it would be at the point of committing to the Heathrow service. We would then have to go through the hoops with the competition authorities.

  176.  In that trigger mechanism is there any point when it will be triggered in? Could British Airways double or treble their stake?
  (Mr Child)  No. There is provision within the arrangements for them to move from one position of ten per cent up to, I think it is, 34 or 35 per cent.

  177.  They would treble it?
  (Mr Child)  Yes.

  178.  So if I understand this correctly they could increase their holding by 250 per cent and not trigger in the safeguards?
  (Mr Child)  No, they cannot do a trickling exercise where they go in little steps, it is an all or nothing.

  179.  So they have to go from ten to 34?
  (Mr Child)  Yes.


 
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