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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