Examination of Witnesses (Questions 160
- 179)
WEDNESDAY 24 MAY 2000
SIR MICHAEL
BISHOP AND
MR TONY
DAVIS
Mr O'Brien
160. How many unused slots have you got now
then?
(Sir Michael Bishop) None at all, we use them all.
But we are able to move our network around in terms of frequencies
to suit market conditions.
161. Is that not a polite way of saying you
will cut them?
(Sir Michael Bishop) No, this is on our European services,
not domestic services. On our European services.
162. So the cuts will come on the European services
rather than the domestic services?
(Sir Michael Bishop) They may not be cuts because
we actually get incrementally new slots about every 18 months
or so. The way the system—
Chairman
163. But those must be quite small? The incremental
increase for the whole of the airport in relation to Heathrow
is something like 3 percent, is it not?
(Sir Michael Bishop) There is a lot of movement within
the portfolio of all airlines. On average I think it is fair to
say that we get at least one pair of new slots a year and the
way the system works, some people change their frequencies, some
people move out, they get merged, they—
164. But forgive me for interrupting, Sir Michael,
but if you have given an undertaking to the Secretary of State
about your domestic involvement, then that must in itself restrict
some of your slots, must it not?
(Mr Davis) I think what is worth saying is that we
have been trying to enter the United States market now for over
two years and as Sir Michael said, each year we get at least one
new slot at Heathrow. We are operating services because as you
know, under the rules if you do not use the slots you lose them,
so we are using services on our European network to make sure
that we do not lose those slots. But there are competitors, some
of them are ground competitors, the EuroStar is making increasing
inroads into the Paris route and into the Brussels route and none
of you would expect us to operate services which in the long run
are not economically viable in the European environment. What
we have done is, knowing that we have ordered four firm A330s,
plus we would like to operate transatlantic services from Manchester,
the number of slots we are actually looking for at Heathrow to
operate these transatlantic services is not significant.
Mr O'Brien
165. Why do you want them if it is not significant?
(Mr Davis) Well, we have ordered four aircraft, plus
we want to operate from Manchester and commercially—I can
see some of my colleagues from other airlines in the audience.
You would not expect us to tell them exactly what we are going
to offer and where and how often. What we are saying is our portfolio
of slots at Heathrow does allow us some flexibility. We do have
sufficient slots without cutting any domestic services which is
the undertaking we gave to the Secretary of State to operate these
services if we are allowed to—
Mr Donohoe
166. What frequency within these services would
you cut?
(Mr Davis) It depends against which point in time
you compare it.
167. You cannot do it any other way?
(Mr Davis) It depends if you say now or from when
we apply it, because we have been waiting for two years. In those
two years we have had three new slots at Heathrow. So if I use
three slots, have I cut or have I actually used the slots I managed
to achieve I am now using on routes because I know I want to use
them over the Atlantic, but until the air services agreement is
changed I cannot use them. The chicken and egg within the aviation
industry is unless you have the resources available no-one believes
you can do it, and until you get the resources available no-one
will let you do it. So we have been getting the resources. We
have ordered Rolls Royce engines, Airbus aircraft, we have obtained
slots at Heathrow which we are currently using on some European
services, even though we know we do not really want to be using
them, so that when we are given a green light, as we hope we will
be, to enter this market and bring some real competition, we can
do so.
Mr Stevenson
168. My second question. Sir Michael, you said
earlier on—and I do not want to paraphrase you too much—that
you had every expectation that the present negotiations would
result in liberalisation of the transatlantic market. I think
I have paraphrased you slightly. Do you mean the transatlantic
passenger market and not the transatlantic cargo market?
(Sir Michael Bishop) Yes. We do not have any special
knowledge of the transatlantic cargo market. We carry cargo in
the belly of the aircraft but we are not cargo operators and I
actually feel that we have no objection ourselves and we have
said to the Government that we have no objection if the Government
wishes to separate the negotiations between passengers and cargo.
169. Ah, forgive me, but you will see that the
art of negotiation, as Mr Davis said, is not to tell everybody
in this audience what you have up your sleeve and you would not
expect, as I suppose, as a hard-headed business person for one
side of the negotiating table to actually give half of their negotiations
away voluntarily, their negotiating position away. Given that
the cargo market is huge in the United States, given its large
in the UK—but not as large as the United States—given
that access into the European Union for cargo is important, would
you accept that to simply concentrate on the passenger liberalisation
and not to worry too much about the cargo side, is weakening the
position and will not act in the interests of the UK?
(Sir Michael Bishop) I am going to ask Mr Davis to
respond because he was in the negotiations.
(Mr Davis) I think we have two issues. One is that,
as we said earlier, 17 million people a year fly between the two
countries. That is a significant amount of people, the biggest
intercontinental market in the world, who are paying, quite frankly,
through the nose for their airfares. So what we are concerned
about is if the UK cargo carriers—and it does seem to be
a very small number of cargo carriers that are pushing hard for
this—are requiring changes to US primary legislation to
allow them to operate domestic services in the US, with all the
qualifications I mentioned earlier to Miss McIntosh, that that
will involve US accepting the CAA overseeing operations within
their own country, that has labour issues and union issues and
so on, plus we actually have some sympathy for the Brussels position
which is, I think as you alluded to, the Fifth freedom rights
within Europe should not be unilaterally traded by the UK; they
should be something which the Community negotiates. Given that
those are almost insurmountable on a bilateral UK/US position,
if you insist on them being on the negotiating table, then you
guarantee that there will be no progress on the passenger side.
170. So, in summary, your position is that if
it means that we get some liberalisation of the passenger side
of it then, I am sorry, the rest of it has to be sacrificed for
that. Is that a fair summary?
(Mr Davis) No.
171. It is not a fair summary?
(Mr Davis) It is not a question of sacrifice.
172. Well, what is it?
(Mr Davis) The thing is, if you have an agreement
which is completely unachievable, but there are elements that
are achievable, are you prepared to sacrifice the position of
17 million people and that is economy passengers and business
class passengers. British Airways, in order to right their wrongs,
are squeezing the size of the aircraft and making less economy
seats available for a self-proclaimed effort to increase their
revenues and yields. That will affect holiday travellers and business
travellers.
173. Mr Davis, in my third question I would
like to turn to your red herrings now. As a lay person, given
that the United States is the biggest aviation market on this
planet, I do not really understand how you can describe a negotiating
position that says: "We want access into that" as a
red herring. How can you describe that as a red herring when it
is the largest market on this planet?
(Mr Davis) Are you prepared as a legislator to allow
foreign airlines, whether they be the United States or other countries,
access to the United Kingdom domestic market under their rules
and procedures which greatly effect our unions and our employees
and our ability to compete, because that is what you are asking.
Chairman: I think we should avoid a debate.
Mr Stevenson: I am just asking questions. I
have one more to ask.
Chairman: I am not chairing a debate.
Mr Stevenson
174. Thank you. On 14 May, according to an article
in The Observer, Sir Michael goes on at some length about
this and I was struck by what you said about red herrings and
I was struck by what Sir Michael said. I am not going to quote
the lot, if I may just this bit. "He decided (Sir Michael)
it would be difficult to have a sufficiently low cost base at
a premium airport, such as Heathrow and he would not leave Heathrow
because if you were playing monopoly and sitting on Park Lane,
you would not give it up for Marylebone Station. That decision
will shape the future of British Midland and he hopes to translate
it to the transatlantic market and one day the global market."
I assume from what you are saying, not putting words in Sir Michael's
mouth—Heaven forbid—that what you mean by global market
is everywhere else but the United States' internal market? Is
that what you mean?
(Sir Michael Bishop) Well, we mean that we want to—we
have never expressed a desire to operate domestic services within
the United States.
175. Everywhere except the domestic market in
the United States?
(Sir Michael Bishop) We would not expect to operate
domestic markets ourselves in other countries. We are looking
at point to point markets. The point we have been trying to make
on this point about British carriers seeking these rights, yesterday
British Airways—a company for which I have the greatest
for and which is a formidable competitor of ours—lost £310
million operating services in Europe. Now is it really feasible
to think that if they cannot operate those services at a profit
in Europe, they are actually going to be able to operate at a
profit in North America. I would suggest that the answer is very
unlikely and therefore we think it is a red herring in this particular
negotiation.
Mr Stevenson: Thank you.
Chairman
176. You define Europe in an interesting way,
including the European Economic Group as well. So you are saying
in effect the whole of Europe is your playground?
(Mr Davis) EU regulations determine that the European
Economic Area is a domestic market.
177. I am asking for your view of it because
you also say that you would be prepared for the Commission to
do your negotiating. What would be the advantages to you of that?
(Mr Davis) I think what we are saying is that if the
rights that you are seeking to achieve are the rights for European
airlines, including British airlines—and again I would draw
the distinction; it is actually difficult to define what a British
airline is any more, because KLM UK is a British airline, 100
percent owned by Dutch nationals and again that illustrates the
complexity of the environment we are now working in is that the
EU controls the nationality of the EU airlines and the rights
to fly within the EEA, including Iceland and Norway who are not
EU members. What we are saying is we do not believe the United
States Congress in a responsible manner to their citizens and
to employees in the aviation industry in America would trade the
rights for foreign airlines, whether they be British or European,
to fly within the United States if all they are getting in return
is access to the United Kingdom domestic market, our Isles, because
we are talking about a land mass the size of Florida, saying we
want access to your home market and we will give you access to—
178. But that is not in fact what we were saying.
I am going to press you a bit on this. What would be the advantage
to you of an EU institution pretending that we were all one and
doing the negotiation in whatever language it chose?
(Mr Davis) I think what we are saying is that number
one we must liberalise traffic to and from the United States.
Every other European nation, except the four I mentioned that
are members of One World, have liberalised their services to and
from the United States.
179. Come now, Mr Davis, you are going rather
fast over the differences in the size of the market, are you not?
We are going a bit fast here.
(Mr Davis) If we are going to trade things like domestic
cabotage which are important to the cargo carriers, to be honest
no passenger airline in Europe or the United States is seeking
to operate in the other sovereign territory. It is only the cargo
carriers. So if we are going to trade those kind of rights, if
we are going to trade foreign ownership, if we are going to have
a convergence of rules and regulations to allow fair competition
from both sides, if we are going to apply competition rules equally—the
UK Competition Act, the EU Competition rules and the US DOJ and
DOT rules are different—and we as companies are saying:
"How do we know which one takes supremacy". So if we
are going to have a convergence of all those rules in procedures
and, if you like, a common aviation area, we believe the EU should
have a mandate to negotiate that, but not until the UK has liberalised
what is the largest European/US market.
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