Examination of Witnesses (Questions 192
- 199)
WEDNESDAY 7 JUNE 2000
LORD MARSHALL
OF KNIGHTSBRIDGE,
MR ROGER
MAYNARD AND
MR MIKE
HALL
Chairman
192. Good afternoon, my Lord. We are very grateful
to you for coming to see us this afternoon. Could I ask you to
introduce yourself and your colleagues?
(Lord Marshall of Knightsbridge) Thank you very much,
Madam Chairman. I am accompanied by Roger Maynard, our Director
of Investments on a global basis, on my right, your left, and
by Mike Hall, our Head of International Relations, on my left,
your right. Would you like me to make an opening statement?
193. If you wish to make some general remarks,
please do.
(Lord Marshall of Knightsbridge) If I may, Madam Chairman.
We are very pleased, obviously, to have the opportunity of appearing
before your Committee today. We view this Committee as having
a long record of producing valuable reports which we think have
helped shape public policy towards the aviation industry, including
of course the 1994 Report on the UK-US bilateral negotiations,
and your more recent report on Regional Air Services. We think
this inquiry is timely. As the Committee is aware, the aviation
market is changing rapidly. Since this inquiry was announced,
United Airlines in the United States have proposed to buy US Air;
the KLM-Alitalia alliance has collapsed; global alliances are
clearly being strengthened and so-called-no--frills carriers are
transforming the way customers look at air travel and especially
in this country. British Airways has always sought to be at the
forefront of these changes. Through One World we have, together
with American Airlines and other partners, established a global
alliance, and by launching Go we have staked our claim to compete
alongside other of the low price, low cost carriers. Today we
announced our intention to pursue a combination with KLM which
we believe is a significant step on the road to European consolidation.
In a few years there will be, in our view, a handful of global
players in aviation and we intend to be one of them. That is our
ambition for our customers, our shareholders, our employees. We
also believe, of course, that there will be a raft of small airlines
focused on market segments or niches in the market place. We support
the approach of the Government in seeking to achieve a liberalised
agreement based on a balance of opportunity and fair access to
each other's domestic markets. This is an important point as in
many respects the United States remains a protected market. Even
where we enjoy rights under the current bilateral, the United
States has proved quite capable of ignoring its treaty obligations,
and it has, as an example, failed to approve our current codeshare
applications with American Airlines. The talks over the next few
months will be critical. A successful outcome in our view requires
vision, patience and a real understanding of the forces that are
reshaping this industry, and we welcome the opportunity to contribute
to this process in appearing before your Committee. Madam Chairman,
thank you.
194. Thank you, that is very helpful, my Lord.
I wonder if you could tell us exactly what a combination of businesses
is. Is that a takeover by one dominant partner of another?
(Lord Marshall of Knightsbridge) You are referring
to the wording I used in connection with our announcement on KLM?
195. I am.
(Lord Marshall of Knightsbridge) It offers, I think,
a wide range of alternatives and—
196. Could we just narrow it down a little bit?
(Lord Marshall of Knightsbridge) It clearly can offer
the prospect of a merger, it clearly can offer the prospect of
forming an alliance between KLM and British Airways which in turn
would no doubt involve codesharing and perhaps other relationships.
197. Would British Airways be the dominant partner
in that?
(Mr Maynard) Madam Chairman, it all depends. To some
extent KLM and Alitalia had what would be called a business combination.
198. A "business combination"? This
is an improvement on a "combination"?
(Mr Maynard) It is the same generic form and what
we are trying to describe is that it comes in different varieties.
The variety they had with Alitalia did not involve a share exchange
or a combination of that sort, but it clearly envisaged a combination
of their businesses. What we might do with KLM we have to explore,
but it could be something like KLM had with Alitalia, or it could
be, as the Chairman said, a full merger. That we have to explore.
199. One understands that but you do see, my
Lord, that this is actually a very interesting political question.
KLM is a national airline and has access to five major runways
at Schipol. It also has a large amount of the traffic from regional
airports from the United Kingdom and a lot of that is not only
interlining but onward traffic as well. Would you consider this
would raise questions of the status of such an organisation? Would
you expect to take control of the slots at Schipol? What would
be the situation in relation to the status of the two airlines
if you were to "combine"?
(Lord Marshall of Knightsbridge) Madam Chairman, it
really is much too early for us to try to determine how this might
be established and set up. The one obvious factor is that British
Airways is substantially larger in terms of market value, in terms
of total business, in terms of fleet, than is KLM, and I would
like to stress, if I may, that we do see this as part of the very
necessary and we believe in time inevitable consolidation of the
European airline industry. The Americans are ahead of us, they
have gone through one round of consolidation, we think they are
now approaching perhaps the final round of consolidation between
the six major carriers over there, perhaps separating off into
three pairs. All of this is speculation at this stage other than
United having made its proposals to take over US Air. In the case
of Europe, we are very much aware that the Belgian Government
has given its approval to Swiss Air, outside the European Union,
taking a controlling stake in Sabena. That is subject to the Belgian
Government clearing with the countries to which Sabena flies the
continuation of their operating rights under, in effect, foreign
control. So we see that as perhaps the first real step towards
consolidation of the European airline industry. We are too fragmented
in Europe.
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