Examination of Witnesses (Questions 262
- 279)
WEDNESDAY 7 JUNE 2000
SIR RICHARD
BRANSON AND
MR BARRY
HUMPHREYS
Chairman
262. Good afternoon, Sir Richard. I apologise
for keeping you waiting; I am afraid we are such a talkative Committee.
Could I ask you to identify yourself and your colleague.
(Sir Richard Branson) My name is Richard Branson and
Barry Humphreys is Director of External Affairs and Route Development.
Rather than making long opening remarks I am happy to throw it
open to questions.
263. Does the existing Bermuda 2 arrangement
in any way limit your trans-Atlantic business activity?
(Sir Richard Branson) The biggest limit is we are
not allowed to fly within the United States of America and there
are other major restrictions—a lot of the American population
is not allowed to fly on British airlines whereas any British
subject can fly on American airlines. So those are the two biggest
areas of concern that we have.
264. Does it concern you that your particular
services are split between Heathrow and Gatwick?
(Sir Richard Branson) No. We would dearly like to
have more slots at both Heathrow and Gatwick but both airports
are now almost completely full. Heathrow is now absolutely full
and recently we started a Chicago service and had to move our
Miami service to Gatwick in order to get the Chicago service into
Heathrow. We would dearly love to fly to more cities in America
but we cannot do so because there are no slots to do so.
265. More cities in America from Heathrow?
(Sir Richard Branson) Yes.
266. So you would not consider being able to
fly extra flights from Gatwick as being an alternative or substitute?
(Sir Richard Branson) We are flying from Gatwick new
routes and tomorrow we start Las Vegas from Gatwick. We are starting
India in three weeks' time to Delhi. We hope early next year to
get Australia and Singapore up and running. But Heathrow is now
really closed to new slots.
267. What would be the effect on the United
Kingdom if there were yet another failure to reach an agreement
with the Americans on an open skies policy?
(Sir Richard Branson) I think the biggest concern
is if the Department of Transport are so keen just to do a deal
for doing a deal's sake that we do a deal that gives everything
to the Americans but gives nothing back to the British.
268. How would you define giving "everything"
to the Americans?
(Sir Richard Branson) I think if I am allowed to submit
one document to you, this is the—
269. You may give us what you wish, Sir Richard.
(Sir Richard Branson)—This is the best way I
can define it. This is an American carrier, United Airlines' route
structure, within America and they can pour thousands of flights
into New York and Boston to Los Angeles and then send those passengers
on to Great Britain. This is what Virgin is allowed to do in America.
We are not allowed to fly any domestic flights whatsoever nor
are British Airways nor are British Midland. If we give the Americans
all they want I believe it could signal the end of British aviation
as we know it in not many years' time because nobody can compete
with that.
270. Some of those airports are slot constrained,
are they not, themselves?
(Sir Richard Branson) No American—
271. One or two of the eastern seaboard ones.
(Sir Richard Branson) As far as international routes
are concerned, international slots are found if you want to fly
so there is no American airport that you cannot fly into.
Mr O'Brien
272. Sir Richard, in the written evidence to
the Select Committee you make significant reference to the restrictions
on slots at Heathrow and how it is restricting your development.
To what extent will the amendments to the slot rules as you suggest
should apply to the European regulations, the grandfather slots
and all the rest of it, deal with the problems of capacity constraint
from the United Kingdom?
(Sir Richard Branson) It is not an easy
problem for governments in Europe or governments in Britain. The
problem with the current slot rules is that big airlines that
have been privatised are sitting on the bulk of the slots and
therefore if you take British Airways and American Airlines and
if you put the two together, together they will have 75 per cent
to 80 per cent of peak take-off and landing slots at Gatwick and
Heathrow and that does not leave many slots for competition. We
have suggested that slots should be treated in the same way you
would treat radio licences or television licences or train licences.
Every seven to 15 years slots would be returned to the pot and
the government decides how those slot should be used. Some of
them should be kept, I suspect, to protect domestic services.
We have lost Inverness, Guernsey, Jersey and a number of other
domestic routes recently. There is nobody serving those routes
to Heathrow because they have been taken for long distance routes,
so some, I suspect, should be kept to protect domestic services,
some should be freed up to increase competition, but the idea
that somebody can just sit on those valuable assets forever generation
after generation, particularly airlines that are not very efficient
and losing large sums of money, does not seem to make sense.
273. Do you not consider that the solutions
you suggest would be bristling with difficulties because when
you get nearer to the end of the franchise then there would be
lack of investment, people would think they would lose their franchise
and there could be problems there? Do you not think the Government
would be better considering the slot situation with the extension
of runway capacity in the South East?
(Sir Richard Branson) That may well be a positive
way of dealing with it. We have a paper on this subject which
we would be happy to submit to you. It is certainly not an easy
subject but I think it is important that whether, as I said before,
it is trains or planes that somebody should be able review these
situations every 15 years.
Chairman
274. You are talking really about buying and
selling slots?
(Sir Richard Branson) Not necessarily although that
is certainly something which I think the Government should consider.
I think the old ITC way of looking at it for the best quality
operator to operate a TV licence should also be on the table.
If government sets out certain criteria, maybe for most slots
to go to the carrier that can put the biggest planes on the route
and offer the best service and the best—
275. So the effect would be the same whether
it is done by money or done by muscle? If you have the largest
fleet you get the largest number of the slots or if you buy you
get the largest number of slots?
(Sir Richard Branson) You also need protection for
domestic and European services. We could talk for hours on this.
Chairman: We will not, Sir Richard, I assure
you.
Mr O'Brien
276. Can I follow this up because one of the
experiences we have got with railways is they are saying the franchises
are not long enough to invest in the infrastructure and necessary
equipment, and if you are saying ten or 15 years and the slots
should be put back into the pot, would we not have the same problem
with the airlines as the train operators of what is the encouragement,
what is the influence to invest in new stock because they may
not have the franchise after ten years?
(Sir Richard Branson) It is a very good point. All
I am saying is I do not believe people should be able to sit on
them forever if they are not making good use of them. Maybe it
should be 15 or 20 years.
277. If they are not making good use of them
I think the government should step in there and ensure that we
do get the best value. If there are examples where you consider
that at the present time that the people who are retaining the
slots are not making the best use of them, I think we should know
about that and then we could consider that. There is a further
point. On the announcement of the BA/KLM merger, what are the
implications for air travel consumers of those proposals, do you
think?
(Sir Richard Branson) I think you have to take into
account more than just the BA/KLM merger. BA have reactivated
their desire to get together with American Airlines. They want
to have anti-trust immunity with American Airlines so that effectively
they will be doing everything but a merger of shares. They will
be able to collude on fares, they will be able to collude on everything
legally. If you then add KLM to that—
Chairman
278. How do you collude legally?
(Sir Richard Branson) By getting anti-trust immunity
they are above the law and so you then add KLM to that, KLM are
tied in with Northwest Airlines, and you have got them well above
the 80 per cent of the peak take-off and landing slots at Heathrow
and that leaves 20 per cent for the rest of the airlines. Obviously
the question the competition authorities will have to ask is whether
that is positive news for the consumer or not positive news? I
will give you one example where BA have done this before. We were
planning to start a route to Australia a few years ago and BA
and Qantas were allowed to get together. That meant that in Australia
BA and Qantas dominated 90 per cent of the market and we decided
on that basis we could not fly to Australia. It would just be
suicidal. We have been campaigning with the Australian Government
to get permission to set up a domestic airline in Australia and
finally we succeeded in getting their permission so in July Virgin
Australia will start and early next year we will most likely reactivate
our plans to fly to Australia because we will be in a position
where we can compete with them domestically and internationally.
A very similar situation applies across the Atlantic. If we cannot
get those domestic routes and we are up against this sort of situation
and BA and American are going to be allowed to get together it
is going to be very, very tough to compete.
Mr O'Brien
279. If we take the scenario you mentioned of
the BA and Northwest Airlines and BA and KLM into America, what
share of the market do you think they will have there for air
traffic in America?
(Sir Richard Branson) The air traffic across the Atlantic
would be in excess of 70/75 per cent of the market and therefore
even if you got British Midland and United working together, Virgin
would be scratching the back. The clout they would have with the
corporates, with travel agents, would be very difficult to compete
with.
(Mr Humphreys) Could I add a comment about the effect
of competition from KLM. KLM is a very important and significant
competitor to British Airways from regional points in the UK.
It is as easy to connect over Amsterdam as it is over Heathrow.
If you remove that competitive stimulus it could have a very significant
effect on consumers.
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