Examination of Witnesses (Questions 280
- 299)
WEDNESDAY 7 JUNE 2000
SIR RICHARD
BRANSON AND
MR BARRY
HUMPHREYS
Chairman
280. On fares are you saying?
(Sir Richard Branson) Absolutely.
281. You are saying if they do a deal with KLM
the traffic which at the moment is carried over Schipol will become
much more expensive or less easily accessible?
(Sir Richard Branson) I am saying that KLM and British
Airways will not compete if they are partners.
Miss McIntosh
282. Sir Richard, you showed us a rather colourful
map and mentioned Virgin would like to have access to the US domestic
market. You are the only airline asking for passengers rather
than cargo and I am wondering, having lost your tie, whether you
might lose your shirt on accessing that market
(Sir Richard Branson) There is always a risk in doing
anything new but if we do not set up a domestic airline in America
then there is a possibility that we could lose our shirt across
the Atlantic because if we have no way of offering our passengers
access into the States, we have no way of taking American passengers
that are not in the cities that we fly to join up with our planes,
then that can be very damaging in the future.
283. Thank you. In the written evidence at paragraph
3.2 Virgin say that to allow ownership and controls to be opened
up would require the EU Regulation to be changed. Do you have
any evidence of other Member States that might support you in
a bid to amend such a Regulation?
(Sir Richard Branson) In the EC generally the competition
authorities I believe would like to see complete open skies. In
every other business I am in I can go to America, whether it is
soft drinks, whether it is music stores, whether it is cinemas,
or any other business I am in, I can go to America and set up
and I can compete in America. Likewise, Tower Records of America
can come to set up stores to the benefit of consumers in London.
Coca Cola can come and sell their goods here. The aviation industry
should be no different. All domestic barriers should be taken
down. We should not be having to have these kinds of debates.
The civil servants should do their best to put themselves out
of business and Europe and America effectively should be one country
for aviation interests. Southwest Airlines should set up in Europe,
Virgin Express or Virgin America should set up in America and
the consumer would benefit from that. We believe that is what
this Government should be striving to do and that is what we believed
this Government were striving to do up until two months ago when
there was a concern it might have shifted policy slightly.
Chairman
284. Why?
(Sir Richard Branson) I do not know why.
285. In what way?
(Sir Richard Branson) Lord Macdonald made a speech
in January where he made it very clear what the Government's positions
was. I will just quote two lines of it: "The US template
on offer would afford their carriers the rich pickings of our
domestic market—which of course now includes the European
Union countries—while our carriers would be kept firmly
locked out of the American's domestic market by their denial to
United Kingdom carriers of a right to carry passengers between
points within the United States ..."
286. Sir Richard, we are taking a record.
(Sir Richard Branson) Two lines is all I asked for;
I am giving you the two lines.
287. You think that has changed?
(Sir Richard Branson) It seems that there is now talk
of opening up Heathrow without opening up America and opening
up without getting the cabotage rights removed, without getting
the Fly America removed, without getting any of the issues which
in the past have been of paramount importance removed.
Miss McIntosh
288. I think the same quote was written into
the evidence earlier. Could I just ask you on the Fly America
policy do you think that is discriminatory, and on wet leasing
do you think it is fair that British Airways can wet lease an
American carrier?
(Sir Richard Branson) Both of those things are grossly
unfair. The fact that civil servants in America are not allowed
to fly on British airlines whereas civil servants in Britain are
allowed to fly on American airlines—
Chairman
289. That constitutes an enormous market, does
it, Sir Richard?
(Sir Richard Branson) It is not just civil servants,
it is anybody who has got any contract with the American government
is not allowed to fly on British airlines. It is the principle
as much as the market. You are talking about a few per cent of
the market but on somewhere like Washington where we fly it could
be as much as 15 or 20 per cent of the market.
Mr Stevenson
290. Sir Richard, in the supplementary submission
from Virgin Atlantic it says that "in return for granting
additional access to Heathrow and Gatwick airports to US airlines,
all UK carriers must have effective access to the US domestic
market". I think we are all aware that these discussions/negotiations
on Fifth Freedoms have been going on for a long long time. There
seems to have been little or no positive access in terms of movement
to access in the US market. Are you optimistic that this round
will produce some positive movement? If so, why? Secondly, what
would be the minimum movement that should be made that would constitute
effective access?
(Sir Richard Branson) We are not optimistic at all.
We are very, very worried. We are worried that in the last month
there has been a shift in government policy which could give away
the only negotiating card that we have and could actually foreclose
forever the chance of our getting access to the domestic market
in America. There is still time to change, the talks begin on
Tuesday, but the direction the talks are heading has left us the
most disturbed we have been in 16 years.
291. I need to repeat my question. Supposing
there were the prospect of some movement, although you have made
your position clear, you are not optimistic, what would be the
minimum movement that would be required that would lead you to
conclude that any reasonable definition of effective access had
been achieved?
(Sir Richard Branson) We have spent the last six years
campaigning in Congress to try to get Senators and Congressmen
to see the logic of competition, the benefits of competition.
America is a great believer in competition and we believe we have
managed to swing a lot of very senior people, Senator MacCane
for instance who looked like he might have become President but
has slipped up at the post.
Chairman
292. To nearly have become President is like
having been an Minister, Sir Richard, not much of a recommendation!
(Sir Richard Branson) He is a firm supporter. He has
still got a lot of influence out there. We have got a lot of supporters
out there who are pushing for what logically the consumer would
benefit from and what happens in every other industry. We do not
want a deal to be done for the sake of doing a deal which gives
away the point of negotiation.
Mr Stevenson
293. I understand that, you have said effective
access.
(Sir Richard Branson) I have understood your question.
294. Given it is unlikely that there is going
to be a magic wand waved and this round of negotiations is going
to provide everything your company wants, that is probably the
reality even on an optimistic view of this, it may well be that
the best that can be achieved is some movement in the areas that
you are concerned about and, I repeat, could you give us some
idea of what needs to be achieved for you to conclude to any satisfactory
level that effective access had either been achieved or is likely
to be achieved?
(Sir Richard Branson) It is difficult because every
time the Americans come over they nibble away and get something
else and we have really only got access to Heathrow left to give
in return for access to America and to get rid of cabotage and
to get rid of Fly America and to allow us to rent out our planes
in America and so on, so there is little left to give and what
we are worried about is we give up that final card and get nothing
in return and so, to be honest, I think there is some time you
have got to put your foot down and say, "We will give you
Heathrow, if we can have access to United States."
295. The answer to my question is it has got
to be all or nothing because this is the last throw of the dice?
(Sir Richard Branson) Yes.
296. I see. Forgive me, is your company a member
of any alliance at all?
(Sir Richard Branson) We have an alliance with Continental
Airlines but it is not an alliance in the sense that British Airways
and American Airlines are wanting to do. Continental and Virgin
buy seats on each other's airlines and we are out in the market-place
competing very heavily on those seats. In fact, at the moment
Continental are undercutting us on our own flights. So it is a
pro-competitive alliance as far as the consumers are concerned.
It was examined by the competition authorities and they saw it
as pro-competition. What BA and American are asking for is to
have an alliance where they have anti-trust immunity, so they
would not be competing, they would be working together.
297. I do not know whether you were in the room
or not but Mr Humphreys was when British Airways gave their evidence
to us a few moments ago. They appear to be very clear that if
they could be immunised against that sort of American activity
then, apparently, they would be happy to see some movement in
terms of access to Heathrow. In other words, they seem to be concentrating
on immunity for anti-trust for the alliance they are part of.
What is your view about that and, in particular, have you got
a view about the apparent contradiction, if there is a link up
between British Airways and KLM in that in Heathrow there is no
agreement and yet in Holland, apparently, there has been agreement
on Fifth Freedoms with the US?
(Sir Richard Branson) I think I might be in danger
of repeating myself. I think we are anti the idea of British Airways
and American Airlines being able to get anti-trust immunity because
of the market dominance they will have and the damage they can
do to competitors. If the competitors get damaged irreparably
that will ultimately damage the consumer because they will have
complete dominance of the market-place. The competition authorities
have already examined it four years ago and all three ruled it
to be not in the interests of the consumer and so to re-open it
again now four years later, hopefully the chances of it being
allowed to go through would be very unlikely
298. KLM?
(Sir Richard Branson) KLM obviously exacerbates the
problem even further because if you take the London-Amsterdam
route, KLM and British Airways, I would say, would have over 80
per cent of all the flights between those two but on regional
services it is even worse.
Mrs Gorman
299. Sir Richard, the kind of protectionism
that you are describing that exists in this industry at present
(and which other people have described in their own terms) seems
to be predicated in large measure on the fact that everyone wants
to get in and out of Heathrow and one or two other major airports
like Schipol. If, as you would like it, an open skies policy was
implemented, how would these slots be allocated other than by
price? Would that not also have a detrimental effect on new entrants
and small airlines?
(Sir Richard Branson) If an open skies policy came
in soon without the slot issue being dealt with, the only way
those slots could come up is by airlines getting rid of their
domestic services. In the last few months Inverness has no longer
got direct services, Guernsey and Jersey and other people have
now lost their services altogether. Glasgow, Manchester and other
services would be dropped in order to switch them on to the trans-Atlantic
routes, and that inevitably is what would happen in the short
term. On those short haul routes there is very little competition.
Only one, two or three carriers at maximum are competing on short
haul whereas across the Atlantic there are seven carriers out
of Heathrow and four out of Gatwick, so you have got eleven in
total. The slots basically will come from domestic services being
dropped and European services being dropped.
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