Examination of Witnesses (Questions 520
- 539)
WEDNESDAY 14 JUNE 2000
MR STEPHAN
EGLI, MR
JOHN MOLONEY,
MR HERSHEL
KAMEN AND
MR MICHAEL
CARTER
Chairman
520. Gentlemen, I apologise for keeping you
waiting. We are very grateful to you for coming this afternoon.
Would you like to identify yourselves, in no particular order
of importance, may I say; shall we start on my left, and undoubtedly
on your right?
(Mr Carter) I am Michael Carter, Senior Director,
UK and Ireland, for Continental Airlines.
(Mr Kamen) I am Hershel Kamen, Vice-President
of International and Regulatory Affairs, for Continental Airlines.
(Mr Moloney) I am John Moloney, and I am General Manager,
Government Affairs, for Delta Air Lines.
(Mr Egli) My name is Stephan Egli. I am Vice-President,
Europe, for Delta Air Lines.
521. Thank you. Now do you want to say a few
words, before we begin?
(Mr Moloney) If I may. Chairman, as we stated in our
letter to you, we very much appreciate the chance to have this
dialogue with the Sub-Committee. We have worked closely with this
Sub-Committee over the past few years, and I am fondly reminded
of your visit to Atlanta, to our home town, and to Washington
DC, Mrs Dunwoody and Mr Donohoe, and I would love to have a subsequent
visit from the remaining new members of the Committee to come
to Atlanta to see us.
522. Do not encourage them, Mr Moloney, they
might take you up on it.
(Mr Moloney) Mrs Dunwoody, the US-UK is the number
one transatlantic market. Delta is the number one carrier on the
transatlantic, we serve 23 destinations in Europe, with 40 daily
flights. However, we have only a fractional presence, what we
refer to as a fractional presence, in the UK, and we want to change
that. We are here this week with our Government delegation hoping
that we can find a deal, and we hope that your probing this relationship
will move that along and that some day we can have more open access
and Delta can be a bigger player in this market. So I look forward,
and Mr Egli looks forward, to answering your questions. Thank
you.
523. Well, Mr Moloney, as you very well know,
flattery always works. Mr Carter, did you or Mr Kamen wish to
comment?
(Mr Kamen) We have no opening statement to make.
524. Well then let me ask you both, what would
be the outcome for the United Kingdom of a continued failure to
reach a bilateral air service agreement with the United States?
(Mr Moloney) The outcome for the United Kingdom, I
think the people who would suffer the most would be consumers
in the United Kingdom. I think we have seen market-place developments
on the transatlantic, in `Open Skies' markets, that have been
huge, in Belgium, in Germany, in Switzerland, in Austria, places
where alliances have been allowed to take place; and consumers
have benefited, through more flights, more transatlantic flights,
more services, and actually through lower prices, and our DoT
has done studies that show that prices have come down in `Open
Skies' countries since those deals have been signed and the alliances
have been implemented.
525. And that is the only way that Bermuda 2
is restricting us, do you think?
(Mr Moloney) In the formation of alliance?
526. Yes, but not only in that, in terms of
price systems. What do you think we really lose out on under Bermuda
2?
(Mr Moloney) Let me say, just to finish the first
question, if I may, I think British Airways and the British carriers
are also suffering. I do not think it is any coincidence that
British Airways, which was the most profitable airline, has seen
its profits dip in recent years and has seen traffic flow over
other countries, because those countries have been allowed to
formalise alliances with US carriers and become more competitive
for competing traffic. And I think that has been to the detriment
of the shareholders and employees and to the travelling public
in the UK. Now to your second point, what is wrong with Bermuda
2; how long can I talk?
527. No, from the British point of view, what
do you think is wrong with Bermuda 2?
(Mr Moloney) I think what is wrong with Bermuda 2
is, it does not give airline managers the flexibility to respond
to demand in the market-place; that is the biggest problem. At
Delta, and I am sure that Continental has the same problem, we
can offer many more flights to the UK, in fact, we have tried
for two to three years to offer a third flight out of Atlanta
and an additional flight in Cincinnati, and were constantly rejected
in our filings by the British Government. Now that does not help
consumers, that does not help the British consumer, you are getting
less capacity, fewer flights, less competition, by doing that.
So that is one of the main things, that we are restricting capacity,
not being able to respond to the demands of the-market-place.
528. Yes; if you want to expand on that?
(Mr Egli) If I may add one point. Regional airports
have been in discussion beforehand. I want to give two examples
of other countries where liberalisation has led to increased flying
into regional airports, and one of them is in France, that is
a non-stop flight that we have just started from JFK to Lyons,
it would not be there unless the liberalisation would have taken
place; another example of that is a JFK flight that we have just
started to Venice, again, because the Italian Government has started
to liberalise the aviation agreement. Those flights would not
be there were it not for the opening.
529. Did you want to expand, Mr Kamen?
(Mr Kamen) Aside other countries that have liberalised
their agreements, we think that there is proof in the UK agreement
that liberalisation can work. We believe that the liberalisation
of the regions, which allows us to serve, we serve Manchester,
Birmingham and Glasgow, all from New York/Newark, and we believe
that that is proof that liberalisation, taking down the boundaries,
will expand flights and will ultimately bring competition and
lower prices.
Mr Stevenson
530. Could I ask both airlines, but especially
Delta, which, according to the evidence we have, suggests that
you are a strong proponent of `Open Skies' policy, what is your
definition of `Open Skies' policy?
(Mr Moloney) The definition of `Open Skies', stated
very simply, is to get Government out of the aviation market-place,
save for safety, insurance and predation, and the market-place
to function through open routes, open designations, open pricing,
open code sharing.
531. Does that include the US domestic market?
(Mr Moloney) Right now, our domestic law prohibits
that, it takes an Act of Congress to change that.
532. I understand that, but it is your definition
we are looking for?
(Mr Moloney) Our corporate definition; Delta has stated
that, in a proper exchange, we think the issue of cabotage could,
and possibly should, be on the table. We do not think that proper
exchange is on a country-by-country exchange, we think it is possible
to take place between the entire United States and the continent
of Europe.
533. Just to get this clear, because it is an
important part of our inquiry, as you fully appreciate, as far
as Delta is concerned, you would say that `Open Skies' policy
must include the US domestic market?
(Mr Moloney) Only in a broader context, and I would
not say must, I would say it should be a topic for discussion.
We have concerns on the part of our labour unions about this,
and we have to work very closely with our unions; so we are not
in a position to dictate that, yes, it must be a concern. Our
view is that we need to be like every other business in the world,
and if that is the case everything should be open to discussion,
and, to say that cabotage is sacred and something that cannot
be discussed, we do not think that is realistic, and we do not
think that is proper not to discuss for the businesses to evolve
like other businesses have evolved.
534. I am looking at you both, but would you
say that is the view of the US Government?
(Mr Moloney) I really cannot speak for them. I think
it will vary, and I think, come November, there could be a different
view.
Chairman: That seems a realistic assessment.
Mr Stevenson
535. You did say that progress has been restricted
by the UK Government. Would you, in that context, deem it unreasonable,
in terms of liberalisation and opening up, and the comments that
you have made have been very helpful, for the UK Government to
take the view that any liberalisation, `Open Skies' agreement
is meaningless when 40 per cent of the global airline market,
represented by the United States, is not contained in that agreement?
(Mr Kamen) We believe that that is an unreasonable
position, only because we believe that the consumers are being
hurt currently; we understand the broader issues, and we can even
take the position of understanding that, for a full, truly `Open
Skies', these issues have to be discussed. What we are calling
for is liberalisation, maybe that does not mean full liberalisation,
meaning `Open Skies', cabotage, do away with all of those issues,
we believe there has to be some liberalisation to increase competition
in the market-place.
(Mr Moloney) Can I just follow on. The point that
was made earlier, by the gentleman here before, I think, is a
very, very important point. We have to look at what happens in
the market-place, and what the realities are of the market-place,
and what we are seeking. I am going to guesstimate there are between
800 and 1,000 transatlantic flights, per week, by US carriers,
we operate over 200, so I am going to guess; three of those flights
operate Fifth Freedom services, and they are all to India. So
you have to look. It may be important to have on paper, but, realistically,
cabotage has been taken care of through alliances, we can fly
to places in Europe through our alliance partners.
536. Which leads me on to my next question very
nicely, I am grateful for that; because you did say alliances
are probably the way forward, and I think your colleague, Mr Egli,
mentioned liberalisation in France and Italy on a country-by-country
basis. My question, therefore, falls into two parts. First of
all, those liberalisation measures in France and Italy, have they
in any way opened up the US domestic market? And my second question
is, how, specifically, from your expert point of view, would you
say that alliances, such as One World, Star Alliance, and so on,
can open up the US domestic market?
(Mr Kamen) They have the alliance with Air France,
so I will let them answer that.
537. We try to keep up, but we cannot keep up
with you, obviously.
(Mr Moloney) In the French market, in the France-US
market, there is no question that the agreement has opened up
the entire United States to Air France. Air France now code shares
to, I am going to guess, 80 cities in the United States, with
Air France; so, in effect, now, it can fly from Daytona Beach
and Minneapolis and Phoenix and everywhere to France and beyond.
538. Cabotage, and things like that, can they
do that, has it made any inroads into that at all?
(Mr Moloney) No; and, quite frankly, Air France and
the French Government have no desire, nor did they ever ask for
cabotage. Their needs are to get passengers from between points
in the United States to points in France and beyond, and they
can do that sufficiently through strategic alliance with us. It
is much more cost-efficient to do it through a hub carrier, through
Newark or through Atlanta, than it is to bring your own aeroplane
and try to operate to 80 points; it is just not profitable. And,
as I said, we used to think in those terms, we had to fly aeroplanes
everywhere; now we are competing for capital with everyone and
we want to operate a sound business, and this is the best way
to operate a sound business, of getting people from A to B.
539. How will alliances open up the US domestic
market; could you be as specific as possible in your views on
that?
(Mr Moloney) I will, by saying I think they already
have. If you looked at Austrian Airlines, Sabena, Swissair, soon
to be Alitalia, if it consummates its alliance with Northwest,
and Air France, they are able to offer their code and their service
and put their code on flights throughout the United States; they
are, in effect, a domestic carrier.
|
