Examination of Witnesses (Questions 540
- 559)
WEDNESDAY 14 JUNE 2000
MR STEPHAN
EGLI, MR
JOHN MOLONEY,
MR HERSHEL
KAMEN AND
MR MICHAEL
CARTER
540. Could I be a bit more specific, and direct
this to Mr Kamen. Unless I am mistaken, Virgin and Continental
are working together in alliance. We took evidence from Sir Richard
Branson, and he produced a map, two maps; he showed us the map
that your airlines are operating in Europe, and he showed us the
map that Virgin can operate in the United States, and there was
not a single, solitary service they could provide. So, how is
your alliance, your co-operation with Virgin, how has that helped
Virgin operate in the United States, because they cannot operate
a single service there?
(Mr Kamen) And the reason they do not operate services
beyond the gateways in the United States is because we have not
entered into any contractual relationship to do that; we have
not been asked to do that. Our alliance with Virgin, or our code
share with Virgin, is simply gateway to gateway; it is not envisioned
to be anything more, and I think it will not be until the US-UK
bilateral gets settled so that everybody understands what the
playing-field is, and then we can move forward to figuring out
how we would develop a broader alliance.
(Mr Moloney) Prior to their relation with Virgin,
Virgin was with us and it was the same situation; they never asked
to code share on our domestic segments.
Chairman: That is very interesting.
Miss McIntosh
541. Can I remind the Committee of my interest,
and I will try not to show any bias one way or the other, Madam
Chairman. Could I direct my question to both Delta and Continental
and ask, it follows on from Mr Stevenson's first question, it
is very much the feeling of the Committee that the negotiations,
the talks, should be on the basis of reciprocity, and at the moment
we get the distinct impression that it is very much a one-way,
that it could be perceived to be one way. And, if we start with
Mr Moloney, from Delta Air Lines, you mentioned that if the Commission
in the future took over negotiations, at that stage, you would
be prepared to discuss things like cabotage, presumably ownership
and control of carriers; but we have taken evidence, as part of
this investigation, that the Fly America policy, in particular,
is causing a certain amount of damage, as is cabotage, perhaps
more to the freight sector. So if you would just like to help
the Committee, by saying what pressure you would be prepared to
put on, as part of these talks, to try to open up a way forward
there? Mr Moloney first, then Mr Kamen.
(Mr Moloney) In regard to Fly America?
542. Yes; and freight access?
(Mr Moloney) Fly America falls into that unique umbrella
that is very hard to question, called national security, and it
is very hard for us to tell our Department of Defense what to
do in terms of national security, just like it—
Chairman
543. Come, now, Mr Moloney, we are not very
bright here, but we do dimly perceive that Fly America goes much
wider than simply people involved in defence?
(Mr Moloney) But it is a direct correlation that,
in order to be able to use the Fly America programme to offer
tickets under the Fly America programme, you have to be part of
the Civil Reserve air fleet, which enables our fleets to be called
up in times of national emergency. So it is a policy, and, again,
this is not Delta's policy, nor is this necessarily Delta's view,
but it is the policy of the United States Government that the
Fly America programme is part and parcel of our national security,
in times of a national emergency. And, therefore, it makes it
very difficult for us to lobby and to push on what they deem a
national security issue, just like it would be very difficult
for us to push the FAA and lobby on what they deem is an important
safety issue. There are certain issues that are very difficult
to work on. I will say, and, Hershel, correct me if you feel differently,
I think the United States Government has bent over backwards on
the Fly America programme to allow foreign carriers to carry that
traffic. And I will give you the best example that I have, which
is that, if you are a US Government employee and you work in Atlanta
and you need to get to Frankfurt, Delta has two flights a day
to Frankfurt, but United Airlines has the contract, under Fly
America, to fly Government-sponsored traffic to Germany; those
passengers fly on Lufthansa's aeroplane, they do not fly on the
two Delta flights, they fly on Lufthansa's aeroplane to Frankfurt.
Now if we were able to reach an agreement with the British Government
the same would be true of British Airways and Virgin. Delta had
that type of code share with Virgin, and I do not know if Continental
they have their code on Virgin.
(Mr Kamen) It is already true on Virgin. We do have
the right to carry Government traffic and put them on our Virgin
code share aeroplanes, and we do do that. I agree with Mr Moloney
that we have not lobbied for or against Fly America, to be perfectly
honest, we have stayed out of the discussion on Fly America, we
have not weighed in with the US Government either way, because,
as they explained it to us, they believe, or the Department of
Defense believes, that it is an issue of national security, and
we just do not get involved.
544. Are there any major—major—American
carriers that do not have the right to take personnel under the
Fly America policy?
(Mr Kamen) My understanding is that all of the major
American carriers are part of the Civil Air Reserve fleet, and
so they do.
545. So, in effect, it just means, as long as
they fly on an American airline they are alright?
(Mr Moloney) Or an American ticket on a foreign airline.
Like I said, Lufthansa carries almost all of the people from Atlanta
to Germany, whereas we have five flights a day to Germany.
Miss McIntosh
546. Could I just ask a different question now.
Do you agree that, the state of the US airline market, there has
been a much greater concentration between the airlines than has
so far happened in the European Union, I think there are now six
major carriers in the US?
(Mr Kamen) As the US defines it, there are ten major
carriers, and they define it as any carrier with revenues over
a billion dollars, but, I think, in effect, for your question,
there are six, or arguably seven, major carriers that fly internationally.
547. So can you see a certain natural consequence
of European airlines seeking to concentrate in the same way, to
match the might, perceived might, of American carriers?
(Mr Kamen) I guess I am not understanding the question
completely. Are you asking do I think that the Europeans will
move towards there?
548. Let me put it in another way, if I can,
Madam Chairman. Would you see it as a threat if, for example,
there is potential for a greater concentration amongst European
carriers, and you see the embryo of that in British Airways and
KLM having a potential link-up; would you perceive that as a threat
or a natural consequence of what has already happened in the States?
(Mr Kamen) I think it is a natural consequence of
a maturing industry. We have already seen it, and not to keep
going back to the alliances but we have already seen it happening
through alliances, through immunisation, it has already happened
with Swissair and Sabena, it is already taking place, I think
we are already well in the middle of that happening in Europe,
and I do not think we see that as a particular threat. We have
tended to stay out of internal European consolidation issues,
and just watched them, to understand what the market-place is,
but not necessarily see that as a threat.
Chairman: Very wise.
Miss McIntosh
549. Just one other question. If you are both,
I think, currently operating out of Gatwick, and you were successful
in achieving a route, or more than one route, out of Heathrow,
would there be a change in your fare structures, your pricing
policy?
(Mr Carter) Can I perhaps answer that. Obviously,
our plan would be to add capacity in the UK-USA market, with the
fetters taken off. More capacity, we think, would naturally create
more competition, which would create a more competitive market-place;
that would impact on service standards and fares. I think, as
was mentioned by previous witnesses, business class fares in the
UK are high, that is partly because of devaluations of foreign
currencies on the European mainland, there has also been a lot
of service level competition. Remember, of course, if you buy
a business class fare, you normally have the right to interline,
so the carriers tend to have, if you like, a `rack rate' fare,
which they all post, so that you can fly out on Delta and come
back on Continental, or vice versa, with any number of carriers.
That is a feature, that fare, the Civil Aviation Authority, to
my knowledge, have only regulated the unrestricted economy fare,
they have regarded business class fares as being at the discretion
of the purchaser. In the real world, major corporations and travel
agency groups do create separate contracts; net fares are becoming
more and more prevalent, and I can assure you that UK-USA is a
pretty competitive market already, I think, if you found that
there was more capacity, more service, you would find it becoming
even more competitive. I might also add just one point about the
advantages/disadvantages for the consumer of a liberal air fare
agreement. Continental, in the last few years, in fact, we introduced
Manchester just coming up to five years ago, it has been a very
successful service, that was our fifth transatlantic point; when
we introduced Tel Aviv last August that was our 17th transatlantic
point. Most of that expansion has been outside of the UK, most
of it has been within an hour and a half's flight time of Heathrow.
That is what happens in the real world when New York's major carrier
cannot access the biggest international market, airport, in the
world, it starts going to other places and taking its business
elsewhere; so we now fly to Düsseldorf, Amsterdam, Dublin,
Shannon, etc., etc., etc. And that is what happens in the real
world. We do not bring so many services, we do not have our extended
limo. offers beyond a certain number of flights, all those benefits
which we bring, which we hope are unique to our airline, cannot
be offered to the same degree because we are banned from using
Heathrow.
Chairman
550. I should think Manchester would be fascinated
by stretched limos, Mr Carter.
(Mr Carter) Sorry, extended limos, which is the mileage.
Chairman: Oh, I see; oh, I see. You do disappoint
me. I had a marvellous picture of what would go on round Manchester
Airport.
Mr Donohoe
551. If you were to take Heathrow out of the
equation, and Gatwick out of the equation, what else would you,
as airlines, be demanding as being part of this bilateral?
(Mr Moloney) That is kind of like a car without wheels.
I do not mean that the rest of the UK is not important, but that
is the meat of what we are demanding.
552. Is there anything else?
(Mr Moloney) I do not know. I would say expanded code
share authority and liberalisation in pricing.
(Mr Kamen) Absolutely; liberalisation in pricing would
be the big issue for us, if Heathrow were off the table.
(Mr Moloney) Pricing, yes.
553. And what would you see as being likely
to be on offer, as far as these two issues are concerned?
(Mr Moloney) The pricing authority we are seeking
is what we call a double disapproval regime, that the only fare
that can be disapproved in a market is if both Governments agree
to disapprove it, which is extremely rare-possibly in the case
of a predatory price. I am not aware of it happening, it is very
rare.
554. And is that going to be part of the negotiations?
(Mr Moloney) That is currently part of them, I was
at the negotiations today, and it was being discussed, it is a
very important part of the negotiations. Now, in an `Open Skies'
regime, with the 45 other countries we have `Open Skies' with,
we have double disapproval pricing in Germany, in Holland, in
Switzerland, in Austria, etc.
555. What advantage is that to American airlines
against the disadvantages to the British?
(Mr Moloney) Can I say that I think I can answer your
question with what I was going to say, but I can also rephrase
it and say what advantage is it to the consumer that we are able
to price the way we want the market-place, if we want a promotional
fare, as in the past we have had promotional fares rejected here
many times, that there is no Government to come in and reject
our promotional fare.
(Mr Kamen) I do not think that there is any advantage
to either side in liberalising pricing. I think that it takes
the shackles off both the US and UK carriers to meet market demand
and offer the prices in the market-place that the market will
bear.
556. Why do you not then, if you are looking
after your customer, as you say, as airlines, argue with your
Government that you should allow foreign airlines to operate within
the United States itself? Because, clearly, where there has been
a situation over the last ten, 15, 20 years of something like
150 American airlines going out of business, because of the competitiveness
of the market-place, you should not really be concerned about
that, should you, as airlines?
(Mr Moloney) I am not concerned about carriers coming
into our market. Delta Air Lines has 592 aeroplanes, United Airlines
has over 600, American has over 600, we are huge operations, and
there is Southwest Airlines, which is growing like a weed and
is very profitable; if a European carrier wants to come in and
try their hand at it, as someone told me, when Mr Branson was
here, someone suggested he not only may lose his tie, he is willing
to lose his shirt, in the US, and I think that could be the case.
But, again, it is against the law. We have to go to Congress and
have that changed.
557. Would you go on a positive basis? As far
as we can see, from the airlines that we have, they are presenting
this in a domestic sense; they argue that they want to get into
that market-place, they argue that is the most important element
of the whole thing. You, as an American airline, are saying it
did not bother you, because you know that competition will take
care of that aspect. I am not misrepresenting what you say. What
is the situation with Continental, as far as that is concerned?
(Mr Kamen) We have taken no position on—
558. No, but if you were to take a position?
(Mr Kamen) We have taken a position that we will not,
to be very honest, go forward to the US Government and lobby in
favour of getting rid of foreign ownership rules, or any of that.
559. No, if you did not have a problem with
your trade unions; is not that the biggest problem that there
is, as far as you are concerned?
(Mr Kamen) Would we have a problem with our unions,
absolutely, absolutely we would have a problem.
|
