Examination of Witnesses (Questions 620
- 639)
WEDNESDAY 21 JUNE 2000
MR RICHARD
ROBERTS AND
MR EDDIE
REDFERN
620. Could I ask in so far as regards your niche
of the market. Do you believe that the European Union is a natural
domestic market for Britain, and what would your view be of the
Commission eventually and potentially taking over the negotiations?
(Mr Roberts) In answer to the first question, the
European Union is our domestic market and we freely operate within
the market as a whole. For example, we do have aircraft based
in the Republic of Ireland, which operate freely between the Republic
of Ireland and other European countries. The second part of your
question which was, if I understood it correctly, related to the
European Union, effectively negotiating bilateral agreements on
behalf of us, does give us grave concerns. The fact that we are
here today indicates that we do have a voice within United Kingdom
circles and others listen to us. We fear very much that within
a much broader context of the European Union and the interests
of carriers within that Union, then our voice will be diluted
many times. In fact, we will probably carry no significance at
all. We would lose out.
621. Finally, on that point, you do not see
that our bargaining power might be potentially greater by uniting
under a European grouping, where particularly on these issues
there is a lack of reciprocity, at the moment, on wet-leasing,
Fifth freedom rights, and ownership and control?
(Mr Roberts) The direct answer is no, we do not.
Chairman
622. You did indicate when you were giving evidence
a little bit earlier that other countries, where they concluded
bilateral agreements, the charter part of the industry felt that
it had been squeezed out because it was done on the basis of scheduled
flights. I do not want to put you in a difficult position but
are there particular groups of countries or European countries
that you could identify where that is the case?
(Mr Redfern) I do not think I can indicate particular
groups. I am talking of discussions within the International Air
Carrier Association, where it is becoming clear to me that certainly
charter carriers are now saying quite openly that they believe
that were the TCAA within the EU to be given that mandate, it
should have some keystones within that mandate.
623. Would you like to indicate what nationalities
they are?
(Mr Redfern) Predominantly the Northern European charter
carriers.
Mr Donohoe
624. What estimation have you given to the cost
of the present regime, as far as your operation is concerned?
If you had to strip all these restrictions: to you as a company,
what would be the additional income which you would receive in
the event of a different regime?
(Mr Roberts) The answer to the question, as I understand
it, is actually quite difficult to give. What we are essentially
dealing with is a restriction in the size of our market. We can
give you indications of revenue within the markets that we are
able to operate, but what we cannot do is to give you indications
of the lost revenue or the lost contribution.
Mr Donohoe: I will put it another way. Is it
a fairly substantial amount or is it minimal?
Chairman
625. What you are being asked is that you presumably
have some kind of projection of what you would gain, if you were
not restrained in the way that you are at the present time.
(Mr Roberts) If we were to specifically look at that
business which is extra bilateral, then the United Kingdom industry
view is that that business is worth 15 million.
Mr Donohoe
626. I am not interested in the United Kingdom.
I am interested in you as a company. As far as you are concerned
as a company, what would be the wish list that would bring about
change, and what would that mean to added profitability or added
income? What would it be? Particularly with the Americans, of
course, because that is what we are talking about.
(Mr Roberts) I think I am going to appear not to be
answering the question but let me try and answer it. A vital part
of our operation is due to the seasonality of our business. To
give you some dimensions on that seasonality: in our United Kingdom
markets we carry approximately double the number of passengers
in summer to the numbers we carry in winter, which is a direct
reflection as to the characteristics of our market place. In order
to try and compensate for a much smaller winter market, we have
a need to lease out aircraft in the winter and with those aircraft
we have crews which are a part of our standing cost. Last winter
we leased two such aircraft: one to a Spanish carrier based in
the Canaries; and another to a Peruvian carrier which was operating
scheduled flights between Peru and USA. There are United States
carriers that also require capacity in winter. In fact, we are
currently talking to one such carrier for this coming winter.
But the current regime would not allow us to send an aeroplane
with its crews and thus make a contribution to the fixed costs
of our crews.
627. Specifically to the whole question of the
bilateral itself, you say in your evidence that since 1996, whenever
these talks are taking place round about that period and if they
stall, the United States Department of Transportation withholds
your permits to operate. That must be a cost which you envisage
is likely to happen just now. Could you put any figure on that
cost?
(Mr Redfern) I can answer that one for you. For this
summer Air 2000 itself estimated the loss of revenue to be in
the region of £7 million, were those permits to have been
refused, plus the cost of reorganising the programme and buying
in extra capacity.
628. What estimation has there been of cost
in the past with the Department of Transportation holding back
permits? On how many occasions has that happened to you?
(Mr Redfern) It happened in 1996 and again this year,
so it has only been two occasions in recent years. But there is
constantly the Sword of Damocles over our head because the United
States, if they happen to fall out with us this week, will sit
on our approvals. Our business is such that we need the certainty
of getting our permits at an early stage.
629. Have you made representations to the United
States Government about that possibility and what have the United
Kingdom Government done?
(Mr Redfern) As I said earlier, the United Kingdom
Government this year took reciprocal and appropriate action. The
representations we have made is that we believe that an early
conclusion of the Charter Annex moving forward would be one way
to remove that Sword of Damocles from our head. We believe both
sides are fairly close to being able to agree liberalisation of
the passenger charter mode.
630. Do you believe that part of the negotiations
should, in some way, be negotiations that mean that instead of
these permits being issued on a temporary basis, they should become
more permanent?
(Mr Redfern) Yes, I do. I believe that the way both
sides appear to be moving forward is to be looking to a phased
deal. I think there are certain elements of a phased deal that
could be concluded more swiftly, accepting that there are weightier
issues to be agreed between the two Governments.
631. That would be out with the bilateral itself?
(Mr Redfern) I believe that both sides could actually
agree a phased movement forward, where certain elements of a deal
could trigger earlier and some, as I say, more weighty ones, would,
by necessity, trigger later.
Mr Stevenson
632. Could I ask for a little more clarification
on your stated objective (or hoped-for objective) out of the negotiations.
You said a balanced and reciprocal regime. Then you went on to
talk about total liberalisation in the objective. What would be,
in your view, the minimum that would be required, so that under
any reasonable definition some progress, (albeit on a phased basis),
could be agreed?
(Mr Redfern) I believe the United States are saying
there are certain problems with changes in their law. I believe
Her Majesty's Government has accepted those and, therefore, in
the current round they have parked those issues. To move any further
away from the key demands from the United Kingdom would mean the
United States end up with an `Open Skies' regime on their terms
and not on the terms that suit the United Kingdom aviation industry.
633. Could I ask about any implications of your
hope that there might be some early conclusion on the Charter
Annex, on the deal. What, if anything, would the United States
require from (if you like) our side, to be able to allow them
to agree to any Charter Annex?
(Mr Redfern) I do not believe the United States are
asking for very much in that sense.
634. What are they asking for?
(Mr Redfern) The ability to carry Fifth freedom traffic.
Effectively, the rights we enjoy now under extra bilateral approvals
would be wrapped up within a liberal agreement.
635. I see. Would that mean a scheduled slot
at Heathrow?
(Mr Redfern) No. Heathrow is not a market for charter
operators at the present time.
636. Where would this happen then if it would
not be at Heathrow? At which airport would it happen?
(Mr Redfern) I do not believe slots would come into
the discussions as far as charter is concerned.
637. Last question. A number of large airlines
have indicated to us that perhaps the answer to this is more alliances
between the airlines—the American airlines, in particular—and
code-sharing. Do you agree with the possibilities of that happening?
(Mr Redfern) Would you just repeat what you are asking.
638. Some of the large airlines—British
Airways, for example—have suggested that one way forward
would be effectively to forget about the issues of wet-leasing,
Fly America, ownership, cabotage, and so on, but to ensure, as
a minimum out of the negotiations, that there is immunity from
the United States against anti-trust so that these alliances can
go forward. In that way, through co-sharing and so on, then some
activity in the American domestic market might be achieved. Do
you agree that is a possible way forward?
(Mr Redfern) I think that is a possible way forward
for scheduled carriers. Charter carriers have no need, at the
present time, for code-sharing, etcetera. Were an agreement to
be made on that position, as Mr Roberts indicated earlier, that
would hold us back on the ability to lease where there is a clear
market.
Mr Donohoe
639. Could I ask another question. Do you carry
any cargo out with the suitcases?
(Mr Roberts) Yes, we do.
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