Examination of Witnesses (Questions 780
- 799)
WEDNESDAY 28 JUNE 2000
MR BOB
COTTERILL, MR
TREVOR SMEDLEY
AND MR
DAVID BATCHELOR
780. That is a rather tactful way of not answering
what I asked you. We can agree on an ultimate objective but if
you say the government is coming at it sideways like a crab and
the United States government is coming at it from the opposite
direction, I ask you again: do you think we are handling it in
the right way?
(Mr Cotterill) The issue is one of negotiating strategy.
Frankly, that is an issue for the government. It is not an issue
for the CAA. We advise them. In our evidence, we tried to make
it as clear and as honest as we can.
Chairman: I am not seeking to trap you into
saying something you have not said but I think the Committee are
very interested in this attitude.
Mr O'Brien
781. What benefit does the United Kingdom derive
from the provision of air services between the United Kingdom
and the United States? If no bilateral agreement is reached between
the two countries, what will be the effect on the economy of the
United Kingdom?
(Mr Cotterill) The benefits are very substantial.
The most recent and I think really the only major study of the
benefits of the United Kingdom aviation industry more generally
has been recently done by Oxford Economic Forecasting. They estimated
something like £10 billion per year benefit to the United
Kingdom and something like 180,000 jobs. That was aviation in
its totality. There is then the difficulty of how much of that
benefit accrues to the North Atlantic. We have done some simple
figures on that by looking at relative passenger volumes and our
conclusion from that is that, in terms of employment, it is probably
about 20,000 people but that may be an under estimate, given that
we are talking about long haul routes, which I think on balance
probably employ rather more per passenger.
782. If no agreement is reached, what will be
the effect of that?
(Mr Cotterill) I do not think we think there is any
immediate black hole. We tried to explain that in our written
submission to you. If one looks at what has happened to the United
Kingdom's share of traffic on the North Atlantic over the last
ten years, it has stayed remarkably stable at around 40 per cent
or just under, despite the fact that a lot of other European countries
have agreed Open Skies agreements with the US. Logically, one
would expect over time, with natural, underlying forces, for the
United Kingdom to decline somewhat. Why do I say that? Essentially
because ours is probably the most mature and by far the largest
market between the EU countries and the US. Naturally, you would
expect some of the smaller countries' traffic to grow, so it is
not necessarily that our traffic declines but, as a proportion
of the total, it would decline. Similarly, the congested infrastructure
position at London must have some effect. Interestingly, despite
that, it does not seem to have been happening in the last ten
years. If anything, it has edged up a percentage point or two.
It is against that background that I do not see a black hole.
I do not think it is something that we need to panic about.
783. If these European cities develop their
direct contact with the US and the fact that London is accepted
as a gateway for passenger traffic into Europe, what effect will
that have on our position as the gateway to Europe? How do you
see that scenario?
(Mr Cotterill) There is a logic to it. It is possible
it will become a smaller proportion over time. It does not seem
to be happening in practice, which I think is interesting.
784. What timescale are you thinking of?
(Mr Cotterill) One would imagine over the next 10,
15 or 20 years that that would happen to some degree, but the
strength of the United Kingdom's markets, the high frequencies
because we have such big markets and the competitiveness of British
airlines has, to a large extent, staved that off. I do not think
there is a serious short-term problem. That is why we are reasonably
happy in saying that the important thing here is to try and get
the long-term position—
Chairman: We may come back to some of your estimates
because there may be a distinct difference between the last ten
years and the next ten years, given the very factors that you
have identified.
Miss McIntosh
785. On the table one that you have given in
your evidence, the scheduled services that you refer to presumably
for United Kingdom and US airline traffic are scheduled passenger
services as charters are given underneath. Could you provide us
with similar figures for cargo?
(Mr Cotterill) You are absolutely right. These are
passenger figures. On cargo, I think we would have to put in a
further submission.
(Mr Smedley) There would be no problem in providing
similar figures for cargo.
Chairman: We would welcome that because it is
an important point and there is a clear divergence between the
two markets.
Miss McIntosh
786. If the government is not going to pursue
from our side of the negotiations, the United Kingdom side of
the negotiations, the Fly America policy, wet leasing and access
to cabotage, I think in your evidence you have suggested this
is not a very fair negotiation. It does seem to be slanted heavily
towards the US advantage. I think that was the expression that
you used. Would you agree, if that is the case, that it is even
more slanted in their favour towards cargo traffic than passenger
traffic?
(Mr Cotterill) We were not suggesting that the government
is not going to play very hard for doing away with Fly America
and indeed the CRAF programme and wet leasing. That is very firmly
on the government's list. As I understand it, the only thing that
has been put aside for the time being—and I think it is
just for the time being—is ownership and control and cabotage.
The others are very firmly an issue. So far as cargo is concerned,
philosophically and in practical terms, the case that the British
Cargo Airlines Alliance put to you is very strong. It is really,
for cargo, saying very much the same thing that we are saying
for both passenger and cargo. That is important. That is very
consistent with our long-term aim. There are issues which are
really for the government and not for the CAA, of the extent to
which one should make that one whole negotiation. As I understand
it, the government sees that as one whole negotiation and we would
support that view and say that is the right view at this stage.
787. Against the background of what you have
said, that there is probably going to be a fall off in traffic
on the United Kingdom side, possibly to the benefit of other US
carriers or other city carriers from Europe pairing with the US,
can I just ask what the implication from your standpoint as the
CAA would be of an eventual European Union mandate to negotiate
these?
(Mr Cotterill) I do not think I was suggesting there
would be a fall off in traffic but logically there are some underlying,
natural forces if you like that may lead to the United Kingdom's
very high 40 per cent share declining somewhat over time, though
whether it will actually happen remains to be seen. So far as
the European Union is concerned, this is certainly not an issue
of dogma. This is simply practical—
Chairman
788. Nobody would accuse the CAA of being dogmatic.
(Mr Cotterill) This is an issue of aviation outcome,
if you like. For the reasons we and others have explained, it
is simply not possible for the United Kingdom alone to negotiate
a full liberalisation as we have described it. There is only one
way and that is through the European Union negotiating with the
US. That does bring some other advantages in that it creates opportunities
for the United Kingdom airlines to operate from other European
points. That seems to me to be in exactly the same way as has
happened within the European Union, extending those sorts of opportunities
and seems likely to be to the benefit of the United Kingdom because
the United Kingdom carriers, certainly in the internal market,
have shown themselves to be good competitors and ahead of the
game.
Miss McIntosh
789. In your view, is it a handicap that the
European Commission is not a signatory to the Chicago Convention?
(Mr Cotterill) This is an area, in terms of the technicalities,
which I am not very good at. Looking at what has happened in practical
terms, it does not seem to have been. The Commission has negotiated
via an EC Council mandate with the Swiss successfully. That is
still to be put into force but for reasons, I understand, outside
aviation and that should come soon with luck. They have negotiated
with the ten central European states, barring the two that still
have to ratify that, and that should come into effect. I believe
they are now starting with Cyprus, so it seems to be something
they can do.
Chairman
790. Those are rather different in scale, are
they not?
(Mr Cotterill) Indeed.
Mr Donaldson
791. Do capacity constraints at Heathrow and
Gatwick mean that the practical effect of an agreement which liberalises
access to London airports will be rather limited?
(Mr Cotterill) Clearly, they are a practical issue
which are going to have an effect in limiting competition generally.
What we would argue is that the way to deal with that is not through
refraining from liberalising, but rather through finding instruments
that deal with that issue properly. Put simply, if the bilateral
system did not exist, I do not think one would put something like
that into place to solve the congestion problems. It is a rather
simplistic point but I hope it illustrates what I am trying to
say. In other words, there are better instruments than the bilateral
system to deal with that sort of issue, but it is a real problem
of course.
792. Are runway and airport capacity more important
in deciding the future of the US/United Kingdom aviation market
than bilateral agreements therefore between the two governments?
(Mr Cotterill) They are both very important but I
certainly would not under estimate the importance of liberalisation.
793. Which is the more important, in your opinion?
(Mr Cotterill) In terms of something that can be achieved,
if the will is there, I would say the bilateral is the priority.
794. Are you nevertheless in favour of more
capacity and particularly what is your view on a third runway
at Heathrow?
(Mr Cotterill) I do not think we are in a position
where we can say we are either in favour or not. The reason I
say that is that, whilst the CAA has no statutory responsibility
for environmental matters, we are very conscious and agree entirely
with the government's view that, when looking at infrastructure,
one must adopt the principle of making sure that the costs, including
the environmental costs, are fully taken account of. The government,
as Mr Griffins explained last week, is involved in detailed studies
looking at the economic, environmental and social aspects of infrastructure
in building up to its Aviation and Airports White Paper. Those
studies are trying to help look at that very balance. The end
result could be anything from no extra capacity through to significant
extra capacity, but the CAA is not in a position to make that
judgment. I do not think we have the information to say that more
capacity is warranted. It depends on the environmental and social
implications.
795. You have indicated in your submission that
you would like to see the right incentives being created for infrastructure
providers to expand their capacity, so that would imply that you
are in favour of seeing infrastructure capacity increase, particularly
in the south-east, where we have growing congestion.
(Mr Cotterill) In terms of the demand for Heathrow
and increasingly for Gatwick, the demand is outstripping, by a
substantial margin in the case of Heathrow, the supply. That does
not lead on automatically to the view that there should be more
capacity, because one has to take account of the full effects
of including it and of course the environmental effects. We are
not in a position to say there should be more capacity and I do
not think we were implying that there should be.
796. You were saying that, because of the infrastructure
constraints, the full economic benefits of liberalisation may
not be realised. Surely that implies that if the benefits of liberalisation
are to be realised there needs to be an increase in capacity?
(Mr Cotterill) No. That is the economic benefit and,
yes, we would certainly stand by that. Plainly, the full economic
benefits will not be realised because of capacity constraints,
but economic benefits are only one part of the equation.
797. What incentive do you think should be given
to the providers of airports and runway infrastructures to expand
capacity to meet demand?
(Mr Cotterill) Having the right economic incentives
for investment is important. One possibility—and this is
something that would need very careful thought—is the idea
that, if new slots are created, for example by an addition of
runways, airports might take some of the benefit of that. That
is very much an embryonic thought, but that is an example.
Chairman
798. An encouragement to do what they should
really be doing then?
(Mr Cotterill) The problem at the moment is the way
the slot allocation system works. At the moment, if new slots
are created, there are many ways of creating new slots. They can
be squeezed out of existing runways or they can be as a result
of new runways, but if they are, under the present slot systems,
the airlines immediately then are allocated those slots and they
hold those slots in subsequent seasons so long as they use them.
In effect, airlines are given the economic benefits of those slots,
and airlines alone. That is the issue I was addressing with Mr
Donaldson. That does not give any obvious incentive to the airports
to do that. That is a complex issue that would really need to
be thought through. It is an example of how one might think.
Mr Donaldson
799. Should the RPI pricing formula at regulated
airports be brought to an end?
(Mr Cotterill) That is an issue which will need to
be addressed as airports become more congested, but again it is
a complex subject. The CAA has signalled in our economic regulatory
role to the industry and others that we are expecting to take
a pretty careful look at the whole economic framework, those things
which are within our powers under the Airports Act to do, over
the next year or so. I do not think I can begin to say what conclusions
we will come up with because we shall need to think very carefully
and consult during that process. The question is certainly an
interesting one.
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