Memorandum by BAA (AS 17)
AIR SERVICE AGREEMENTS BETWEEN THE UK AND
US
1. BAA welcomes the Transport Sub-Committee's
decision to conduct an inquiry into the Air Service Agreement
between the United Kingdom and the United States. The Committee's
inquiry is timely, considering the recent news that the UK and
US Governments have committed themselves to renewed efforts to
seek wider liberalisation, following the successful conclusion
of a mini-deal in March.
2. BAA is the owner and operator of seven
airports in the UK.[45]
BAA's development strategy is based on the company investing more
than £6 billion in new facilities over the next 10 years.
For the London airports, this will include the development of
Terminal Five at Heathrow, the expansion of Gatwick to the full
potential of its runway, and a significant increase in the number
of passengers and airlines using Stansted. These investment plans
represent the most significant investment in airport infrastructure
in BAA's history, and amongst the most ambitious development plans
for any city in the world.
3. BAA supports the general principle of
liberalisation of international air services. The liberalisation
of air services expands consumer choice and creates more competitive
markets for air travel. It is clear that UK consumers and many
UK industries could stand to benefit from further liberalisation
of air service agreements. In addition, BAA's long term prospects
are inextricably linked to the future success of UK airlines globally.
4. The UK has, by a considerable margin,
the highest volume of passengers travelling to and from the US
of any European country. The period since the last major changes
were made to the Bermuda II agreement has seen UK airlines continue
to grow their share of the UK-US market. BAA has both benefited
from, and contributed to the success of the UK air transport industry.
5. However, there is some danger of overplaying
the severity of restrictions on the US-UK market. The portrayal
of the market as highly illiberal has the potential to create
internal domestic pressures to negotiate a new agreement to the
disadvantage of UK airlines. It is clear that a poorly negotiated
liberalisation deal will disadvantage UK carriers and UK consumers.
6. For this reason we would urge the UK
government to ensure any liberalisation of the air service agreement
between UK and US, both promotes and protects the interests of
UK consumers. This should not be taken to mean that liberalisation
should not be pursued with determination. We believe there are
real benefits to be had from a more liberal agreement. However,
an acceptance of the US template for liberalisation could erode
the competitive position of UK airlines in this most important
of international air transport market.
7. Recent research by the UK's air transport
industry demonstrated the importance of air transport to the UK
economy. This economic impact not only reflects the significant
contribution of the air transport industry to economic activity
in the UK economy, but also the crucial role that international
air travel plays in driving productivity growth and employment
prospects for the UK economy. The US has the world's most powerful
economy and is one of the UK's most important trading partners.
It is vital that air transport links are allowed to develop dynamically
between the UK and US to support and encourage the development
of economic growth and prosperity.
8. BAA would like to bring the Committee's
attention to the challenges for the operation of Heathrow and
Gatwick of a more liberal air service agreement. The Committee
will be familiar with the capacity pressures that already exist
at both Heathrow and Gatwick, and the extent of the unmet demand
at both airports. Experience has shown that the process of liberalisation
typically stimulates additional demand. Although BAA would look
forward to meeting these challenges, the practical obstacles that
will need to be overcome to implement any further liberalisation
of air services, prior to a fifth terminal at Heathrow must be
fully considered and reflected in any agreement between governments.
9. Over the last few years, BAA has continually
stressed the importance of airport capacity issues in the development
of liberalisation proposals. BAA has been successful in communicating
both to US airlines and the US Government, the scale of the constraints
imposed by capacity limitations at Heathrow and Gatwick, and the
need for the transition to a new regime to be phased over a number
of operating seasons.
10. We recognise that these capacity constraints
are not only frustrating for passengers and airlines, they also
have a significant impact on the competitiveness of the UK economy.
This impact will increase over time. At Heathrow, the full utilisation
of runway capacity at most times of the day would mean that any
increase in the number of US services, would inevitably lead to
a reduction of services to other destinations. Put another way,
the substitution of demand between markets would require some
services to be sacrificed.
11. BAA accepts that it is the airport operator's
job to manage the challenge of accommodating demand. However,
both the US and UK Governments must recognise the inherent link
in this instance between any liberalisation proposals and the
potential of Heathrow (and to a lesser extent Gatwick) to accommodate
extra services. To help manage the capacity limitations, BAA would
support the general principle of secondary trading between airlines
of runway capacity slots provided that adequate safeguards existed.
It is for the DETR to encourage the European Commission to clarify
its position in this area.
12. In support of the need for regional
airports (including Stansted) to develop the range of direct international
services offered, BAA would urge the Committee to consider how
direct regional services can be further encouraged. To date, the
DETR's actions to stimulate and encourage direct regional services
have had a limited effect. Although the existing air service agreements
do not present a significant barrier to the development of international
services from regional airports, the DETR must continue to be
charged with doing everything possible to attract new regional
services, including the granting of fifth-freedom rights where
these are sought.
13. At the talks announced for June, both
governments must make a dedicated effort to seek agreement on
how wider liberalisation can be achieved. The initial talks should
focus primarily on setting out the process and milestones for
progression towards the mutual goal; from recent experience it
has been clear that the liberalisation objective will only be
reached in stages, and the talks need to identify what these stages
might be.
14. In all likelihood, these negotiations
will represent the final opportunity for the UK and US Governments
to attempt to negotiate a new air services agreement. It is likely
that the EU will then assume responsibility for the negotiation
of air service rights with the US, in respect of a new "transatlantic
common aviation area". The inevitable delay in negotiating
such an agreement should provide both governments with an incentive
to make significant progress towards liberalisation.
April 2000
45 Heathrow, Gatwick, Stansted, Southampton, Glasgow,
Edinburgh and Aberdeen. Back
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