Supplementary memorandum by the Aviation
Forum (AS 18A)
SPECIFIC JOB LOSSES ARISING FROM ASA
In response to the Select Committee's question
about specific job losses emerging from a revised ASA. We would
like to offer very much, a rough estimate. We hope the committee
is aware of the methodological problems in forecasting an event,
which must necessarily rely on scenarios.
Excluding maintenance staff and adjusted for
stage length recent estimates calculate for 160 staff per aircraft
in BA. Dividing this by the average utilisation with some adjustment
for staffing which is about 17 staff per aircraft. Taking the
long haul average staffing figure we would expect about 25 direct
on board staff per aircraft. With a loss of one frequency on each
route served that would translate into 120 direct job losses.
Assuming half that frequency loss (operation on alternate days
of an additional service rather than the current situation) we
would envisage half that total. We cannot calculate the additional
job losses, which would result from loss of transfer traffic and
the general long term weakening of BA's position. We would argue
that there would be an offset with the entry of British Midland,
but the strength and pricing power of US carriers leads us to
believe it would be overall negative.
If US airlines use their full frequency entitlement
we would estimate job losses in the following region:
|
| BA Scenario (reduced rounding frequency)
| Virgin Scenario |
| Scenario | I total loss of frequency on route
| 0.5 loss (halving one frequency on route)
| Reduced frequency |
|
| LHR-JFK* | 25
| 12.5 | 12.5
|
| LHR-IAD** | 25
| 12.5 | 12.5
|
| LHR-BOS** | 25
| 12.5 | 12.5
|
| LHR-EWR** | 25
| 12.5 | 12.5
|
| LHR-SFO** | 25
| 12.5 | 12.5
|
| 120 |
65 | 65
|
|
Notes:
*There could be additional loss from the re-allocation of
LHR SH frequencies by BM to their LH network.
**These might be expected to result from the shift of slots
towards long haul. The employment effect would be largely neutral
or even positive as there would be a redeployment towards LH,
with greater crewing requirement.
We emphasise the exploratory nature of these estimates. It
is difficult to accurately predict the effects of a planned change
on jobs. We can openly work with current estimates and develop
scenarios. Proper econometric work would need to be carried out
to arrive at more robust estimates. We believe that the absolute
short-term job losses would in any case be secondary to the relative
effect of losing vital position at London Heathrow, which could
of course have multiplier effects for UK employment more generally.
FARES TRENDS UNDER DIFFERENT REGULATORY REGIMES
During our appearance at the DETR Transport Sub-committee,
we draw attention to certain evidence throwing light on the consumer
benefits claimed for airline deregulation and also on the alleged
disbenefits of Bermuda II. The Sub-committee may find it helpful
to have the references together with a brief commentary upon the
significance of the data.
1. THE LONG-TERM
USER BENEFITS
OF US DE-REGULATION
1.1 Spectacular reductions in fares have repeatedly been
claimed for US airline deregulation. For example, it is often
pointed out that average airline yields have been reduced substantially
since 1978. ("Average yield" may be taken as the weighted
average fare, and is thus a more objective measure than the highly
selective tariff examples quoted by particular interests).
1.2 Evaluationsof the EU experience also tend to take
a similar form, starting with the "Third Package" regime,
and making little attempt to put developments in proper historical
perspective.
1.3 By courtesy of Melvin A Brenner Associates, we exhibited
a diagram showing the long term trend in yield per revenue passenger
mile for the US domestic industry in real terms over the post-war
period. The broad trend after de-regulation is obviously a continuation
of that before the change in regime. The fact is that US deregulation
has had no discernible effect upon the trend.
1.4 Calculations by other distinguished specialists have
come to similar results, and we doubt that any amount of reworking
of Mr Brenner's assumptions and calculations would come to significantly
different conclusions. Moreover, the trend of traffic growth shows
similar characteristics.
1.5 As these facts are impossible to explain away, some
interests tend to argue that pre-deregulation yield reductions
were due to the progress of technology. It is thus implied that
the reducing fares trend happened despite the (then) US regulatory
system. This is wrong on two main counts.
1.6 Under old-style US regulation, although competition
was muted, the carriers enjoyed only modest profits. They demonstrably
failed to appropriate the fruits of technological progress. It
could therefore only have been regulatory mechanisms which ensured
that technological benefits were enjoyed by passengers rather
than employees or shareholders.
1.7 Moreover, during the last two decades, there have
been advances in propulsion technology (increased range, lower
fuel consumption and reduced operating costs), in airframe design
(weight savings and increased payload), in control techniques
(better operational performance and flight crew reductions) and
also in aspects such as Computerised Reservation Services and
yield management.
1.8 It is thus simply not credible to argue that technology
was a greater influence before de-regulation that it has been
afterwards. Technology certainly does generate cost reductions
but the leading question is: who benefits from those reductions,
and by what mechanism?
2. THE EXPERIENCE
WITH BERMUDA
II
2.1 We also exhibited a diagram from the report produced
in 1996 for American Airlines Inc by Roberts, Roach & Associates
(RRA) entitled "Economics Benefits of US-UK Open Skies".
2.2 On UK/US fares, RRA point out that "during 65
years of this industry's recorded history . . . prices have steadily
fallen in real terms". (Page 38) Indeed, RRA's diagram, as
shown to the Sub-committee, demonstrates that "real UK/US
yields have fallen by two thirds over the last 30 years."(Page
37)
2.3 No doubt RRA's calculation could be re-done with
different assumptions, but the trend is clear beyond doubt. Even
after allowing for oil price increases, Bermuda II has encouraged
average real yields to decline at a rate comparable with anything
that happened before the Treaty was signalled.
2.4 As for selective comparisons involving particular
tariffs, certain business fares are high, compared to continental
Europe to America fares, following the Civil Aviation Authority's
decision to stop holding down fares which it judged to be unreasonably
high. (See the CAA publication, Airline Competition on Long Haul
Routes, CAP 639, November 1994, para 52).
2.5 Facts in the same document also contradict the simplistic
view that increasing the number of competing airlines per se tends
to increase price competition for business traffic. To quote CAA
again: "On some of these (UK/US) routes BA faces three or
even four non-stop competitors . . . but there appears to be no
correlation between the number of non-stop competitors and the
fare levels".
3. WHAT FACTORS
DRIVE COST
AND FARE
REDUCTIONS?
3.1 According to CAA: "The principle driver of changes
in passenger demand is changes in gross domestic product . . .
there is also a large unexplained variable . . . it is likely
but not demonstrable that this element is an income effect, namely
a change in preferences which comes about as a result of changes
in income rather than a change in relative price." (CAA,
"Traffic Distribution Policy for the London Area . . .",
CAP 548, para 2.06.)
3.2 And the "main determinant of growth in unconstrained
passenger demand will continue to be the rate of growth of GDP
and of consumer expenditure." ("Traffic Distribution
Policy . . . The Next 15 years", CAP 570, 1990, para 4.03).
3.3 The "major factors affecting air fares are thought
to be changes to oil prices and other aircraft operating costs
. . . liberalisation in Europe is expected to have only a modest
effect." CAP 570, op cit. (A somewhat different emphasis
in "The Single European Aviation Market: the first five years",
CAP 685, may be due to a failure to look at developments in proper
perspective).
4. THE AVIATION
FORUM'S
CONCLUSIONS
4.1 The Aviation forum draws no black and white conclusions
from this data. We do, however, feel that experience clearly shows
that competition should not be seen as an end in itself but as
one of several possible mechanisms for securing benefits for users,
airlines, employees and the UK economy.
4.2 Consistently with this, we are not dogmatic about
whether Bermuda II should be revised or a wholly new treaty negotiated.
It would be perfectly possible to adopt a liberal approach to
services from UK regional airports and to widen opportunities
for new carriers at Heathrow while firmly retaining the concept
of a balanced and managed regime. Once we draw lessons from the
industrial facts as opposed to simplistic dogmas, the way is clear
for pragmatism and common sense.
June 2000
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