Supplementary memorandum by the Civil
Aviation Authority (AS 05A)
ETRAC WRITTEN QUESTIONS OF 28 JUNE
MARKET SHARES
OF UK-US CARGO
Attachment 1 gives for cargo similar market share
information to the table describing the passenger market which
was contained in the CAA's written evidence.
To what extent is the fact that the UK-US market
is the largest aviation market between the US and the EU attributable
specifically to Bermuda 2?
In general, air service agreements which impose
constraints upon the capacity or frequency which airlines may
mount will tend to restrict growth rather than encourage it. In
any event, as Table 1 below shows, the UK-US market was by far
the largest of the EU-US markets even before the signing of Bermuda
2 in 1978. Between 1977 and 1980 the UK-US market grew by 44 per
cent and over the whole period has broadly kept pace with the
growth of EU-US traffic as a whole. Bermuda 2 would not therefore
appear to have constrained growth to any greater extent than the
air services agreements between the US and other EU states over
the whole period. However, in more recent years many of those
agreements have changed significantly from being restrictive to
US-style "Open Skies".
In terms of the underlying reasons for the size
of particular international aviation markets, ethnic links, past
colonial ties and immigration often play a significant role. This
is illustrated by the relative importance of routes such as those
between France and West/Central Africa, between the UK and Australia,
between Portugal and Central Africa and between Spain and Latin
America.
The common language, strong trade links—the
UK accounts for over 40 per cent of US investment in the EU—and
a more closely shared culture are other factors influencing the
size of the UK-US market. The links of immigration are perhaps
particularly with the North East of the US but regions such as
Florida and the West Coast are very attractive to UK holidaymakers.
Geography also plays a part, reinforcing the underlying strength
of demand. Many passengers on UK-US routes connect at London from
European services; London services tend to be high frequency and
connections at London do not involve back-tracking. Also, many
US passengers travel around Europe when they come across the Atlantic
and seem to prefer using the UK as a stepping stone to Europe.
What has been the growth in air travel between
the US and the Netherlands, Germany and France since 1977?
The growth in EU/US traffic between 1977 and
1998 is shown in Table 1 together with the growth rates for the
four largest individual country markets to the US—the UK,
Germany, France, and the Netherlands. All four markets have witnessed
traffic increases in excess of the EU/US average of 268 per cent.
The markets from the UK, Germany and France to the US had similar
rates of expansion with passengers increasing by around 300 per
cent over the 21 year period but growth in the Netherlands/US
market was considerably stronger at 550 per cent. As a consequence
the Netherlands/US market is now only slightly smaller than the
France/US market whereas in 1977 the French market was around
twice the size of that from the Netherlands.
Table 1
EU-US PASSENGER GROWTH 1977-98
|
| Passengers
| | Growth Rates
|
|
| 1977
| 1990 | 1998
| 98v77 | 90v77
| 94v90 | 98v90
| 98v94 | 98v96
|
| UK | 4,085,349
| 10,053,128 | 16,728,294
| 309% | 146%
| 19% | 66%
| 39% | 23%
|
| Germany | 1,694,618
| 4,796,557 | 6,748,438
| 298% | 183%
| 18% | 41%
| 19% | 10%
|
| France | 1,150,167
| 3,399,292 | 4,800,954
| 317% | 196%
| 15% | 41%
| 23% | 14%
|
| Netherlands | 636,127
| 1,611,362 | 4,136,752
| 550% | 153%
| 70% | 157%
| 51% | 21%
|
| EU-US | 11,074,244
| 26,048,140 | 40,734,012
| 268% | 135%
| 19% | 56%
| 31% | 18%
|
|
Source: US Immigration and Naturalization Service.
Until 1990 the growth rate of the UK/US market and the Netherlands/US
market lagged behind those of Germany/US and France/US. However,
between 1990 and 1994 the Netherlands/US market increased by 70
per cent, well ahead of the growth rate of the other major EU
countries and of the EU-US overall average of 19 per cent. Even
after 1994 the Netherlands/US market grew by more than the EU/US
average.
Throughout the 1990s the growth in the UK's traffic to the
US has been greater than that from both Germany and France. Between
1996 and 1998 the UK/US market witnessed a slightly higher rate
of growth than that from the Netherlands with both markets growing
significantly more than those from Germany and France but only
slightly in excess of the EU average.
What has been the impact of the Bermuda 2 agreement on air
fares from London to the US? Do such fares compare unfavourably
to those from other European hubs, such as Amsterdam, Paris and
Frankfurt?
The changes in London-New York fares since 1994 are compared
below with those on Frankfurt-New York (Open Skies signed in February
1996) and on Amsterdam-New York (Open Skies during the whole period).
FARES TO
NEW YORK
IN 1994 AND
2000
The fares comparison is affected by sterling's appreciation
by more than 20 per cent against European currencies. However,
since 1994 the Business Class fare from London has increased at
a substantially faster rate than those from either Amsterdam or
Frankfurt even if the currency effect is excluded. There has been
no change in the level of the lowest fully flexible fare (Y2)
from London, which is for travel in the Economy cabin, over the
period. This fare is regulated by the CAA and by the US. Since
1994 a comparable fare has been introduced at Frankfurt but it
is much more expensive than the London level. Leisure fares are
difficult to compare because of seasonal variations but these
fares have fallen at all three cities, most notably at Amsterdam
and Frankfurt. Although leisure fares from London have historically
been relatively low, the sharp increase in the value of sterling
means that London leisure fares are now broadly on a par with
those from Frankfurt and, on average, somewhat higher than those
from Amsterdam (see Table 2).
Table 2
FARES TO NEW YORK (IN POUNDS) AS AT 16 JUNE 2000
|
| From:
| London | Amsterdam
| Frankfurt | Paris
|
| Carrier:
| BA | KL
| LH | AF
|
|
| First | | 5,990
| — | 3,257
| 3,827 |
| First (second level)1 |
| 5,704 | —
| — | —
|
| Business | | 3,510
| 2,108 | 1,841
| 2,728 |
| Business (second level)1 |
| 3,342 | 1,888
| — | 2,480
|
| Economy | | 1,516
| 1,516 | 1,534
| 1,396 |
| Economy (second level)1 |
| 826 | —
| 1,296 | —
|
| Flexible Excursion2 |
| — | 849
| — | 696 to 851
|
| Lowest non Seat Sale3 |
| 195 to 409 | 204 to 314
| 243 to 395 | 209 to 412
|
| Lowest Seat Sale3 Travel dates |
1 April to 22 June | —
| 235 | —
| — |
|
Notes: All fares are round-trip and are exclusive
of taxes, fees and charges. Fare levels have been converted to
pounds at the prevailing exchange rate to aid comparison. Seat
sales are irregular and on 16 June were only available from KLM
at Amsterdam.
1 Second level fares are flexible and allow travel in the
same cabin as the higher fare but may have restrictions on routing,
the ability to interline and, possible, on availability. In some
cases lower fares are available but they carry quite restrictive
conditions such as an Advance Purchase period.
2 This fare is not available one way but is fully refundable
and allows reservation changes and depending on availability,
could be regarded as an alternative to the economy products.
3 Fares aimed at the leisure market (known as promotional
fares) normally have a complex seasonal pattern with a large difference
between the peak summer price and the price available in the low
season winter periods.
FARES FROM
NEW YORK
IN 1994 AND
2000
A somewhat different picture emerges as regards the fares
sold in the US over the period from 1994 to 2000. The Business
Class fares to Amsterdam and Frankfurt have taken higher increases
than the fare to London although the latter remains slightly higher.
There has been no change to the lowest fully flexible fare to
London in the Economy cabin (which is regulated by the US) and
it is much lower than the comparable options available to Amsterdam,
Frankfurt and Paris. The situation as regards leisure fares is
mixed with some seasonal levels up over the period, some down
but overall London leisure fares are still lower (see Table 3).
Table 3
FARES FROM NEW YORK (IN DOLLARS) AS AT 16 JUNE 2000
|
| Fare Type | To:
| London | Amsterdam
| Frankfurt | Paris
|
| Carrier:
| BA | KL
| LH | AF
|
|
| First | | 9,760
| — | 7,866
| 9,090 |
| First (second level)1 |
| — | —
| — | —
|
| Business | | 5,942
| 5,034 | 5,578
| 7,050 |
| Business (second level)1 |
| — | —
| — | 5,902
|
| Economy | | 2,658
| 2,836 | 3,642
| 2,006 |
| Economy (second level)1 |
| 1,326 | —
| — | —
|
| Flexible Excursion2 |
| — | 1,661
| 1,979 | 1,826
|
| Lowest non Seat Sale3 |
| 352 to 723 | 403 to 1,059
| 523 to 903 | 396 to 876
|
| Lowest Seat Sale3 |
| — | —
| — | —
|
|
Notes: All fares are round-trip and are exclusive
of taxes, fees and charges.
1 Second level fares are flexible and allow travel in the
same cabin as the higher fare but may have restrictions on routing,
the ability to interline and, possibly, on availability.
2 This fare is not available one way but is fully refundable
and allows reservation changes and, depending on availability,
could be regarded as an alternative to the economy products.
3 Fares aimed at the leisure market (known as promotional
fares) normally have a complex seasonal pattern with a large difference
between the peak summer price and the price available in the low
season winter periods.
Would an air services agreement along the lines of the US Government's
vision of "Open Skies" bring greater economic benefits,
and impose less costs on the economy and users, than the current
Bermuda 2 arrangements?
In the short term passengers and shippers on UK-US routes
would benefit from the additional competition that would be injected
following the release of the Bermuda II constraints. UK users
would benefit from new destinations being served from Heathrow;
from airlines such as United mounting more frequencies, especially
to its main hub at Chicago; and from British Midland bringing
to transatlantic routes the brand of competitive vigour which
has served the consumer so well in Europe.
The long-term effects on competition are, however, less clear.
US Open skies would not create a level playing field and UK carriers
which have contributed greatly to transatlantic competition hitherto
would be disadvantaged.
What impact has the conclusion of "Open Skies" agreements
had in other European countries which have reached such arrangements
with the US?
The longest established transatlantic Open Skies agreement
is that between the US and the Netherlands which was signed in
1992. Accompanying the agreement was the grant of anti-trust immunity
by the US to the alliance between KLM and Northwest which had
been formed in 1989. As is shown in Table 1, the Netherlands-US
market has grown much more strongly in the 1990s than has EU-US
traffic as a whole, particularly at the time when Netherlands-US
Open Skies was introduced. Overall, Netherlands-US traffic grew
by 157 per cent between 1990 and 1998 but KLM's North Atlantic
traffic according to AEA Statistics[49]
only grew by 72 per cent, more than Lufthansa (66 per cent) but
less than BA (83 per cent).
The high Netherlands-US growth is caused by a focusing of
Northwest's network on Amsterdam. Between 1994 and 1999 KLM's
capacity increased by 24 per cent and while Northwest's EU capacity
grew by 50 per cent, its Netherlands capacity grew 250 per cent,
ie it fell by 28 per cent elsewhere. The KLM/Northwest alliance's
market share was 75 per cent in 1999 measured in terms of Netherlands-US
scheduled seat capacity. The corresponding figure five years earlier
had been 66 per cent. Although US carriers other than Northwest
increased Netherlands-US capacity between 1994 and 1999, their
share fell form 14 per cent to 12 per cent while the share of
the fifth-freedom operators halved from 12 per cent to 5 per cent.
Martinair accounted for the remaining capacity, having 8 per cent
in 1994 and 7 per cent in 1999.
The other major Open Skies agreement is that between Germany
and the US which was signed in February 1996 and which was accompanied
by anti-trust immunity for the Lufthansa/United Alliance. Table
2 shows that the growth rate of Germany-US traffic between 1994
and 1998 was well below that of EU-US traffic as a whole. A similar
conclusion emerges in terms of scheduled seat capacity; between
1994 and 1999 capacity on US-Germany grew by 26 per cent compared
with EU-US growth of 43 per cent.
The Lufthansa/United Alliance has increased market share,
having operated 59 per cent of Germany-US capacity in 1999 compared
with 40 per cent in 1994. Between 1994 and 1999 Lufthansa's capacity
increased by 70 per cent and while United's EU capacity grew by
57 per cent, its Germany capacity grew 209 per cent. The share
of US airlines other than United fell from 51 per cent to 30 per
cent as American, TWA and Delta withdrew capacity from the Germany-US
market. Condor, LTU and fifth-freedom carriers accounted for 9
per cent of the capacity in 1994 and 10 per cent in 1999.
What fifth freedoms do US carriers have from the UK today,
which are used, either in the carrier's own right or as part of
a code share?
The agreement provides a number of fifth freedom rights for
US carriers, including, for example, rights for passenger services
between London and Berlin, Frankfurt, Hamburg and Munich. However,
the provisions are rather complex. For example, fifth freedom
rights are available on different routes for passenger services
from those available for cargo services. In a telephone conversation
on 2 July between the Clerk and the CAA it was agreed that the
DETR is in the best position to give comprehensive details about
the fifth freedom rights of US airlines.
17 July 2000
49
AEA (the Association of European Airlines) Statistics show passangers
carried on North Atlantic scheduled services, ie on routes between
Europe and the US/Canada. The inclusion of Canadian traffic is
unlikely to significantly alter the growth rates. Back
|
