Select Committee on Transport, Local Government and the Regions Minutes of Evidence

Examination of Witnesses (Questions 60 - 79)



Chris Grayling

  60. Mr Nicol, are you making money on the low fares you are charging since the week of September 11?
  (Mr Nicol) Yes, we are. What we are seeing is revenues are about stable. There are two ways of cutting the same cake. You can either carry less people at higher cost or you can carry more people at a slightly lower cost. Our revenues are on track.

  61. There is a margin on that?
  (Mr Nicol) Absolutely, yes.

  62. Mr Wiltshire, it has been said that at the end of all this there are likely to be three major airlines operating in Europe, one centred around Lufthansa, one centred around Air France and one centred around British Airways. My understanding is those three airlines operate from different markets. Would it be fair to say that the UK market is much more deregulated and has much more competition for UK headquartered airlines than either the French market or the German market?
  (Mr Wiltshire) I could not comment particularly on the strengths or weaknesses of the arguments put forward that you have described. In terms of competition in the UK though, I think it is fair to say that the UK population and businesses do have the advantage of a very competitive and very wide range of air travel products from their airports despite those airports being quite constrained.

  63. Do you believe that the Star Alliance and the group being built around Air France are both looking to try to establish a stronger presence in the UK from the UK through UK subsidiaries at the expense of British Airways?
  (Mr Wiltshire) I could not comment on that. We do not take, as the Association, a commercial position or comment on commercial situations. I would ask my colleagues to comment on that.


  64. Mr Cahn?
  (Mr Cahn) If I may just respond to Mr Grayling's question. Certainly I think it is true that the UK marketplace is more competitive than the main continental marketplaces, in part because of the introduction of long haul competition via Virgin Atlantic Airways, in part by the more recent introduction of competition from the no frills section such as easyJet. This competition has been very effective and clearly very beneficial for the consumer and made the market very competitive. I look forward to the introduction of equivalent competition on continental markets. I think it would do a great deal of good to the major airlines on the continent for that to happen. On the alliances you mentioned, it is quite clear that the Star Alliance is developing a hub at Heathrow, indeed has developed a hub at Heathrow. They have stated very clearly that they are doing it and they plan to invest a lot more money in enlarging that hub. It is equally clear that the Sky Team Alliance centred around Air France is growing, is developing itself around the hub at Charles de Gaulle, which is the fastest growing airport in Europe. They are both being very successful. A last point, if I may, Chairman. I believe that the challenge is to ensure that the British aviation sector, highly competitive that it is within itself, is able to compete effectively with the continental airlines and the continental based alliances that are steaming ahead of us just at the moment.

Chris Grayling

  65. Can you clarify one thing that is not entirely clear to me. You said that both the Star Alliance and the Sky Team Alliance are benefiting from either existing or about to be put in place Open Skies Agreements with the United States and yet it is also clear from what you are saying that the French and German markets are actually more closed than the UK markets. That appears to be slightly contradictory to me.
  (Mr Cahn) No, I do not think it is. The Open Skies Agreements provide for new entrants if they wish to enter. It is noticeable that they are not entering into the market between Germany and the USA, for example. If you want to look at a market which is uncompetitive and is monopolistic, there is one you can look at. Nor do they have the no frills sector developed, although, and Mr Nicol can speak much better than I, it seems to me that the no frills sector is beginning to enter the continent. They have not done so yet to the same extent they have in the United Kingdom and, therefore, we have much more competition within Europe than our continental counterparts do.

  66. Is that because there are competitive barriers that may not be visible but in reality are nonetheless there that prevent the American airlines and you, Mr Nicol, from establishing substantial operations in Germany in particular, or in France?
  (Mr Cahn) I think Mr Nicol can answer that better than I because he has practical experience.
  (Mr Nicol) We at easyJet have not yet developed into Germany. We developed quickly into Spain and in Nice. We were the first low cost airline to set up a continental base in Geneva and we followed that up last year with Amsterdam and now we are the second largest user of Amsterdam Schipol airport. It is happening but it is happening slowly. In terms of Germany in particular there will be a low cost airline with a substantial base there fairly soon. Ryanair is already doing it. I do not actually believe that the threat posed by Lufthansa is any worse, with due respect, than the threat we believe we faced from British Airways back when we started in 1995-96, and also that which we saw from Swissair trying to put us off certain routes out of Geneva. I think there is a general view that the big airlines will do what they can to protect their market share. I think, however, the low cost proposition works very well with consumers and eventually that wins the day.

  67. Do you believe that the American airlines benefiting from substantial subsidies that have been provided for them are now dumping seats affecting your marketplace?


  68. Who is going to answer? Mr Humphreys, you have been allowed at least five minutes to yourself.
  (Mr Humphreys) Thank you, Chairman. We believe that there is an uneven playing field without a shadow of a doubt. It is very difficult to be precise and to pick specific examples of either capacity dumping or price dumping. Certainly I do not think anyone would argue that the $18.5 billion that has been made available to US carriers have not been a major help to them in recreating confidence in their operations and enabling them to expand.

  69. You cannot use the word "dumping" them if you are not aware of any evidence.
  (Mr Humphreys) The problem is the pricing market in aviation is extremely complicated.

  70. I think we dimly perceive that.
  (Mr Humphreys) Certainly there is evidence, we believe, that the US carriers have been more aggressive in the marketplace than they could otherwise have been.

  71. Mr Cahn, do you want to add to that?
  (Mr Cahn) No, I agree with what Mr Humphreys has said.

Chris Grayling

  72. I want to ask one last question, if I may, which relates to Gatwick. You said you were using all your slots at Heathrow, but what is the situation with regard to BA's commitment to Gatwick?
  (Mr Cahn) We are operating at Gatwick. What we have done is to reduce our operations somewhat at Gatwick and we have made slots available. We have put them back into the slot pool both for this winter season and announced that we will do so for the coming summer season, substantial numbers of slots. Where we are not using them, we are not hoarding them, as it was suggested we might be at Heathrow, we are putting them into the slot pool.


  73. So you do not have any commitment to Gatwick in that sense?
  (Mr Cahn) We do have a commitment to Gatwick, Chairman. We still operate a large service from Gatwick but there are some slots we are not using. We have had to cut back.

  74. What are we talking about?
  (Mr Cahn) We have had to cut back capacity as a first reaction.

  75. How much of that is at Gatwick?
  (Mr Cahn) Most of it. All of it has been at Gatwick. We have tended to shift service up to Heathrow where we have been able to and thus the slots that have been released have been released at Gatwick and we have made those available.

  76. How many?
  (Mr Cahn) I believe 189 in the current season and fewer than that for the coming summer season. I can give you a figure later.

Chris Grayling

  77. How many in total do you have for Gatwick? What is the proportion of that total at Gatwick?
  (Mr Cahn) I will provide you with a note on that, if I may.

  Miss McIntosh: Could I just ask how much was the collapse in traffic due to events before September 11? How much had traffic volume collapsed owing to floods in November 2000, foot and mouth disease and obviously the two rail accidents? Do you have any evidence of that? This may reflect also on easyJet's figures and Ryanair and Go. What is the break down in the collapse of freight traffic as opposed to passengers?


  78. Can we take the last question first because we have gone round the first one quite a lot.
  (Mr Cahn) What I would like to do, if I may, is give you those slot figures because I have now managed to find them.

  79. Bravo! It is as well to be well briefed.
  (Mr Cahn) We have released 179 weekly slots at Gatwick in the current season and we have already relinquished 132 weekly slots for the coming summer season.

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