Examination of Witnesses (Questions 260
WEDNESDAY 9 JANUARY 2002
MP, MR BOB
MICHAEL A VIVIAN
260. How much of a part?
(Sir Roy McNulty) I honestly could not quantify it.
What we have today is the remains of the overall industry structure
that was set up after World War II under ICAO. Within Europe obviously
ownership can transfer between European Community countries but
there are still many bilaterals with other countries, particularly
with the United States, which stand in the way of the sort of
rationalisation that I think the industry needs. How much of the
problem-nobody I think could calculate that.
261. We are advised that the consolidation that
has taken place, rationalisation as you call it, has led to a
vast majority of the American market being in the hands of seven
operators, the consolidation that BA has been involved in by taking
over airlines accounts for a large percentage of air travel, and
yet six out of the seven in the United States are losing money,
BA is losing money. It would appear that that path of consolidation
has not provided the management efficiencies and utilisation of
resources that perhaps are necessary. Would you agree with that?
(Sir Roy McNulty) I agree. This is a difficult industry.
It has been so, to the best of my knowledge, almost forever. It
has a tendency, as Chris Tarry was outlining earlier, to pile
in too much capacity when times are good, then the headache is
that much greater when inevitably the cycle goes the wrong way.
The industry has not beaten that habit. To say that the consolidation
in the United States has not yielded efficiencies I think would
be wrong. There have been major efficiencies achieved., but they
have still kept on putting in too much capacity.
262. Can I move on to slots, have you any estimate
as to what effects the economic impact on regional airports may
be of this potential change in slot usage? I am thinking particularly
of Heathrow and Gatwick.
(Mr Cotterill) I cannot offhand see why it should
make the position so far as regional services are concerned
263. We know one way a lot of big airlines,
particularly British Airways do, they take away the slots that
are used for regional flights and use them for other things.
(Mr Cotterill) I was thinking more in terms of the
effects of 11 September.
264. I will come on to that in a second. The
whole issue of slots is, of course, integrally important to the
industry, vital to the industry, so it is in that context I am
asking the question.
(Mr Cotterill) I misunderstood. The European slot
regulation allows Member States to put aside slots, to ring-fence
slots for regional services in certain circumstances. I can see
there will sometimes be a good argument for doing so. What we
would say is that really you have to look at the costs and benefits
in particular cases of doing so. There is a cost in terms of those
slots possibly not being used in the way that in aggregate passengers
would most value. On the other hand, as I think you are indicating,
there are other benefits. What we would say is you need to look
at those benefits in each particular case.
265. Let me give you a specific example, NATS
have indicated us to that the variation in the income they get
from different sizes of aircraft means that the system is heavily
loaded against smaller aircraft. The larger the aircraft they
have the more income they get. Each takes up a slot, so we can
well see a situation where pressure is going to build on airlines
to maximise those slots by using them for larger aircraft rather
than smaller aircraft which, by definition, they use for regional
services at regional airports.
(Sir Roy McNulty) If I can comment on the NATS point,
the NATS charging structure is not dreamed up by us in the United
Kingdom. It is ultimately a set of principles laid down by ICAO
and mandated through Euro-control. It is the international system
of charging. You are quite right-to NATS it is much more valuable
to move a 747 than it is to move something much smaller. The same
is ultimately true at an airport, it is much more valuable for
BAA to have a 747 land than something much smaller.
266. I am sure it was BA who advised the Committee
in recent evidence, I think the term they used was "given
up" 170 slots. I think they were at Gatwick in the main,
if not entirely. What is your view about the decision taken by
the European Commission that effectively suspends the grandfather
rights requirement until 2003? There is suspension, does it not
effectively say to airlines, look, you have no need to use them
now, you have them, you can bank them. Does that not also mean
that other airlines, such as easyJet, or whatever, will not have
the opportunity of utilising those slots?
(Mr Cotterill) My understanding of what the European
Commission has said is that for last summer, and its affects on
next summer in terms of grandfather rights, that they suspended
the "use it or lose it", that is what you are referring
to, that was last summer. Most airlines would have made their
80 per cent, which is the threshold, so that did not really matter
too much. As to this winter, as I understand it, they have said
in principle that there may be a case for it but they have left
it to the individual coordinators to look at the merits in particular
cases. The BA case you quoted, and I have a similar figure having
talked to airport coordinators, those are slots, as I understand
it, that British Airways have recognised that it is not going
to use, even looking out further. It has dropped those and said
that it is dispensing with its grandfather rights on those.
267. Your understanding.
(Mr Cotterill) I am pretty sure I am right.
268. It would be very interesting if we could
have that confirmed, that would certainly be helpful.
(Mr Cotterill) My understanding of the second part
is that there are another block of slots that BA is looking at
on a monthly basis and the coordinator is looking at on a monthly
basis, where BA will be seeking to keep the grandfather rights
for those but let them be freed up this winter so they are not
wasted. There are two blocks there and the decision lies with
the coordinator and they are taking that decision on a month-by-month
269. Would that decision by the coordinator,
I am not asking you to second-guess what that may be, include
those slots being used by a competitor?
(Mr Cotterill) The idea is that those slots are used
by other airlines and certainly BA will not have a choice about
which airlines uses them, that is for the coordinator.
270. Has anybody done an estimate of what the
cost to the passenger would be if they did have to pay for the
increased cost of security?
(Sir Roy McNulty) No. I said we would give you a view
on that subject and we will try and provide you with an estimate
of that cost when we give you that note.
271. Do you have an estimate of what the insurance
market has done to aviation since 11 September?
(Sir Roy McNulty) It has not done very much in the
sense that there is a big gap that the insurance market left which
has been filled by the government so far. I cannot really offer
anything more than that.
272. What do you think the British government
ought to do to make sure that the British airlines are not disadvantaged
in relation to American airlines?
(Sir Roy McNulty) They, and we are a part of that
process, need to watch very carefully what is done in terms of
273. Sir Roy, "need to watch carefully",
what does that mean?
(Sir Roy McNulty) We monitor fare changes.
274. I do know what "to watch carefully"
means, it does mean to monitor. What do we need to do? I use rather
plain verbs, what do we need to do?
(Sir Roy McNulty) I can only offer that we need to
watch very carefully. This, as you well know, is a very complex
market, with millions of different prices and offers available.
I think it is very difficult to see what is predatory behaviour
and what is not.
275. Come on now, I am not going to let you
away with that. There is a clear definition of predatory behaviour,
as you know, all legislation contains that.
(Sir Roy McNulty) There is. In this market people
have traditionally, and it has been no different this year, made
special offers of all sorts of shapes and sizes. The special offers
that the low cost airlines are benefiting from in terms of traffic
growth are very special deals, and we are particularly watching
what happens in America.
Mr Donohoe: Why America?
276. Because that is the question I asked.
(Sir Roy McNulty) The fear has been with the financial
assistance the American airlines were given they would use that
to unfair advantage.
277. Is it your view, Mr Tarry, that British
Airways and British airlines receive the same access to the French
and German markets that Britain offer to the French and German
airlines? What is the relative competitive position that BA enjoys
in Europe with Lufthansa?
278. Discuss in 50 seconds.
(Mr Tarry) I think these are completely different
markets and unless, for example, British Airways was ceded a large
number of slots at Frankfurt, or any airport for that matter,
it would not contemplate competing in that market because it is
a market which is largely transfer traffic, and long haul which
would then require a multinational agreement for BA to exercise
long haul routes. I have written in previous research that if
BA is required to give up slots at Heathrow then perhaps consideration
should be given to enabling or forcing Lufthansa to give slots
up at Frankfurt. It did not stimulate a reaction then and it certainly
seems to have been buried. They are different market structures.
279. I think you are more of an optimist than
I thought, Mr Tarry. Gentlemen, we are very grateful to you. Sir
Roy, when you are watching carefully you might keep your friends
(Sir Roy McNulty) Certainly.
Chairman: Thank you all very much indeed. Mrs
Ellman is declaring her membership of the Transport and General
Workers' Union, which has specific relevance to our next set of