Memorandum by Delta Airlines
INTRODUCTION
Delta Airlines appreciates this opportunity
to share its views on air transport regulation with the Sub Committee
considering airline regulation on behalf of the House of Lords
European Communities Committee.
Delta is the third largest airline in the world,
when measured in terms of revenue and carried more passengers
world-wide last year than any other airline—103 million
passengers, which compares to less than 40 million passengers
carried last year by British Airways. Delta, Delta Express, the
Delta Shuttle, the Delta Connection carriers and Delta's World-wide
Partners operate 5,112 flights each day to 352 cities in 60 countries.
Delta has a fleet of over 550 aircraft and employs around 63,000
people world-wide.
Delta Air Lines is based in Atlanta, Georgia,
where Delta operates the largest single airline hub in the world,
comprising 622 daily departures to 118 different destinations.
Delta operates other US hubs in Cincinnati, Salt Lake City and
Dallas, with a transatlantic gateway at New York's JFK airport
and an Asia gateway in Portland Oregon.
Delta recently announced a strategic alliance
with United Airlines, which is currently undergoing US regulatory
scrutiny.
DELTA ON
THE NORTH
ATLANTIC
Delta Air Lines is the largest US carrier on
the North Atlantic and derives around 16 per cent of its total
revenues from its transatlantic operations. Delta's transatlantic
operations have a turnover of around $2,000 million or £1,250
million, which is roughly equivalent to twice the overall turnover
of British Midland or Aer Lingus.
Delta operates transatlantic flights from all
European Union countries, with the exceptions of Portugal, Denmark,
Finland and Luxembourg, which are all served by Delta codeshare
flights. Outside the EU, Delta also operates transatlantic service
to Switzerland, Russia, Poland, the Czech Republic and Turkey.
Delta's most important single market is Germany,
where we operate 10 of our 37 daily transatlantic flights. The
next most important markets are the UK (five daily flights), France
(four daily flights), Italy (three daily flights) and Spain (three
daily flights).
Delta has a range of transatlantic alliances
which are described below in the section relating to air transport
globalisation.
DELTA IN
THE UK
Delta Air Lines operates five flights a day
from the UK to the US, three of which serve London Gatwick and
two of which serve Manchester, where Delta is the largest transatlantic
airline. This summer four of the five flights are operated by
the largest aircraft in Delta's fleet, the MD11. Delta has located
its Pan-European Reservations Centre in London, which employs
around 220 staff, taking calls from 12 countries in 12 different
languages. Delta has also chosen to locate its Atlantic Regional
Office in London, which is now Delta's headquarters for all its
Intercontinental services, both on the Atlantic and between the
US and Asia. This office employs around 50 staff. In addition
Delta employs some 30 staff at its UK Sales Office and is a major
shareholder in the ground handling company, Gatwick Handling,
which operates at London Gatwick, London Stansted and Manchester.
Delta is very keen to offer an increased level
of service from the UK and in particular to offer service to London
Heathrow. Delta has proposed to the US Department of Transport
that it would like to operate 10 daily flights from Heathrow,
comprising four flights to New York, three to Atlanta, two to
Cincinnati and one to Boston.
DELTA SUPPORTS
AIR TRANSPORT
LIBERALISATION
Delta has long supported the liberalisation
of air transport markets. Delta firmly believes that passengers
and cargo shippers are best served by liberal markets in which
airlines compete to meet the demands of business travellers, holiday
makers and cargo shippers. Regulated markets protect weak, inefficient
airlines and lead to higher priced air transportation services
which are planned around the operational needs of the producer
rather than the travel needs of the passenger or cargo shipper.
Delta has been a principal support of the US
government policy initiative that has led to Open Skies air transportation
agreements being implemented between the US and Germany, the Netherlands,
Belgium, Austria, Switzerland, Denmark, Finland, Norway, Sweden,
Luxembourg and Iceland.
Delta has admired the UK government's stance
in encouraging the liberalisation of air transport within Europe
and is encouraged that there may finally be a possibility of introducing
similar liberalisation on the North Atlantic in those markets
that are still subject to constraints.
DELTA SUPPORTS
AIR TRANSPORT
GLOBALISATION
Delta is also a firm advocate of international
airlines alliances, which enable airlines to link their route
networks together to offer passengers seamless service across
the allied carriers' networks. This move towards globalisation
is driven by several causes: alliances can serve to increase competition,
by increasing the connecting options for passengers. Alliances
can serve to reduce costs for carriers and hence fares for passengers
and shippers. Alliances can also support direct air links, on
routes which could not be supported by a single carrier operating
on its own.
Delta has an alliance with Swissair, Austrian
and Sabena, which has been granted antitrust immunity by the US
authorities and was at that time approved by the European Union
and European national authorities. Under antitrust immunity the
carriers have been able to co-ordinate their strategic planning,
sales and marketing and operational activities. Antitrust immunity
also allows the carriers to share revenues on these services.
Delta and the European partners codeshare on transatlantic services
and on services beyond one another's hubs: the European carriers
codeshare on many Delta operated services in the United States
and plan to extend this to Latin America. Delta codeshares on
services operated by the European partners between their hubs
and points in Europe, the Middle East, Asia and Africa.
In the light of the proposed alliance between
British Airways and American Airlines, the Delta-Swissair-Sabena-Australian
alliance is currently subject to a review by the European Union
competition authorities.
Delta also has a codeshare partnership with
Air France, which is scheduled to commence on 19 June 1998. The
scope of this alliance includes co-operation in frequent flyer
schemes (already implemented), codesharing on transatlantic flights
and on flights beyond the carriers' hubs. This partnership does
not have antitrust immunity and Delta and Air France are competitors,
even on routes where only one carrier's aircraft operates.
Finally on the Atlantic, Delta has additional
codeshare relationships with TAP Air Portugal, Finnair, Malev
and Aer Lingus, which are each limited to a codeshare partnership
on a handful of routes. None of these partnerships have antitrust
immunity and Delta competes with each of these codeshare partners.
DELTA'S
VIEWPOINT OF
EUROPEAN UNION
AIR TRANSPORT
REGULATION
Delta Air Lines is a US carrier, which derives
around 80 per cent of its revenues from the US domestic market.
Delta's substantial transatlantic operations and also intra-European
codeshare services operate under regulatory environment of bilateral
air services agreements, rather than under route authority granted
by the EU.
Nonetheless, Delta may have some contribution
to the debate as to how to structure European air transport regulation.
As an operator in Europe and a major employer in Europe, Delta
is significantly affected by EU legislation, both directly through
legislation regarding issues such as denied boarding compensation
and ground handling liberalisation and indirectly as the liberalisation
of the EU internal market has driven EU carriers, such as Lufthansa,
to become market-focused and hence more effective competitors.
Delta's comments on the specific questions are
listed below.
1. In your opinion, what are the strengths and
weaknesses or the current regulatory regime governing airline
competition in the European Union?
The introduction of an open competitive aviation
market in Europe has broadly been a success. Route development
is now driven by the market rather than the regulator's whim,
prices are flexible and new entrants are appearing across Europe.
The arrival of low fare carriers such as Easyjet, Ryanair, Virgin
Express and Debonair illustrates a market in which competition
is taking hold, which will benefit passengers. A natural consequence
of the establishment of these low fare carriers is that established
major carriers re-appraise their strategies. The recent response
by British Airways in establishing its low fare competitor Go
is not dissimilar to Delta's move in establishing Delta Express,
a low fare service which has been introduced in select Florida
markets as a strategic response to low fare carriers such as Southwest
and Valujet (now Airtran).
With the increased level of competition, it
is unsurprising that there should be attention focused on what
determines fair or unfair competition, both in the US and Europe.
It is important that the benefits of air transport liberalisation
or deregulation are not compromised through creeping re-regulation.
Delta recognises the need for competition authorities
to review co-operative arrangements between airlines and is supportive
of appropriate intervention when the interests of consumers are
threatened by such arrangements, as is the case with the proposed
British Airways, American Airlines partnership. However, we are
very concerned by some of the proposals that have reportedly been
suggested by the Commission to limit the operation of pro-competitive
alliances such as that of Delta, Swissair, Sabena and Austrian.
These measures include limitations on the flexibility of carriers
to market their services to travel agencies and corporations and
limitations on co-operation between frequent flyer schemes. This
after the fact review by the EU is threatening the efficiencies
and consumer benefits that have arisen from the previously approved
alliance.
Delta is encouraging dialogue between the EU
and US authorities on these matters. In the global business that
air transport has become, it is important for airlines to have
one clear set of competition rules.
Delta is supportive of the increasingly tough
line taken by the Commission towards State Aid. It is iniquitous
for carriers against which we compete to be repeatedly propped
up by capital injections by their government owners, which a rational
investor would not have made.
Delta also recognises the importance of ensuring
fair access to essential operational and marketing infrastructure.
For example, without transparent slot allocation mechanisms, the
impact of the third package of liberalisation measures would have
been muted. Indeed this is an area of regulation that offers scope
for improvement. Under the present regulation new entrants have
struggled to gain access at key airports and there is considerable
uncertainty regarding the legality of slot trading or slot sales.
Access to slots is a key matter in the context
of the British Airways, American Airlines alliance. If a significant
number of slots is not made available to viable competitors in
the US-UK market, an Open Skies Agreements would be meaningless.
Competitive slots are not available at Heathrow for competitors
to launch well timed services with sufficient frequency to challenge
the incumbent alliance.
Finally, regarding current legislation, Delta
has concerns regarding the implementation of the ground handling
directive, which offers Member States the option of stretching
out the introduction of a wholly competitive market until 2002.
Handling costs at monopoly airports are prohibitively high and
the monopoly income serves as an indirect subsidy to the operating
company, be it an airline or airport.
2. If under the proposal, the Commission was to
negotiation bilateral agreements with third countries on behalf
of Member States, should this be done by:
(a) a gradual, phased process; or
Delta does not wish to take a position on whether
the Commission should undertake negotiations with the US on behalf
of its Member States. We believe that this should be decided by
the affected Member States. However, Delta has the following observations:
— Delta supports air transport liberalisation;
as the table below shows, the majority of EU Member States have
Open Skies bilaterals with the US.
| EU Member States Bilaterals with US
|
|
| Bilateral status | | EU Member States
|
|
| Open Skies | 8 | Austria, Belgium, Denmark, Finland, Germany, Luxembourg, Netherlands, Sweden
|
| Negotiations towards Open Skies expected this year
| 2 | Italy, Portugal |
| Transitional agreement towards Open Skies in place
| 1 | France |
| Restricted bilateral | 3 |
Greece, Ireland, Spain |
| Uncertain | 1 | UK
|
|
— Any move towards the EU negotiations with the
US must preserve the operating flexibility that the current open
skies bilaterals include. This must include the flexibility that
has been negotiated for EU and US carriers to operate services
based on market demand and to codeshare between and beyond EU
Member States.
— It is ironic that the EU, that strongly supports
air transport liberalisation, is launching legal action against
those Member States that have negotiated liberal bilaterals allowing
carriers to compete and offer consumers better and cheaper services.
There is no question that the new competitive environment permitted
by the liberal bilaterals has brought benefits to both consumers
and airlines alike. While we recognise the need for the Commission
to define its responsibilities, such actions must not be allowed
to disrupt the competitive aviation markets that have been created.
In terms of timing a transition to Commission negotiations,
Delta would support a rapid procedure, if this offered an expedited
transition to increased liberalisation and increased the competitive
opportunities for Delta.
3. If under the proposal, the Commission was to negotiate on
behalf of Member States a single bilateral agreement with each
country: (a) how should this be done; and (b) how would this affect
European airline competition?
Precisely how the authority to negotiate with third countries
might be transferred to the Commission is a matter for the affected
Member States and for the Commission to decide.
Nonetheless, Delta suggests that it would be important to
structure this carefully; in negotiating bilaterals, the US authorities
are often challenged by the fact that they are representing the
interests of a variety of constituents, including consumers, government,
airports and the various airlines. Compared to other countries,
which only have at most two international airlines, the US negotiators
do have to take account of constituents with far more diverse
interests. Negotiating on behalf of the EU would also be challenging.
It would therefore be important for the negotiators to work with
clear policy guidelines and a very clear mandate.
If every potential deal negotiated by the Commission had
to be approved post facto by the Member States, it is conceivable
that negotiations could become very drawn out and that the commercial
interests of all carriers, EU and non-EU, would be compromised.
4. What effect would the harmonisation of future bilateral
agreements between Member States and third countries have on airline
competition?
Markets that are subject to restricted entry can offer higher
profitability than liberalised markets. If bilaterals in future
are harmonised and liberalised, the number of restricted
routes that deliver monopoly profits will be reduced.
It would be reasonable to expect a certain amount of fluctuation
as carriers enter routes thought to offer good revenue opportunities
and other carriers leave markets that become increasingly competitive.
In some markets carriers previously enjoying monopoly profits
will find them eroded, as consumers are offered more choice and
better fares.
5. How would the proposal resolve differences in economic regulation
and implementation of competition rules for airline services operating
between Member States and third countries?
Again, Delta does not wish to take a position on whether
the Commission should be permitted directly to implement competition
rules on airlines services between Member States and third countries.
However, Delta has the following observations:
— The current regulatory system under which alliances
are being approved by the US authorities, the EU authorities and
the national authorities of the Member States is cumbersome and
slow. In order to meet the needs of consumers, shareholders and
to develop opportunities for employees, the industry should avoid
drawn out regulatory proceedings. As the industry globalises,
airlines need clear regulatory guidelines that all from competition
agencies with jurisdiction can support.
— As noted in response to question one, Delta is
very concerned that the after the fact investigation of the Delta,
Swissair, Sabena, Austrian alliance is threatening the consumer
benefits and operating efficiencies that have arisen from the
previously approved partnership.
11 June 1998
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