Select Committee on European Communities Minutes of Evidence

Memorandum by Delta Airlines


  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 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 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 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 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 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

    (b)  a rapid transition?

  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 Skies8Austria, Belgium, Denmark, Finland, Germany, Luxembourg, Netherlands, Sweden
Negotiations towards Open Skies expected this year 2Italy, Portugal
Transitional agreement towards Open Skies in place 1France
Restricted bilateral3 Greece, Ireland, Spain

    —  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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