Examination of witnesses (Questions 120
- 139)
THURSDAY 18 JUNE 1998
MR IAN
HAMER, DR
PHILIP MARTIN
and DR DELORES
O'REILLY
Lord Haslam
120. May I follow up on that point. It seems
to me that although the ultimate solution may be a long, long
way away, the objective should be to make the airline industry
like any other industry. Therefore, why should one have rules
and limits which prevent an airline company buying a company in
another country? It does not apply in any other industry and because
of that we have all these trappings which we are discussing. We
are concentrating on refining these trappings rather than tackling
the core problem.
(Mr Hamer) That really is our baseline. I suppose,
simplistically put, we really do not see why the airline business
should not be treated like any other providing a service or seller
of a system. However, it is, and what we are looking at here is
bringing it one step closer to Lord Haslam's point. It does have
to be taken forward. We would suggest being realistic, both from
the consumer's point of view and from the airline industry point
of view. It has to be taken forward on a controlled basis, certainly
on the relationships with third countries.
Chairman
121. I would like to come back, if I may,
still on the same point, on this question of alliances versus
(I am using my expression) mergers—what you call concentrations.
As I understand your point of view, you are right behind Commissioner
Kinnock in having a good hard look at the existing alliances.
Would that be fair so far?
(Mr Hamer) That is a fair statement.
122. I will be individual, what concerns
me is if those alliances are broken down, you are inevitably going
to get pressure on more concentrations of airlines themselves.
Indeed, it is happening in the United States now. There is significant
concentration of ownership within the United States and certainly
co-operation. Every time I think of that one it says to me that
it is anti-competitive. I am not hearing yet from you how you
think you are going to break that log jam. How you are going to
encourage the diminution of alliances but keep everything wide
open for the benefit of the consumer.
(Dr Martin) There are different sorts of alliances.
What we are seeing in alliances between Community and United States
carriers, is the Community carriers trying to find some way of
getting access to feed in the United States. Transatlantic services
only work if you can feed traffic on to your route at both ends.
Without the ability to operate aircraft within the United States,
our carriers have to form a relationship with a United States
carrier. The problem that we see is that they are forming relationships
with transatlantic carriers so the relationship, the alliances
that are being formed, are between erstwhile competitors. That
is a far greater threat to competition than the prospect of Community
carriers buying in to second-rank smaller carriers in the United
States to provide the feed that they need. We have seen something
similar in Europe with KLM, now KLM (UK). It has invested in a
United Kingdom carrier in order to provide it with feed to Schipol.
That is actually pro-competitive because the consumers are being
given a choice of going to Heathrow or going to Schipol. KLM have
relations with Brathens which provide the same function. British
Airways has Deutsche BA and a French subsidiary which again can
provide it with feed from these countries. These are pro-competitive
airline relations. So what we are suggesting, as Lord Haslam pointed
out, is that if you can remove these barriers to ownership, the
airlines will enter into new relations with one other; but, at
the moment, the relations which are being established appear to
be between competitors, which reduces consumer benefit, rather
than with second-rank airlines, which actually can enhance consumer
benefit.
123. This is a difficult one for you to
answer but I am still going to ask it. To what extent do you think
you are being idealistic and to what extent do you really think
there is a chance of achieving your goal, or at least getting
towards your goal?
(Mr Hamer) If I may speculate on behalf of the
whole Council, this particular question has been a very difficult
one for us to come down on one side or the other, partly for the
very point that you raise. I think that we have tried to look
at it very much from the technical viewpoint and taking forward
some basic consumer principles. Having said that clearly, and
I think it comes through in our memorandum, we recognise the downside
and difficulties as well. Certainly we recognise the fact that
we are talking, if you like, from a national point of view from
a position of strength. There is no doubt that the United Kingdom
is dominant within Europe as far as the aviation industry is concerned.
We recognise the point that was raised earlier that it may well
be that the United Kingdom in any negotiations, (if this were
to go forward), would, in the first instance, perhaps be seen
to be losing some benefit rather than gaining benefit. The balance
that we have struck, or tried to strike, is based on a long-term
view. We believe that the long-term benefits that will accrue,
by negotiations on behalf of air transport users carried out by
15 Member States, will be better than those carried out individually
by 15 Member States. The other point we would make in addition
is that the longer this debate and discussion goes on, we see
more and more erosion perhaps of the ultimate negotiating power,
if indeed the Commission were to gain competence. We see more
and more bilaterals being formed and individual Member States
creating those bilaterals on the basis that are politically and
economically correct for those individual Member States, not having
regard necessarily for what is for the good of the Union as a
whole. So it is a very difficult position and certainly if one
is to be absolutely realistic about it, one can see both the difficulties
and the benefits.
124. To what extent do you take environmental
considerations into account? The answer "no" is not
going to down you. I wondered whether you regarded the environment
as a user.
(Mr Hamer) It is, of course, something that we
have to take into account. It is not, however, something that
we believe should have an absolutely overriding influence on decisions
such as these.
125. The second general question, if I may,
and I should have asked this right at the beginning. Is your Council
entirely United Kingdom or do you have EU associations? Are there
other similar councils outside the United Kingdom?
(Mr Hamer) Yes, if I could start to answer that
and perhaps hand you over to Dr O'Reilly. We are the Air Transport
Users Council. We are based in the United Kingdom. We are all
essentially United Kingdom. We are members of an organisation
called FATURE and, in fact, we provide the secretariat to FATURE.
126. I am sorry, could you identify this.
(Mr Hamer) I will, yes. FATURE is the Federation
of Air Transport consumer bodies within Europe. It is partly funded
by DG VII of the Commission twice a year for meetings. So we meet
as a congress, if I can use that word, twice a year. There are
similar organisations to ourselves throughout the European Union,
in Member States. They are different in the way that they are
put together. Dr O'Reilly has just been appointed the Chair of
the Irish Air Transport Users Council and will be taking that
over in September. Perhaps you would like to go over the European
perspective.
(Dr O'Reilly) I am in the unique position in that
I live in Northern Ireland and come from there; so for a number
of years I have served on the British Air Transport Users Council
and have been an observer on the Irish Air Transport Users Council,
wearing both hats. Recently, as Mr Hamer has said, I have been
appointed to take over from the outgoing Chairman of the Irish
Air Transport Users Council, which, if I may say, is in the unfortunate
position of having absolutely no funding or financial assistance.
It is based within the Chambers of Commerce of Ireland, and very
much relies on volunteers to go to those meetings and put forward
their reasoned opinions and proposals to the Irish Government
and through FATURE, the Federation of Air Transport User Representatives
in Europe, to the Commission. We would come to it, directly feeding
into the Commission, so we have representation not just within
the island of Ireland but indeed in Europe. We have very strong
links obviously with the British Air Transport Users Council and
since I am taking over the Chair those links will, of course,
be strengthened. The British Air Transport Users Council is the
only type of AUC which has a permanent secretariat, so we are
quite strong.
127. The only in Europe?
(Dr O'Reilly) The only in Europe, yes. It has
a dedicated secretariat who work on a full-time basis. The body
itself is made up of lay volunteers who are interested in air
transport policy issues and give their time. The Federation of
the European representatives, as Mr Hamer has indicated, was indeed
set up or initiated between the bodies themselves, who go back
as far as the late 1970s/early 1980s, when they saw the need for
consumers to be represented not just in their own Member States
but at European level, where stakeholders for the industry were
being represented through airlines and trade unions but the consumers
were not having a voice. It was because of that reason that DG
VII invited consumers as a collective body to come along to Europe,
so that consumers do have representation at the European table.
128. So you have marginal funding from DG
VII?
(Mr Hamer) The Federation, the organisations which
make that up, like ourselves, as Dr O'Reilly has pointed out,
they are not necessarily funded. In many cases, they are not funded
at all. So DG VII creates this congress twice a year, simply by
funding two members from each country. They pay the air ticket
and that is all. One-half of the day is divided up into policy
discussions between the organisations, and the second half of
the day is to receive information from DG VII and to give to DG
VII views and policy proposals and so on.
129. Who funds you?
(Mr Hamer) We are funded directly by the Civil
Aviation Authority of this country. We have been for the last
25 years. If we were looked at today we would be regarded as the
consumer advisory body to the regulator.
Lord Methuen
130. You have not indicated who your membership
is.
(Mr Hamer) It is lay people.
131. Is it people like us or is it businesses
and travel firms?
(Mr Hamer) No, it is individuals. Everybody is
appointed as an individual, not representative of any particular
body, industrial body, commercial body, political body, or regional
body. They are simply consumers of air transport services.
Lord Berkeley] Could
we have a list of members, please.
Chairman
132. You must have such a thing.
(Mr Hamer) We will certainly provide you with
a list (printed?) and, if it is helpful, our most recent annual
report (not printed) which identifies a number of these points.
Lord Haslam
133. Just one point. Under the present regulations,
how do you view the activities of the OFT and the Kartellamt in
Germany? Do you believe they do a good job in terms of controlling
price fixing activities? One does not hear often of airline companies
being fined. Is there a voluntary, quasi, sort of immunity existing
even in Europe as in America?
(Mr Hamer) That is quite a difficult question
to answer,[1]
particularly without straying into the area that, my Lord Chairman,
you have identified we should not. All I could suggest is that
if one were to look at perhaps recent suggestions from the Office
of Fair Trading (OFT) in relation to a particular air transport
matter, compared with the reported suggestions that are coming
from DG IV, there is a significant quantum difference in the view
suggested that might be taken by the OFT as opposed to DG IV.
So you have two competition organisations there. Clearly, from
the consumer's point of view, we feel that the stronger the regulation
of competition the better. I think that is very much where we
come from. To say that one organisation is stronger and better
than another is very difficult, and we would not really suggest
that we have a view on that.
134. But have there been any cases in recent
times where an airline has actually been fined for this kind of
activity?
(Mr Hamer) Not that come immediately to mind.
There have been on-going investigations into the activities of
certain airlines in terms of predatory pricing, and a particular
investigation was being carried out by DG IV which have now ceased.
We are certainly aware of that. We certainly lobbied on a couple
of occasions where fare increases have come through. We have disagreed
with those fares being allowed. That is more to do with civil
aviation matters than necessarily competition matters. Predatory
activity on the part of airlines against each other is our biggest
concern rather than necessarily the issue of purely fares.
(Dr O'Reilly) Within the last four weeks a case
has been brought before the European Court of Justice, where a
state-owned carrier has been accused of predatory pricing in order
to get a new entrant off the market. The decision, of course,
is pending.
Lord Thomas of Macclesfield
135. The first question is for Dr O'Reilly.
I suppose it would be proper to congratulate you on your appointment.
(Dr O'Reilly) Thank you.
136. In terms of your looking at the consumers'
Federation, have they discussed this issue at all? Have they arrived
at a conclusion or will they discuss this issue?
(Mr Hamer) It will be an agenda item. Unfortunately
we do not actually meet again until November so it is a little
way away. We will, however, following our submission today, be
informing our counterparts what we have said, with a view to trying
to come to a considered opinion for that body by that time.
137. Is it likely that they will come to
the same conclusion?
(Mr Hamer) I would not like to prejudge that.
I would not like to hazard an opinion on that.
138. [2]My
second question is for Dr Martin. Reflecting on your earlier evidence
you said the Community was negotiating with third countries, and
if a totally liberal agreement was not arrived at then the question
would arise of sharing out the spoils between various members
of the Community. Am I right?
(Dr Martin) Yes.
139. Why do you assume that and why would
that be needed? Why would not ordinary market forces apply?
(Dr Martin) They would. My expectation was that
in those circumstances the Commission would bring back to the
Council of Ministers the prize of what they had been negotiating:
we have conceded these things to the third country and they have
offered us access to the following list of cities; they say that
we can fly one service a day to each of these cities. Then the
question is: should they all fly from Heathrow, or should they
all come out of Paris, or should Paris be served from——?
1 The discussion of the advantages or disadvantages
of Community competence in this area usually focus on the question
of relations with the United States. It should be recognized,
however, that the significance of a Community initiative in this
field may be more significant, in the long run, in relation to
other countries where EU carriers could benefit from additional
competitive opportunities. Back
2
COM(97) 218 (final), paragraph 4. Back
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