Select Committee on European Communities Minutes of Evidence

Examination of witnesses (Questions 140 - 149)



  140.  So you are saying then that it is not a fact but an assumption?
  (Dr Martin)  That would be the nature of a limited bilateral agreement. It will always have some capacity constraints involved. Then one has to decide how that capacity is divided up and the way in which carriers should be operating it.

  141.  Can you identify any other area in which you have an interest, where the Commission actually goes back with a proposed contract to the Council of Ministers and the Council of Ministers says yea or nay? Do you really think this is a realistic option?
  (Dr Martin)  No, I cannot identify any other areas where this is done. But if one is talking about Community negotiations, it is conceivable that the Commission would simply be given a mandate of seeking total liberalisation. Then it would either come back to the Council of Ministers saying, "We have achieved that mandate," or "We have failed to achieve that mandate." But it seems much more likely to me that they will, in seeking to negotiate this total liberal agreement, make some gains or fail to make progress in some places and will come back to the Council of Ministers and say, "This is how much of your mandate we have succeeded in negotiating. What would you like to do?" The Council of Ministers could, of course, simply say, "In that case you have failed and the negotiations are called off totally," or they could say, "Yes, we will settle for as much as you have managed to negotiate for us." Then we get into the second round of internal negotiations.

  142.  My point is that this second round could lead into market forces. This is the deal but it is up to the airlines in Europe to take advantage of that opportunity.
  (Dr Martin)  It would be welcome if they could but I cannot quite understand if, for example, the Commission comes back and says, "We can operate ten flights a week into Buenos Aires." We cannot just leave it to the airlines. Say, there is a limit of ten.

  143.  Why not? How would they divide it between themselves? Market forces. How would they decide any contract?
  (Dr Martin)  British Airways would say, "We would like five." Lufthansa would like three and Air France six. How would they then choose?

  144.  By Buenos Aires agreeing which would be preferable to them.
  (Dr Martin)  Are you suggesting they would agree between themselves?

  145.  If it is 20 flights they want and there are ten slots, Buenes Aires would decide what was best for Argentina, would they not, whether they want them to come from Berlin or London?
  (Dr Martin)  In those circumstances you are not leaving it to market forces, you are leaving it to the third country to decide which of our airlines should fly to their country.

  146.  That is market forces.
  (Dr Martin)  It could be.

Lord Berkeley

  147.  You could conclude from the last exchange between Lord Thomas and yourselves that, in fact, once the Commission has made an agreement with a state—and let us leave the United States out of it—the decision about which airlines go where is made purely on who can get what slots where and therefore it comes down to the allocation of slots principle, ie, is it going to be done on an auction basis of first come first served or national carriers or what. I can see market forces will fail because there are not the slots and it will all depend on who allocates the slots. Would you see the slot allocation as part of the agreement between the European Commission and a third country?
  (Mr Hamer)  Let us take the slot allocation issue in isolation perhaps for a moment. One assumes market forces work when you have, first of all, a liberal regime and, secondly, you have an abundance of whatever it is you are trading and in this case we are talking about air transport. The availability, or lack of slots and the congestion that a number of the major airports within Europe and throughout the world have is one of the big obstacles as far as the full benefit to consumers of the liberalisation of air transport is concerned. Indeed, it is the point which was discussed earlier with Lord Haslam of why do we have these rules applying to air transport and not other industries. A lot of it comes down to this issue of slots. The point as whether or not slots should be or will be part of any negotiation I think goes back some way to the point that we made earlier and that was that the longer this takes the less likely it is to be bringing any real major benefit, such as those we have suggested to your Sub-Committee, my Lord Chairman, may accrue to consumers simply because the issue of slots in itself may already have taken a certain turn. We all recognise the issue of grandfather rights as far as slots are concerned and the major issue that that could pose, but, more importantly, if slots become tradeable in any sense of the word officially then ownership rights will accrue as well. It will therefore be very difficult in the future to be able to bring in any form of regulation so as to include slots in such negotiations without bringing the owner of those slots on board. If one of your planks may be to say to the owner, "You have to give them up to another airline", then we can see problems on the horizon with that.

Lord Methuen

  148.  Does that not come back to the historic national identity of airlines and hence the merger of airlines throughout Europe would ease the slots system currently?
  (Mr Hamer)  In one sense it would certainly do that. However, having said that, of course, if one looks at what consumers want from airlines, frequency is very, very high on the agenda, point-to-point travel, hub-to- point travel and so on. Of course, if mergers simply meant that frequencies were reduced thereby following the argument that more slots would become available it is questionable whether or not there would be true consumer benefit.


  149.  Mr Hamer, we have encroached considerably on your time and we are very grateful to you and Dr Martin and Dr O'Reilly. Dr O'Reilly, could I add my congratulations to you and wish you every success. It sounds quite a challenge you have. You are most welcome to stay and listen to the evidence that we are about to have from the representative of Lufthansa.
  (Mr Hamer)  Thank you, my Lord Chairman, and your Sub-Committee for hearing us.

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