Memorandum by British Airways plc
(I) INTRODUCTION
1. British Airways welcomes this inquiry. The
Commission's proposals are of great importance to the UK and its
aviation industry.
2. The UK has a thriving and highly competitive
air transport industry, second in the size of its output only
to that of the United States. The UK accounts for 1 per cent of
the world's population and 4 per cent of world GDP, yet the output
of UK's air transport industry is nearly 8 per cent of world output.
Some 59 scheduled airlines compete in the UK domestic and international
markets: if charter airlines and private hire companies are included,
the number of airlines rises to almost 120. The UK has taken a
leading role in promoting the single market in air transport in
Europe. It is significant that in the newly emerging low-fare
market in Europe, several foreign-owned airlines have chosen the
UK as providing the best competitive environment in which to launch
operations.
3. The UK is unusual in Europe in having three
large, successful, privately-owned international scheduled airlines
competing on intercontinental and short distance routes from Heathrow.
This has benefited consumers and helped to promote efficiency.
4. Civil aviation policy in the UK over the
last 25 years has largely been bi-partisan: to encourage vigorous
competition between British carriers on both domestic and international
routes, and to promote wherever possible the liberalisation of
aviation agreements with foreign countries especially to enable
British airlines to compete on fair terms. In this way, British
policy has endeavoured to meet above all the interests of the
consumer and the need to develop a strong internationally competitive
airline industry.
5. The consumer benefits, however, not just
by competition on individual routes but by competition between
networks. The passenger wishing to fly from Manchester to Chicago,
for example, has the choice of a direct flight or one-stop flights
via London, Amsterdam, Frankfurt, New York, Boston and many other
points. The British airlines which fly between the UK and the
United States, for example, are in competition not only with each
other but with the airlines of several foreign countries. The
same is true for other major intercontinental markets for traffic
and for the employment which that traffic creates, directly and
indirectly.
6. The UK's policy of liberalisation has had
a far wider extent than the policy of any other EU member state.
Access to UK regional airports and Stansted was opened to US airlines
as part of an agreement with the US negotiated in 1995. Very recently,
access was further liberalised to include all foreign airlines.
Only access to Heathrow and Gatwick has been preserved, as the
UK Government has recognised the value of these gateways in negotiating
access for UK airlines to restricted overseas markets. These airports
are, in any case, highly contested: at Heathrow there are more
than 90 airlines currently operating: at Gatwick the number of
airlines is 128.
7. The success of the UK industry has been achieved
despite increasing constraints caused largely by lack of infrastructure
to meet demand. The abolition of traffic distribution rules at
Heathrow in 1991 ended any planned distribution of traffic around
the London airports system, coupled with the EC slot regulation
of 1993 with its priority for new entrant airlines, has left little
opportunity to grow there for existing businesses such as British
Airways, for whom it is our hub airport.
8. British Airways currently maintains its position
amongst the world's leading airlines, carrying almost 41 million
passengers in the year to 31 March 1998. It employs around 45,000
people in the UK and contributes some £2 billion annually
to the UK balance of payments.
(II) THE
COMMISSION'S
PROPOSALS
9. The Commission's proposals for new regulations
would extend between the Community and third countries. These
powers are at present confined to air services within the European
economic area (EEA).
10. The reason why the Commission's powers do
not at present extend to air services to third countries is that
the Council of Ministers decided that they should not. This was
because the regulation of competition between airlines in international
services (other than within the EEA area) was, and still is, governed
by bilateral agreements between governments. Bilateral agreements
typically cover such matters as access to the market, any restriction
on the number of flights, tariffs, and a range of other matters.
In negotiating them, governments seek to further a range of other
matters. In negotiating them, governments seek to further a range
of objectives, including the economic interests, trade and tourism,
and the development of their own aviation industries. They also
in some cases seek to achieve policy objectives, such as the removal
of restriction on access to the market and ability for airlines
to set prices; or the provision of means of dealing with anti-competitive
behaviour. There is a trend, in which the UK has played a leading
part, towards the liberalisation of air service agreements where
appropriate market conditions exist. But since bilateral agreements
are the result of negotiations between two sovereign states, the
result is very frequently a compromise between the interests of
the two governments concerned.
11. Enforcement of the provisions of the air
service agreements is a matter for the two governments, and the
agreements normally lay down arrangements for dealing with disputes,
including a provision for consultation between the governments
and, in the extreme case, termination of the agreement. Over the
last few years, interest has developed in the creation of separate
mechanisms for the resolution of disputes: British Airways supports
this development.
12. The extension of the Commission's competition
powers to air services between Member States and third countries
would create serious potential conflicts for airlines. They might,
for example, be required to do one thing by the air service agreement
and forbidden to do it by the competition rules of the European
Union. Moreover, the intervention of the Commission, which is
not a party to air service agreements, in the conduct of business
by airlines, in addition to the mechanisms laid down by the air
service agreements would create confusion and uncertainty.
(III) ALLIANCES
13. Consideration of the effects on competition
of mergers and alliances between airlines within the EEA is a
matter for the Commission, applying Articles 85 and 86 of the
Treaty of Rome. Responsibility for consideration of alliances
between European airlines and those of third countries is a matter
for the competition authorities of the Member States under Article
88 of the Treaty of Rome. The UK has enacted the EC Competition
Law (Articles 88 and 89) Enforcement Regulations 1996. It is under
these powers that the UK competition authorities are currently
investigating the proposed alliance between British Airways and
American Airlines. The Commission are also investigating this
proposed alliance under Article 89 of the Treaty of Rome.
(IV) THE
COMMISSION'S
ROLE IN
BILATERAL AGREEMENTS
14. The Commission has a mandate from the Council
of Minister to negotiate aviation agreements between the community
and Switzerland and ten Central and Eastern European countries.
British Airways supports the principle of these negotiations,
which would in effect lead to an extension of the common aviation
area to these countries.
15. The proposal that the Commission should
negotiate aviation agreements with third countries raises important
issues which, so far as we can judge, have not yet been adequately
addressed. These include:
(a) the objectives of the Commission and
the question what would be the added value of the Commission negotiating
such agreements in place of Member States;
(b) the principles on which benefits and
disbenefits resulting from the negotiations would be allocated
as between Member States and individual airlines;
(c) the conduct of the negotiations and the
method of making adjustments to the negotiating brief as the negotiations
continue;
(d) the implications of community-level negotiations
with one third country for the bilateral agreements between Member
States and other third countries
16. The proposal that the Commission should
be granted a mandate to negotiate an agreement with the Government
of the United States on a common aviation area raises issues of
particular importance for the UK. The air transport market between
the UK and the USA accounts for around 40 per cent of the total
market between Europe and the USA. Two British airlines, British
Airways and Virgin Atlantic, have won leading positions in this
market. The bilateral agreement between the UK and the USA is
one of the most important bilateral agreements to which the UK
is a party. Successive British governments have evolved and implemented
policies towards relations with the United States in consultation
with British interests.
17. A particular issue which arises in relation
to a common aviation area embracing the EU and US is the matter
of competition rules. The United States has anti-trust laws which
have been developed over the last 100 years for which the government
of the US claims extra-territorial application. The EU has been
developing over a more recent period its own competition rules
for which extra-territorial application is also claimed. The EU
and the US rules are intended to serve basically the same objectives
but there are important differences between them, both in the
rules themselves and more importantly in the manner by which they
are applied.
18. One important difference is that US law
permits enforcement by means of private suits which can result
in awards of treble damages; enforcement in the EU does not. Another
example is that certain practices which have been declared lawful
in the US are being challenged by the Commission under competition
law. An example is the certain practice, almost universal in the
airline industry, of making incentive payments to travel agents
the more tickets they sell and of giving discounts to corporate
customers. To allow the application of different competition laws
within a single common aviation area in respect of the same airlines,
the same customers and the same markets, would create great legal
uncertainty and would be damaging to the development of an efficient
and stable airline industry, able to attract capital and compete
vigorously on fair terms. British Airways therefore considers
that the negotiation between the EU and US of common competition
rules and their enforcement is a necessary pre-condition to the
negotiation of a common aviation area.
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