Select Committee on European Communities Minutes of Evidence

Examination of Witnesses (Questions 280 - 299)



  280.  So you are saying that slots should be given up without compensation? We have had some interesting evidence from other people who suggest that nobody knows who owns the slots and question whether they have a value, and certain people have denied that they are traded and some of us are a bit suspicious about that.
  (Mr van Miert)  Me too.

Lord Thomas of Macclesfield]  They think that some of them might be traded.


  281.  Yes, some of them might be traded, but the slots are actually the key to everything in congested air space around some of the major airports, particularly London and probably New York. Do you have any view as to how the slots should be traded, who owns them and who should be responsible for trading them beyond what you have put down about the competition elements?
  (Mr van Miert)  Well, as it happens, I was responsible for this question when I was in charge of transport and I think Mr van Houtte was even there when we had the Council of Ministers meeting on the slot Regulation.
  (Mr van Houtte)  Yes, and farmers were demonstrating on the streets.
  (Mr van Miert)  It was then agreed. We proposed at the time to pool a limited number of grandfather rights, but all carriers said no and, therefore, all governments said no, so we had twelve governments against the Commission and they said, "There is no question of pooling grandfather rights, even in a limited way", so the actual system now is another one whereby slots which are not being used are pooled and then there is a system to give them to new entrants, so that is the system as it is, but it was crystal clear that slot trading, according to the Code, is illegal because no one accepted that at the time and that has not even been discussed. One delegation raised that question and all the others said no, so it was crystal clear. Now, in the meantime, mainly because of congestion at Heathrow, not elsewhere, and no other carrier was really in favour of that. You occasionally have suggestions on this. But even if we were to have a system like in the United States, allowing slot trading, it would not help us at all in the alliance cases because the question is to try at least to keep competition as long as it is still there or to make sure that because two big partners are going to join forces, that eventually the smaller carriers can take them on, and then you need to make sure that slots will be made available, interesting slots, for free because, otherwise, a carrier like British Airways, which has been given these slots for free, like the others, and which now should sell them to a competitor that needs to be helped to compete with it, would really set an unfair advantage. This would be an upside-down situation. Now, anyway, as it is, slot trading is illegal even if it might happen from time to time and for the rest, for the sake of being able to give a positive attitude towards the alliances, then if they accept the remedies concerned, it means that there can be no slot trading at all and they should be made available for free.

Chairman]  So you are saying that slot trading is illegal.

Lord Thomas of Macclesfield

  282.  By what, though, are you saying that it is illegal?
  (Mr van Miert)  By the Regulation which has been agreed at the level of the European Union.


  283.  So DGVII would take action against anybody if they were traded?
  (Mr van Miert)  Yes, DGVII eventually would take action, so if one day they decide to do so, they can. They can, but obviously it was agreed at that time that eventually the case should be looked into after some experience. I know that Neil Kinnock is doing so with DGVII and, okay, we will see what comes next, but in any case, as far as a competition case is concerned, the problem is how to allow others to remain competitors or to come in as competitors and then slot trading is absolutely the wrong solution. Even on the American side, if it is about international business, slots will be traded for free.

  284.  It is very interesting because many times in the course of this discussion we have been saying that even with this decision made today, on many routes there is not real competition and it seems that one needs a low-cost airline or two to come in and it seems to be the same in the United States, from what one gathers, but barriers to entry are high, and some of them we have discussed. It is partly competition policy, but how can you see them being encouraged to come in on a general basis because it will make an enormous difference to the price that the consumer pays probably if you get a low-cost airline coming in on a particular route.
  (Mr van Miert)  I must admit that I am very concerned because some have been trying, a few with success, others not, or they have to admit fairly rapidly because they do not have deep pockets to carry on for some time that they should become a feeder company or a franchise company and, therefore, not able to compete with the main carriers. In the case of Virgin, for instance, after some time they would rather make a deal with another carrier in order to continue to compete. That has also happened when we have had a case like EasyJet-KLM. The trouble is that once such a low-cost carrier complains, it takes a lot of time before you can act and in the meantime it might well be dead, and several times dead. So we feel that our instruments are not good enough to protect them sufficiently and after some bad experience of this kind, the question remains as to who is going to dare.

  285.  Exactly.
  (Mr van Miert)  Therefore, I am almost convinced, and this is my personal opinion and I do not speak for others, but I am really concerned that as things develop now, in a few years' time we might well have far less competition than even we have today. To give another example of that, a few days ago we got a complaint by Ryanair where a big British travel agency told Ryanair that they were not going to sell their tickets any more. Why is that so? Because with the override commissions and the general system of travel agent commissions, British Airways, as other big carriers, will tell their agents, "Well, we paid you seven per cent last year. If you do not add another 10 per cent of business, you will get less", so they are forced to sell more and more tickets of the bigger carriers in order to keep their income.

  286.  This is what you mean in your press release about looking at the computerised reservation system displays?
  (Mr van Miert)  No, that is still another thing.

  287.  So the relationship with travel agents?
  (Mr van Miert)  Yes. We did not take a formal position today, but we acknowledge to the parties that there is a problem, an increasing problem, and that it needs to be sorted out one way or another, so we are going to discuss that further in order to come up with a solution. The CRS problem is a different one in this sense: you have your alliance and they will have on the screen the first page, so to speak, and you will have the same flight announced twice. If you have several frequencies, you can almost occupy the whole first page. Everyone knows that for travel agents, it is a considerable advantage if you can put to the customer the first choice. If you go to the second page or the third page of the screen, it creates a real handicap. So we feel, for instance, that when it is hub-to-hub traffic, there should be only one line instead of two because it is only one flight, but that has not been sorted out completely yet and it has to be discussed further to see the extent to which eventually we need to impose it, but probably on a horizontal basis, not just in the case of certain airlines, and it should then be a rule for all the companies concerned.

Lord Thomas of Macclesfield

  288.  What we understand already from the airlines is that this is what we call in English a "complex monopoly", in other words, many monopolies all rolled into one because, as we have been discussing now, it is slots, it is baggage handling, it is business travel, it is travel agents, it is CRS, it is the large corporate agreements, and it is the ownership of the carriers, which is where we started from, so it is not one single monopoly, but it is a complex monopoly. However, my question is to ask whether the new competition from the smaller airlines, like Ryanair and what-have-you, is that spread equally over the European Union or is it skewed to one or two countries? Where is this new competition coming?
  (Mr van Miert)  We must admit that British Airways has been making considerable efforts to bring more competition to the continent, in France with Air Liberté, with Deutsche BA in Germany, but you see how terribly difficult it is and if you do not have deep pockets, you are gone, or you just go and become a feeder, a small feeder or a franchise company.

  289.  But where are the smaller airlines, not the big ones, where are they emerging? Are they emerging at all and are they spread evenly across Europe?
  (Mr van Miert)  Yes, but they are, for instance, on regional routes or low-intensity destinations.

  290.  Feeders?
  (Mr van Miert)  Yes, feeders where the others will not come in, and there is a double tendency in that feeder carriers will try to have a lower-cost carrier to compete with the independent low-cost carriers and if they do so, obviously it is trying to outdo the market, trying to kill them and it is not just for the pleasure of having a low-cost carrier. So it remains to be seen how many new companies will survive and who is going to take the risk to start up a new company given this environment. What is your feeling in DGVII?
  (Mr van Houtte)  I think that is probably right. There is quite a bit of competition emerging in most European Member States. If you look at Spain or Italy, you find that there are small airlines which are starting business and developing, but then, as the Commissioner said, they are facing the choice of continuing big losses, competing with the main carrier of the Government, or cosying up to the incumbent and getting into a sort of franchise relationship and that is when the competition starts to reduce.
  (Mr van Miert)  Usually they have to look for a bigger partner, and this is so in Italy where it is better for Air One to join forces with SwissAir, so that is the way to survive.

  291.  So they can compete with Germany.
  (Mr van Miert)  In this case it is more to have a bigger partner outside Italy, to get some clout.


  292.  Can we just turn to the two proposals that we are discussing today because we have a feeling that many Member States are not in favour of the Commission's proposals, but are we correct?
  (Mr van Miert)  You are putting it mildly.

Chairman]  But I am more interested to know why. Is it sour grapes? Is it because they think they can do it better and that you are not competent to do it or is it the sort of old nationalistic idea that you have to have a national airline and control of all these things?

Lord Thomas of Macclesfield

  293.  Latter-day Imperialism.
  (Mr van Miert)  I do have the feeling that it is all of that together.


  294.  Oh dear!
  (Mr van Miert)  Because there is still this very strong relationship between the incumbents, the previous nationally-owned carriers and the governments. It is a fact of life and we see that nearly every day, so that is one thing, and the carriers concerned will probably feel that traditionally they are better protected by their national authorities, or at least that might have been the conviction previously, but nowadays they have to face up to that not being so. A few weeks ago, Jurgen Weber was sitting here and he was complaining about the fact that he could not fly Brussels-New York and I said, "Yes, that is exactly for the same reasons as others cannot fly between Frankfurt and the US because you are the only one enjoying the open-skies agreement in Germany because your Government will not allow others to come in". Deutsche BA, for instance, is not allowed to come in and do the transatlantic business because it is not a German company, although now the status seems to have changed.
  (Mr Drabbe)  It is not a German company any more. It used to be majority owned by German banks.
  (Mr van Miert)  So they now have to face the rather unpleasant consequences, but they cannot have it both ways.

  295.  Exactly.
  (Mr van Miert)  Therefore, it might well be that some carriers might take a different view. I was talking to the new President of Air France a few weeks ago and he said, "Well, our Government has been against it and it might well have been that our predecessors were not very supportive, but now we are prepared to take another view".

Lord Thomas of Macclesfield

  296.  In terms of listening to your very frank answers, the decision you have made today with British Airways and American Airlines is actually counterproductive, it is disastrous and it is contrary to your ambitions because it is going to cause more concentration and it is propelling the cartel forward into another decade or so. I know you have done the best you possibly can, but it will make the situation worse, if you forgive the bluntness of the question.
  (Mr van Miert)  No, you are absolutely right and to the point because at the given moment we were discussing that among ourselves as well and asking ourselves, "Will the remedies be good enough to cure the competition concerns?" Now, in principle, as with other mergers, though it is not a merger, but a creeping merger, not legally speaking a merger, but now there is a trend towards globalisation and, therefore, we should not in principle go against alliances and I think that we would be ill-advised to do so, but all the more we have to take care of the anti-competitive effects and that is what we do. If you put the question in this way: are we sure that we have the right remedy which will indeed deliver the goods?

  297.  You would say yes?
  (Mr van Miert)  I would say that I do not know. I must say, I am convinced it will, but if you say, "Let's bet on it", I would say, "No, sorry".


  298.  You could say that the code-sharing was actually creating a monopoly?
  (Mr van Miert)  It remains to be seen what the Americans do, but if wide-reaching code-sharing happens there, instead of having competition between the big carriers, there would only be three groups left, in fact three economic entities even if the companies remain, legally speaking, separate, so this is also of some concern to us because if that develops in the US, then we certainly will have our big carriers saying, "Well, look, we should do what the Americans are doing, so instead of being stricter, you should be——

Lord Thomas of Macclesfield

  299.  More relaxed.
  (Mr van Miert)  Yes.

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