Select Committee on European Communities Minutes of Evidence

Examination of Witnesses (Questions 340 - 358)



Lord Thomas of Macclesfield

  340.  What would that be?
  (Mr Drabbe)  Well, basically there are two proposals. One is to extend the scope of Regulation 3975/87 which would allow us to apply the existing procedural rules of Regulation 3975/87 to international aviation traffic. The second proposal concerns an enabling Regulation under which the Council would empower the Commission to make a block exemption Regulation and which would then indicate what activities would be legal, also in international air traffic, and whether either thing would not, therefore, automatically be exempted. Now, the proposal for the enabling Regulation which we have proposed issues a number of activities which are normal in these international regulations and which are covered by the bilateral agreements—the air transport agreements by the Member States—such as revenue sharing and joint planning and co-ordination of capacity. Those would be the areas where Member States would be most concerned that we would interfere. The enabling Regulation would allow us to block exempt these activities under the block exemption Regulation and, therefore, this argument which runs that by applying the competition rules the Commission would upset the whole network of bilateral agreements which have built up over the years, most of the sting is taken out of that argument simply because they would continue to be able to apply the bilateral agreements without any reason for us to interfere from a competition policy point of view. If there were still problems with a new bilateral agreement, we have built in this consultation mechanism to which we refer in the papers so I think it would be, for practical purposes, a system which would work very well without upsetting the bilateral agreements. I have a very practical argument for saying this as well in that certainly from our point of view, as a competition authority, we are not going to scrutinise each and every of the many hundreds of bilateral agreements which exist and if concerns such a minor point, we would have difficulties in doing all this.

  341.  Would that not logically apply to new agreements? Let us say you had a new one in operation, would not the same apply, so, in other words, you would not call in every agreement?
  (Mr Drabbe)  If you are talking about a bilateral transport policy agreement, an aviation agreement, no, because if the block exemption were to be there, it would be very simple to refer to the block exemption and say, "Okay, we do not need to look at it".

  342.  But what if it fell outside that, then clearly you would call it in?
  (Mr Drabbe)  Then we might call it into question, but there would still be the possibility of an individual exemption, since if the block exemption does not apply, there is still the possibility of giving an individual exemption, but we certainly would not look at each and every new agreement. We would expect Member States then, since a block exemption would exist, in their bilateral agreements to take it into account because they are under a duty not to do anything which would be contrary to Community law, anyway.


  343.  Do you spend much time getting the views of the customers of air services and taking them into account in all these discussions because we have brought them up occasionally, but something we obviously will have to take into account is whether we believe these Regulations will actually help the consumers to get a better deal than if they do not come in? In other words, one could ask: who is the better watchdog of the consumers? There is the British airline consumers' group that we took evidence from[5]. I do not know whether there is a European one and I am not sure how much funding it gets, but it is always useful to remember that they are the end payers and this is what everybody is working towards.
  (Mr Drabbe)  We certainly get comments from airlines. I must say the Association of European Airlines has said that they are against these proposals and I think that probably reflects the point Mr van Miert was making about the link between airlines, or the point you made, I think, of the airlines looking at where the advantages are and saying, "Well, we do not see the immediate advantages and so we will stick to the existing situation". I think the individual airlines argue differently. For instance, Virgin has argued that it is in favour of these proposals. As for consumer associations, so far I am not aware of any reaction.
  (Mr van Houtte)  I have seen some reactions which were supportive both from travellers, from passengers, and from shippers because of course a lot of this is also applicable to cargo, to freight, so I think we do have contacts with those groups.

  344.  I personally have had comments from somebody who is very concerned about the freight aspect, but we have not had any evidence yet and maybe we will have time, though I do not know whether we will or not, but it is something we have not actually covered very much. Is there anything you can tell us as to which Member States might be more in favour of your proposals than others or is it early days yet?
  (Mr van Houtte)  Are you speaking to DGIV or DGVII?

  345.  Well, I am not sure which of you because I do not know whether you have the same view or different views, you see. You can both answer, if you would like.
  (Mr Drabbe)  I think the views would be the same.

  346.  Of course.
  (Mr Drabbe)  But the proposals originate from DGIV. I think no Member State at this point in time will officially say that they are in favour of the proposals because they also make the link with the open-skies negotiations with the Americans in which competition policy is one of the subjects to be discussed, so they take the position that if they were to give us the extended scope of this Regulation, that would sort of prejudge the position they take in the context of the mandate for the Commission on open skies. They argue that you could go faster on one point, which is competition policy, than on all the other points and in particular of course on the point of traffic rights, I think. Is that correct?
  (Mr van Houtte)  Yes.
  (Mr Drabbe)  So officially at this point in time you will not hear any Member States saying, "We are in favour". I think inside Member States the thinking about this is starting and if you talk to officials unofficially, there is some sympathy and understanding for our ideas and certainly the logic of them is not denied.

  347.  So if the Regulations were approved, the court actions might just not be proceeded with presumably?
  (Mr van Houtte)  But the court action relates to the DGVII proposals, not the Competition Regulations, but the external policy proposals.

  348.  Of course, yes.
  (Mr Drabbe)  It is the other way round. We are the prisoner of the discussion about the mandate.
  (Mr van Houtte)  If your question relates to the mandate or the negotiations with third countries, I think it is fair to say that there is general, but limited, support for the Commission's proposals, so we have received a mandate to negotiate with the United States, but the mandate does not clearly cover the most important issue which is traffic rights, so it is a half-way house which is not very satisfactory.

Lord Thomas of Macclesfield

  349.  You can talk about everything, except what matters.
  (Mr van Houtte)  Beyond that if you speak to individual Member States, you would find a few which favoured the Commission's proposals, I think, but it is clearly a minority at this point, but the spirit is developing.

  350.  There can be a minority, but it can be an important minority because it might be a major carrier across the world, or it might be an unimportant minority because it might be the small operators, so that is the basis of my question: do you feel that this is going to disproportionately badly affect some countries' carriers as opposed to others?
  (Mr van Houtte)  No, I would not think so. Again, in agreements which do not produce open markets the issue is how do we allocate traffic rights in the case where we obtain they and there the Community has shown that it is capable in many areas, not just air transport, but lots of areas, of developing a common view and making sure that all Member States obtain an equitable share of the results and that is the basis of the Community.

  351.  So that might mean taking slots from the existing carriers, might it not, and they are certainly not going to vote for Christmas, are they, if they are turkeys?
  (Mr van Houtte)  No, but if the Community were to negotiate, we would expect open market access, or in any event to see more traffic rights for Community airlines rather than less, so, in a way, the cake is getting bigger and so I do not think we would face the hypothesis of taking away traffic rights from airlines.

  352.  Bigger only if the infrastructure can cope with more.
  (Mr van Houtte)  Of course the infrastructure has to follow. That is correct.


  353.  Then there will have to be the sharing out to the airlines within the European Union, having negotiated the block which is an internal problem which no doubt Member States might have views on as well.
  (Mr van Houtte)  Sure, yes. I think it is difficult to envisage the hypothesis that any Member State would be worse off than before. I do not see that happening really.

Lord Thomas of Macclesfield

  354.  How do you suppose the result that the Chairman has referred to would arise? Have you got a game plan or a model as to how slots would be allocated perhaps across different countries in Europe?
  (Mr van Houtte)  Again it is traffic rights which would be allocated. Slots are a local matter which it is for the airport to make available.

  355.  Traffic rights then.
  (Mr van Houtte)  We would first have to look at what the outcome is and how many traffic rights and to which destinations have been obtained and then we would have to look at where the demand for those traffic rights is and that would stem from where the traffic originates. Maybe Germany will say that Frankfurt is under-served and we do not have enough frequencies to the third country in question and then if no Member State objects, then probably Germany would get a significant piece of the additional traffic rights. I think it will be done on a case-by-case basis. There is no formula which I can apply mathematically.

Lord Thomas of Macclesfield]  That is what worries me because would not your answer be very hypothetical because the only way to test it is to use it?

Lord Methuen

  356.  It is a chicken-and-egg situation. Unless you apply it, the traffic is not there.
  (Mr van Houtte)  That is how it happens on the US side. If the US negotiates traffic rights, they then face the question, "How do we allocate these traffic rights to American Airlines and United and Delta and all the others?" and they have a habit of doing this and they do it on the basis of where the demand is, which airlines can make best use of the traffic rights.

Chairman]  And/or political pressure on Capitol Hill.

Lord Thomas of Macclesfield

  357.  I do not believe that for a moment. There is a political deal done because you cannot say where the demand is going to be and the only way to do that is to test it and open up new markets.
  (Mr van Houtte)  One can look at things like load factors of the aircraft from certain airports. One can compare frequencies to certain destinations and I think there is an objective basis for making decisions. It is not sufficient and you need to elaborate, but it is quite feasible.

Lord Thomas of Macclesfield]  The objective way is to lose money and then you learn very quickly which will and will not work. However, I rest my case that it is hypothetical.


  358.  Well, I think we have covered everything, so can I, on behalf of the Committee, thank you very, very much for sparing so much time not only listening to Mr van Miert's session, but answering questions yourselves. It has been very, very interesting and I certainly have learnt a lot and I am sure my colleagues have as well. We shall report back tomorrow and do the same thing with Glenda Jackson MP, Minister for Transport, and see what happens then. You will see the end result in the autumn.
  (Mr van Houtte)  If we can help in providing any more details or in clarifying points, please let us know.

Chairman]  Thank you very much.

5   The Air Transport Users Council. Back

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