Select Committee on European Communities Minutes of Evidence

Examination of Witness (Questions 460 - 479)



  A.  That is a question for British Airways. I do not know where they would take their slots from.

Lord Skelmersdale]  It may well be a question for the competition authorities.


  460.  I think we have got to be very careful not to stray too far from our remit. What we are interested in is that in a situation where X number of slots become free, for whatever reason—in this case it is a Directive—then how would they be allocated, and I think you have said pretty loudly and clearly that in this instance you would need direction, have you not?

  A.  This is an abnormal situation.

Chairman]  Your point, I think, is well taken.

Lord Paul]  Mr Morrisroe, you have said that you are just dividing the cake into slices. If that is so, these rights, if any company goes bankrupt or does not start to operate, should come back to you instead of their being able to sell them, like TWA negotiated the same slots and this sort of thing. So how is it that they are going over your rights and telling you what to do, instead of you doing that? Secondly, who are your counterparts in, let us say, Frankfurt and JFK, and how do they allocate these slots, as opposed to you? The third question is that you talk about IATA. It looks like this is the only thing IATA follows anymore, or the airlines belonging to them; the rest of the IATA conditions they are breaking all the time in competition with each other. The fourth question is what does it take for a new carrier to join the act?


  461.  I think you are going on holiday next week, Mr Morrisroe! If I can just interject, and I mean this quite seriously, those questions of Lord Paul do show the very real interest that we have on this Committee as to how the system works. Please proceed.

  A.  Thank you, my Lord Chairman, I would love to have the opportunity to explain more of it and even show you how the process works perhaps at some future time. If I may take those questions not necessarily in the order that they were given, I will deal with the easier ones first. How does this process work elsewhere in the world? Certainly within the European Union there is a slot allocation regulation which very much binds and drives this organisation that I work in and part of the objective in that regulation is that of having independent coordination with transparency and avoidance of discrimination and so on. It is very much the view of the Commission that companies like ACL should administer this work elsewhere in Europe, regrettably the implementation of that regulation has been a little bit patchy in the rest of Europe so far but certainly at airports like Frankfurt there is an independent coordinator like myself. He is accountable to the Federal Minister of Transport in Germany so it is a slightly different reporting relationship.

  462.  Is Amsterdam the same?

  A.  Amsterdam has recently appointed an independent coordinator, that is correct.

  463.  To be quite clear on this, in those two instances neither of those are owned by an airline?

  A.  In Germany it is not owned by an airline, in Amsterdam, because it is a relatively recent invention, it is actually owned by KLM.

  464.  Wholly by KLM?

  A.  Yes, I believe so.

Lord Paul

  465.  Responsible to KLM or responsible to the Minister of Transport?

  A.  The comment was made earlier about Chinese walls, irrespective of our ownership and our funding, coordinators have a duty and an obligation to make their decisions in an independent manner. I believe that most of the coordinators in Europe are making independent decisions irrespective of their reporting relationships and the chains of command and where their resources come from and so on. The question was also asked about the USA. The USA has the benefit of not too many places where there is an imbalance between supply and demand. A number of airports over there have six runways, for example. The system in the US tends to be self-regulating in that airlines tend to own their own terminals, therefore they own their own gates, if they have 40 gates in their terminal they will make sure that their own operation fits within those gates, it is self coordinating in large part. There is a small number, a handful of airports in the US, which have significant international operations and where there are shared facilities and there it is general to appoint a person to act as a coordinator, for example the international terminal in San Francisco which is a shared facility between international operators. You asked the question about the opportunities for new carriers and I think quite rightly you have drawn the conclusion that at saturated airports where historic rights, historic precedence exist, it is very difficult for new airlines to gain access and particularly where new airlines in general would like to fly multiple frequencies in competition with existing carriers. If they would like a large number of slots, three round trips a day, that is six slots a day and at a saturated airport it is not easy to achieve. Certainly in the United Kingdom at Heathrow, it is one here and one there sharing scarce resources out very thinly between incumbents and new entrants which allows new entrants to gain access but they are low frequency often long haul carriers not breaking up the duopoly routes that exist.


  466.  Have there been any examples of existing carriers giving up slots to allow new entrants in? I am talking of United Kingdom now, specifically Heathrow.

  A.  It is very rare for airlines to give up slots at Heathrow, they are such a scarce resource.

  467.  Thank you. We have your answer. Please go on. Lord Paul had two more questions.

  A.  There are two more questions. One is about the scope of IATA, I think that is a difficult question to answer, I am not familiar with all mechanisms of IATA. IATA is a very broad organisation dealing with everything from clearing houses for ticket funds and safety and security issues. I think IATA is still a growing organisation, not a declining organisation in my view.

Lord Paul

  468.  I am not saying declining but you see much more violations of IATA where the airlines are restricting that you have got to get there by one airline or they are cost cutting the price of tickets all the time.

  A.  I think, with respect, through the Chair, if I may, the days of price controls exercised by IATA are decreasing, increasingly we see bilateral open skies agreements between countries, as you are aware, which effectively allow airlines to apply the capacity and the fares and so on that the market think fair.

  469.  My question, the reason I put that in, was while IATA looks at these slots in a much more controlled manner, why they have not fallen apart on those?

  A.  I think your last point was to do with the issue of going over our heads in this unique situation in the United Kingdom anyway. My personal view is I would be delighted if they would go over my head. This is an enormously complex issue, the redistribution of slots given up by the alliance partners to competitors and really it is fundamental to the solution of an open skies agreement between the United Kingdom and the USA. I think that has to be a responsibility for the competition regulators in this particular scenario.

  470.  In Heathrow, you have 425,000 or 440,000 slots now, what was the slot capacity five years ago and ten years ago and the increase you have had because of developments, technology, etc, those extra slots created, what percentage has gone to any outsider?

  A.  I will provide some data to answer that question after the meeting. I do not have it with me. (See Supplementary Memorandum).


  471.  If we take out for a moment the rather unusual situation that may develop with BA being obliged to give up some slots. Just leave that on one side for a moment. What you have told us certainly comes through to me that the grandfather/grandparental rights are so strong that as a company you do not have much allocation to do. You may well be—these are my words not your's—fiddling with differing times but numbers stay, as far as we can understand, about the same. I am not wishing to do you out of a job, Mr Morrisroe, but what do you do?

  A.  Apart from arrive late for Committee meetings and my apologies. A couple of things there then. First of all, I describe there being a spectrum of airports so the situation you describe is true at Heathrow but at other airports like Gatwick, which I mentioned earlier, where there are still slots available and where there is a significant excess of demand over supply for those spare slots, each season, we have some very difficult decisions to make in choosing between various airlines. Clearly that goes on on a different scale at each of the airports we are managing. The other point you made about fiddling with historic rights, I would just say that something like 10 per cent of the slots of existing operators, historic slots, change in some way, shape or form each season as airlines add bigger and bigger planes on services to improve the robustness of their service, their punctuality, the time of their services, earlier or later, to try and get ahead of the competition they will try and retime a flight. That process of change within an existing airline's historic operations is quite a large and difficult management task. We are always trying to shoehorn these changes into the limited airport facilities. That again becomes a decision-making process.

  472.  Within an airport's capacity, can an airline switch a slot between airports?

  A.  In the current system it would be the same as requesting a new slot at a new airport. It is not a switching. They can switch at an airport between the terminals.

  473.  But not between airports?

  A.  No.

Lord Methuen

  474.  I was interested in your funding. How are you actually funded? I do not mean the participating airlines, I do not mean the ones which have directorships, but are the other ones contributing on a per-slot basis or not?

  A.  No, my Lord. ACL's funds arise something like 75 per cent from the airports to which we provide the services, so we are under a contract to the airports, they provide 75 per cent of our funds. We achieve around 5 per cent of our income basically from selling data, consultancy, expertise, with small amounts of revenue there. The balancing contribution comes from the 11 airlines which own ACL. The process is that they have a contract between them to ensure that on an annual basis ACL breaks even. So we are not a profit-making organisation, we just earn enough money to cover the cost of our service each year. Some years the members' contributions go up, some years they go down, depending on how much we have spent that year, depending on the demands which have been made upon us.

  475.  Do you find that those owning airlines attempt to put any pressure on you?

  A.  Only economic pressure. Nobody likes to pay money. They do not apply any pressure in the sense of the slot allocation decisions made by the company.

Lord Berkeley

  476.  I have two questions which I hope might wrap up a couple of things. There has been quite a bit of debate about regional air services being kicked out of Heathrow or Gatwick, even if they are seen by the regions to be feeder services to the international ones. Would you find it difficult if presumably the Government or the European Commission required you to allocate not just slots but destinations, not to a particular airline but to a particular destination, for probably quite a small proportion of the total slots—in other words, have a destination requirement as well—to preserve regional services? The second thing is going on from what you were saying earlier. If an airline which has slots went into liquidation, the liquidator could presumably sell the slots to somebody else. Is that any different to when the Commission comes along and says, "Give up some slots to somebody"? What would your role be? Would you just wait for somebody to buy the slots and then try to fit them in, or would you auction them, or what would you do?

  A.  To answer your first question, my Lord Chairman, nobody gets kicked out of Heathrow. Airlines make commercial decisions as to which routes they want to use their slots for. The process which you are describing, of somehow ring-fencing (as it is called in the trade) or protecting slots for regional routes goes to the heart of interfering with airlines' commercial decisions about how they run their business. Indeed, under the current Slot Regulations there is a provision in one of the Articles for a Member State in each country to apply some degree of protection to regional services, and it is a facility which has been exercised quite vigorously by the French Government. Our own Government has decided not to follow that path but you are right it is a matter under consideration at the moment by the committee that is competent to deal with that. Any sort of ring fencing process reduces the supply of slots in the system and one of the areas of flexibility in this whole system is the ability to swap slots between airlines. Anything that takes slots out of the pool for exchanges for example will reduce the flexibility in the system.

  477.  You say swaps, do you mean swap or sell?

  A.  Swaps, there is a very active process of swapping between airlines

  478.  There is no money changing hands?

  A.  There is no money changing hands. That is a fundamental part of this whole process. Airlines achieve their specific timing objectives often by swapping with other carriers.


  479.  If I could use a deliberately trite example of Monopoly. Do you get swaps as, if I remember correctly, the Old Kent Road you would need at least those plus the Electricity Company in order to equate to Leicester Square? Do you have three slots equals one slot? Perhaps you are not aware of this, perhaps you are rather aloof to this.

  A.  ACL has no responsibility for considering what may stand behind a swap between two carriers. It is done on a slot for slot basis. Sometimes those slots are differing values but that may be in exchange for a swap at Heathrow, slots of different values, those two airlines do a swap at another airport of differing values which offsets that. This is a global business.

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