Winners and
losers
67. Differing views were expressed
about which airlines might be likely to benefit or lose under
the proposed Regulations. Virgin Atlantic thought that some European
airlines remained in existence either "because they have
been, and to a large extent still are, protected by their governments"
and some form of shake-up of the industry was still needed. They
recognised that some of the smaller carriers would go out of business,
but hoped that this would happen "because they failed to
meet the demands of the marketplace, not because they have been
forced out of business by uncompetitive practices". It was
competition rather than competitors which needed protection (Q
207). Delta Airlines thought that the less market-orientated carriers
"of various Southern European Member States ... who have
not embraced privatisation" would be most at risk (Q 53).
Lufthansa agreed that it would be the airlines that were "too
dependent today on state subsidies or have taken ill-fated commercial
decisions" that would lose out (Q 152).
68. Lufthansa conceded that some smaller
carriers operating within the protective environment of restrictive
bilateral agreements could suffer but it was also possible that
such airlines could benefit from the greater access that would
arise in the event of EU-wide agreements.
69. Commissioner van Miert argued however,
that many new entrants found it difficult to compete against incumbent
airlines and without deep pockets they had little option but to
pursue a complementary role as a feeder carrier[22]
or franchised operator[23].
"In a few years' time we might well have far less competition
than even we have today" (QQ 284-85).
70. British Airways argued that as
the "UK has a thriving and competitive air transport industry
... second in size only to that of the United States" it
"has the most to lose by getting this issue wrong".
The proposals, of themselves, would produce no winners except
possibly the legal profession because of the confusion that would
result (QQ 221, 231). Several witnesses thought that in the event
of a bilateral agreement between the EU and the United States
"the losers might well be British carriers, because ¼
the market between the UK and the United States is so much larger
than the markets from continental countries" (QQ 3, 102,
232). The AUC however thought that any short-term loss to the
UK would be outweighed "by the potential long-term benefits
of global liberalisation" which could only be achieved by
negotiations at a supranational level (Q 102).
71. The view that the UK civil aviation
industry was widely acknowledged as being the most competitive
in Europe received support. British Midland argued that UK air
fares "at their current levels are without doubt at the most
outstanding value for money for any retail product that you can
buy" and the level of competition for leisure travellers
was exceptional. By contrast, many domestic air fares in the United
States which had been low in comparison to fares charged for journeys
of equivalent distances in Europe were now often considerably
higher as a result of the demise of many low cost operators (QQ
12, 13, 18).
72. The CAA pointed out that during
the five years of liberalisation in the European airline market
there had been a steady growth in smaller and medium-sized carriers,
with a resultant fall in the market share of national carriers.
On those routes where significant new entry had occurred air fares
had fallen, often dramatically. This was not the case on routes
on which national carriers had retained their dominance (p 5).
73. While discounted economy fares
have generally fallen in real terms across the European Union
since deregulation, the same is not true of first class and business
class fares, particularly on flights out of the United Kingdom.
In the last two years, United Kingdom first class and business
class fares rose by around 20 per cent[24].
British Airways stated that first and business class fares were
higher between the United Kingdom and the United States than they
were between the continent and the United States because of the
laws of demand and supply. "Demand for those fares is much
higher in the United Kingdom proportionately than it is on the
continent" (Q 229). The British Airline Pilots' Association
(BALPA) pointed out that in the past the CAA had had some success
in dealing with the problem of high business fares through the
selective freezing of tariffs (p 1).
74. The AUC also believed that European
consumers were likely to gain more benefit from European Communities
negotiations with third countries than from a continuation of
the existing bilateral approach. This was for two reasons: first
because Community negotiators "wielding the negotiating power
of 15 Member States . . . should be able to win much greater liberalisation
than individual Member States could obtain themselves" (a
view shared by Lufthansa); and secondly because Member States
would be likely to place greater weight on national economic interests
than on those of consumers. The AUC did acknowledge that this
would not necessarily result in any net gain for consumers in
the United Kingdom as any benefits won by the Commission would
be shared among the Member States (QQ 104-6).
Harmonisation
of competition rules
75. Several witnesses raised the potential
problem of conflicting competition policies between the Member
States and the European Union on the one hand and third countries,
for example, the United States, on the other. In the event of
a disagreement whose rules would take precedence? British Airways
argued that globalisation of the industry underlined "the
need to harmonise competition rules and the methods and practices
of enforcement as between different jurisdictions". Lufthansa
thought that competition policy should be agreed with a third
country and that it should not be imposed unilaterally by the
Commission. The Council of Ministers should seek to identify the
parameters for an external aviation policy which would include
the regulation of competition. British Airways argued that negotiations
between the EU and the United States about common competition
rules and their enforcement should precede any discussions concerning
a common aviation area (Q 153, 221).
20 See paragraph 44 for a definition of traffic rights. Back
21
The capacity to regulate relations with foreign countries, to
conduct international relations and enter into binding international
obligations is commonly referred to as the "external competence"
of the Community. It contrasts with "internal competence"
which is the power of the Community to lay down internal rules
which are binding on Member States and on individuals and firms.
The extent of the Community's competence in transport matters
was considered by the Court of Justice in Opinion 1/94,
[1994] ECR 5267. Back
22
A feeder carrier is an airline which feeds passengers into another
(usually larger) airline's route network at the latter's operational
hub. Back
23
A franchise operator is an airline which operates services on
behalf of another airline using its own aircraft painted in that
other company's livery and carrying its designator code (see paragraph
47). Back
24
1998 European Corporate Travel Index,
American Express Corporate Services. This figure applies to the
period from second quarter 1996 to second quarter 1998. Back
