Memorandum by The British Air Line Pilots'
(i) The British Air Line Pilots' Association
welcomes the opportunity to respond to the House of Lords Sub-Committee
B of the European Communities Committee on the subject of proposals
by the European Commission to extend its powers to apply existing
competition provisions to aviation services between the Community
and Third countries.
(ii) We offer no views on aspects relating to
political sovereignty or the legal interpretation of the UK's
treaty obligations. Our evaluation is based primarily upon the
degree to which we believe the proposals would help to achieve
the kind of regulatory objectives set out in paragraphs 4 and
68 of the Civil Aviation Act 1982.
(iii) Consistently with the UK's own stated
objectives, competitions should be regarded not as an end in itself,
but as one of several possible mechanisms for securing long-term
benefits for users, airlines, employees and the UK national interest.
The appropriate means to be used in each specific context should
be a matter of careful assessment and policy judgment.
1. What are the strengths and weaknesses of the
currently regulatory regime governing airline competition in the
European Union (EU)?
1.1 BALPA has long taken the view that modern
regulatory arrangements must take realistic account of the geographical
scale on which the modern industry operates. For that reason,
we have advocated measures towards the pragmatic liberalisation
of international air services and supported the establishment
of EU regulatory mechanisms.
1.2 However, the current "Third Package"
regime, in association with EU Competition legislation, has so
far been somewhat disappointing in terms of reducing tariffs and
widening consumer choice. Many of the claimed benefits could have
been secured, or would have happened naturally, under the previous
intra-EU bilateral regimes. For example, many of the new ex UK
routes have resulted from the sustained growth of air traffic
rather than the removal of any bilateral restraints.
1.3 A notable feature is the persistence of
excessively high "on demand" business fares levels.
In the past, the UK authorities achieved a fair degree of success
in dealing with this problem by regulatory pressure by the selective
"freezing" of certain tariffs. However, the weaker EU
tariff regime has led to a significant loss of momentum in this
1.4 Where liberalisation of route access could
reasonably have been expected to produce significant gains for
users, notably on prime trunk routes, slot restrictions at major
airports have severely limited the theoretical gains. Indeed,
the slots problem may well be insoluble within present policy
parameters, which exclude the common sense solution of allocating
slots by regulatory judgment, aiming to maximise benefits in the
1.5 The latter difficulty flows out of the implicit
assumption behind European Commission policy making that only
the fullest possible reliance upon market mechanisms will maximise
benefits for all concerned. The Commission's reluctance to draw
lessons on this from world experience and its consequent failure
to develop an appropriately pragmatic approach are, in our view,
1.6 World experience suggests that the regulatory
task is best performed by a specialist body, experienced in aviation
technicalities, like the UK Civil Aviation Authority. The present
regime gives too prominent a role to general competition policy,
as opposed to specific aviation regulation, and there is an unsatisfactory
division of responsibility between the two EU Directorates concerned.
1.7 A significant part of the former bilateral
regulatory mechanisms were concerned, at least from the UK point
of view, not just with protecting national interests, but also
with safeguarding the interests of users and promoting the general
health of British operators. These features have as yet not been
generalised in the form of an equally effective regime at European
2. If, under the proposal, the Commission was
to negotiate bilateral agreements with third countries on behalf
of Member States, should this be done by (a) a gradual, phased
process or (b) a rapid transition?
2.1 The current proposals appear to relate only
to those aspects of bilateral agreements which impinge upon Competition
Policy, not to the generality of their content. Nevertheless,
if the Commission were to be awarded competence in this area,
it would logically be difficult to deny it competence also in
the full process of bilateral negotiation, and we take the question
to refer also to that possibility.
2.2 Bearing in mind the numbers of experienced
staff currently involved in the process at national level, we
doubt whether it would be feasible to make a rapid transition
to a situation where the Commission itself negotiated bilateral
agreements. We believe this to be true even if the Commission
were to use existing national teams as its agents.
2.3 Any such assumption of responsibility would
therefore have to be a gradual, phased process with a long-term
build up of the required human resources at the Commission.
2.4 A possible intermediate stage would be for
the EU Member States, under European Commission chairmanship,
to negotiate as a block with, say, the United States, somewhat
on the lines of past European Civil Aviation Conference/US multilateral
agreements. But this would be a difficult process to manage in
the light of the factors discussed below in Section 3.
3. If, under the proposal, the Commission was
to negotiate on behalf of Member States a single bilateral agreement
with each third country: (a) how should they do this; and (b)
how would this affect European airline competition?
3.1 It would probably be necessary to renegotiate
all the agreements with a specific third country in parallel because
of the number of issues arising which would involve the Commission
in making judgments between the national interests of Member States
and those of their airlines.
3.2 Many bilateral agreements are predeterminist
in nature because of the "thinness" of the traffic,
the need to "spread" services in the interest of users
and the protection by Governments of their national interests.
This necessarily limits the number of carriers which can economically
operate in given markets.
3.3 The Commission would thus be faced with
problems of carrier choicea classic regulatory task. This
would not simply be a matter of selecting designations; it could
also involve decisions, for example, in regard to capacities,
frequencies and slot usage. It would therefore necessitate some
co-ordinating and decision making machinery at EU level, almost
certainly involving the Council of Ministers at some stage.
3.4 Such controlled regimes, whatever their
overall merits, can sometimes generate sizeable profits for the
incumbents, thus providing the EU carriers concerned with a sizeable
"war chest" which can help them withstand commercial
pressures on other routes. This could undoubtedly have some significance
for European airline competition.
3.5 Bilateral agreements with the United States
are a special case because of the size of the market and the fact
that extra bargaining power from a combined European negotiating
effort could certainly, in principle, be employed to extract concessions
from the USA.
3.6 However, there would again be the problem
of sharing out the costs and benefits between EU national interests.
Experience suggests that it would be extraordinarily difficult
to build a common front where some EU countries felt that they
were being invited to sacrifice benefits they had achieved under
the bilateral negotiating process without receiving any form of
3.7 It could of course be argued, ignoring slot
and other constraints, that a highly competitive regime would
transcend this problem. On the contrary, just about every historic
precedent suggests that the outcome would be a rapid resolution
of the competitive elimination contest. A massive concentration
of economic power into a handful of mega-airlines which are effectively
accountable to no regulatory body would hardly lead to an outcome
consistent with the policy objectives outlined ealrier.
4. What effect would the harmonisation of future
bilateral agreements between Member States and third countries
have on airline competition?
4.1 We assume this question to relate to the
harmonisation of "hard" rights, in a situation where
each Member State continues to have its own bilateral agreements
with individual third countries . (Many harmonisation issues are
of course best pursued through multilateral organisations such
as International Civil Air Transport Organisation.
4.2 Air services agreements tend to reflect
the political and economic realities of the geographical markets
concerned. It would be hard to see the point of denouncing a "predeterminist"
bilateral which was serving users well on the doctrinaire grounds
that it was inconsistent with EU competition policy and/or not
exactly symmetrical with a parallel agreement signed by another
EU Member State.
4.3 Regimes anathema to competition policy theorists
have in fact generated some of the most significant low fares
breakthroughs, e.g., the original UK/Australia APEX facilities.
4.4 We therefore see little point in undertaking
harmonisation exercises for their own sake. In each case, there
should be an attempt to identify the specific costs and benefits
involved before taking a pragmatic decision as to whether the
task was worth the effort. Moreover, the factors to be considered
should go well beyond the effects on airline competition.
5. How would the proposal resolve differencess
in economic regulation and implementation of competition rules
for airline services operating between Member States and third
5.1 The real, and long standing, problem is
how to dissuade certain countries from trying to impose their
own domestic competition policies on the rest of the world. (In
that context, it is relevant to note that the EU and the US Governments
have now signed an agreement to step up co-operation in acting
5.2 If the current proposals were designed simply
to lead to an effective way of neutralising "extraterritorial"
ambitions, they would be worthy of serious consideration. In our
view, it would be satisfactory if the EU and the USA (say) were
to agree to take reserve powers in regard to competition policy
towards air transport, while remaining content for the generality
of problems to be dealt with under existing bilaterals or under
an appropriate EU/US agreement transcending the present bilaterals.
5.3 However, if the latter type of agreement
was to be of the "lowest common denominator" type, based
upon Open Skies competition, we do not believe this would at all
be in the interests of users, employees or the smaller airlines.
5.4 The current UK/US air services agreement
has worked extremely well, as have many other of the UK's bilateral
agreements. Any proposal to supersede them must offer something
demonstrably superior, not simply text book promises.
5.5 As it has not been shown that the current
proposals are at all capable of doing that, we therefore support
the position of HM Government at this stage.
5.6 However, we do not feel that the matter
can be left there. There needs to be a wider discussion, particularly
in regard to facilitating the development of managed international
regime. This could take full account of airline needs for global
flexibility, while also placing satisfactory weight on the interests
of other legitimate parties.
5.7 To illustrate the fallacy of pursuing competition
for its own sake, we append (by kind permission of M A Brenner
Associates) a diagram showing the trend of US airline yields since
1960. It will be seen that US de-regulation has had no discernible
effect upon domestic fares trends. Not only did the rigid US pre-deregulation
regime match the performance of its successor; it did so without
arousing the severe discontent amongst users currently being experienced
in the USA.
5.8 This underlines the need to discard preconceptions
and bring some well-informed analysis and careful judgment to
bear on the problems. We shall be happy to expand orally upon
any of these, or related matters, should the Sub-Committee wish
us to do so.