Supplementary Letter from the Air Transport
Users Council to Lord Thomas of Macclesfield
On reading the transcript of the evidence we
gave to this Enquiry on 18 June, I think that we were slightly
at cross purposes on the question of how limited traffic rights
might be shared between Community Member States (Question 138
to 146).
We were discussing the hypothetical situation
where the Commission had failed to negotiate a totally liberal
agreement with a third country. The question would then arise
of how limited traffic rights should be shared between the Member
States of the Community and their airlines. I had seen this as
a subject for negotiation between Member States in the Council
of Ministers and expressed concern that the UK's negotiating strength
in that forum might not be as great as in direct air service negotiations
with third countries. In those circumstances, the UK might stand
to lose out.
You put forward the interesting proposition
that the division of limited traffic rights might be left to market
forces. This idea was new to me and I regret that I failed to
do it justice in my response to your question. On reflection,
I think it would be possible to bring market forces to bear. It
would in principle be possible to allocate traffic rights by auction.
Community airlines would bid for the traffic rights and these
would be allocated to the highest bidder. (This is not greatly
different from the idea of auctioning take-off and landing slots
at congested airports).
The logic behind such an idea is that the amount
an airline is willing to bid reflects the revenue that it expects
to earn and this, in turn, provides a measure of the value of
the service to its prospective passengers. In principle, therefore,
auctioning scarce resources is a way of ensuring that they are
used to maximum benefit. In economic terms, the counter-argument
to this is that airlines are profit maximisers and the service
that returns the most profit to the operating airline is not necessarily
the most beneficial to air travellers. While this is undoubtedly
true, the proponents of such a scheme would argue that the outcome
would be far closer to the optimum that allocation by regulation
or by political negotiation.
However, the scheme would not totally escape
the political arena in that it would need to be agreed by the
Council of Ministers in the first place. While the auctioning
of traffic rights might find favour with our own Government, The
Netherlands and possibly Germany, many Member States are still
more concerned to protect their flag carriers than to promote
competition and would therefore be reluctant to expose them to
market forces in this way.
Philip Martin
Director General
30 June 1998
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