Select Committee on European Communities Minutes of Evidence

Memorandum by British Airways plc


  1. British Airways welcomes this inquiry. The Commission's proposals are of great importance to the UK and its aviation industry.

  2. The UK has a thriving and highly competitive air transport industry, second in the size of its output only to that of the United States. The UK accounts for 1 per cent of the world's population and 4 per cent of world GDP, yet the output of UK's air transport industry is nearly 8 per cent of world output. Some 59 scheduled airlines compete in the UK domestic and international markets: if charter airlines and private hire companies are included, the number of airlines rises to almost 120. The UK has taken a leading role in promoting the single market in air transport in Europe. It is significant that in the newly emerging low-fare market in Europe, several foreign-owned airlines have chosen the UK as providing the best competitive environment in which to launch operations.

  3. The UK is unusual in Europe in having three large, successful, privately-owned international scheduled airlines competing on intercontinental and short distance routes from Heathrow. This has benefited consumers and helped to promote efficiency.

  4. Civil aviation policy in the UK over the last 25 years has largely been bi-partisan: to encourage vigorous competition between British carriers on both domestic and international routes, and to promote wherever possible the liberalisation of aviation agreements with foreign countries especially to enable British airlines to compete on fair terms. In this way, British policy has endeavoured to meet above all the interests of the consumer and the need to develop a strong internationally competitive airline industry.

  5. The consumer benefits, however, not just by competition on individual routes but by competition between networks. The passenger wishing to fly from Manchester to Chicago, for example, has the choice of a direct flight or one-stop flights via London, Amsterdam, Frankfurt, New York, Boston and many other points. The British airlines which fly between the UK and the United States, for example, are in competition not only with each other but with the airlines of several foreign countries. The same is true for other major intercontinental markets for traffic and for the employment which that traffic creates, directly and indirectly.

  6. The UK's policy of liberalisation has had a far wider extent than the policy of any other EU member state. Access to UK regional airports and Stansted was opened to US airlines as part of an agreement with the US negotiated in 1995. Very recently, access was further liberalised to include all foreign airlines. Only access to Heathrow and Gatwick has been preserved, as the UK Government has recognised the value of these gateways in negotiating access for UK airlines to restricted overseas markets. These airports are, in any case, highly contested: at Heathrow there are more than 90 airlines currently operating: at Gatwick the number of airlines is 128.

  7. The success of the UK industry has been achieved despite increasing constraints caused largely by lack of infrastructure to meet demand. The abolition of traffic distribution rules at Heathrow in 1991 ended any planned distribution of traffic around the London airports system, coupled with the EC slot regulation of 1993 with its priority for new entrant airlines, has left little opportunity to grow there for existing businesses such as British Airways, for whom it is our hub airport.

  8. British Airways currently maintains its position amongst the world's leading airlines, carrying almost 41 million passengers in the year to 31 March 1998. It employs around 45,000 people in the UK and contributes some £2 billion annually to the UK balance of payments.


  9. The Commission's proposals for new regulations would extend between the Community and third countries. These powers are at present confined to air services within the European economic area (EEA).

  10. The reason why the Commission's powers do not at present extend to air services to third countries is that the Council of Ministers decided that they should not. This was because the regulation of competition between airlines in international services (other than within the EEA area) was, and still is, governed by bilateral agreements between governments. Bilateral agreements typically cover such matters as access to the market, any restriction on the number of flights, tariffs, and a range of other matters. In negotiating them, governments seek to further a range of other matters. In negotiating them, governments seek to further a range of objectives, including the economic interests, trade and tourism, and the development of their own aviation industries. They also in some cases seek to achieve policy objectives, such as the removal of restriction on access to the market and ability for airlines to set prices; or the provision of means of dealing with anti-competitive behaviour. There is a trend, in which the UK has played a leading part, towards the liberalisation of air service agreements where appropriate market conditions exist. But since bilateral agreements are the result of negotiations between two sovereign states, the result is very frequently a compromise between the interests of the two governments concerned.

  11. Enforcement of the provisions of the air service agreements is a matter for the two governments, and the agreements normally lay down arrangements for dealing with disputes, including a provision for consultation between the governments and, in the extreme case, termination of the agreement. Over the last few years, interest has developed in the creation of separate mechanisms for the resolution of disputes: British Airways supports this development.

  12. The extension of the Commission's competition powers to air services between Member States and third countries would create serious potential conflicts for airlines. They might, for example, be required to do one thing by the air service agreement and forbidden to do it by the competition rules of the European Union. Moreover, the intervention of the Commission, which is not a party to air service agreements, in the conduct of business by airlines, in addition to the mechanisms laid down by the air service agreements would create confusion and uncertainty.


  13. Consideration of the effects on competition of mergers and alliances between airlines within the EEA is a matter for the Commission, applying Articles 85 and 86 of the Treaty of Rome. Responsibility for consideration of alliances between European airlines and those of third countries is a matter for the competition authorities of the Member States under Article 88 of the Treaty of Rome. The UK has enacted the EC Competition Law (Articles 88 and 89) Enforcement Regulations 1996. It is under these powers that the UK competition authorities are currently investigating the proposed alliance between British Airways and American Airlines. The Commission are also investigating this proposed alliance under Article 89 of the Treaty of Rome.


  14. The Commission has a mandate from the Council of Minister to negotiate aviation agreements between the community and Switzerland and ten Central and Eastern European countries. British Airways supports the principle of these negotiations, which would in effect lead to an extension of the common aviation area to these countries.

  15. The proposal that the Commission should negotiate aviation agreements with third countries raises important issues which, so far as we can judge, have not yet been adequately addressed. These include:

    (a)  the objectives of the Commission and the question what would be the added value of the Commission negotiating such agreements in place of Member States;

    (b)  the principles on which benefits and disbenefits resulting from the negotiations would be allocated as between Member States and individual airlines;

    (c)  the conduct of the negotiations and the method of making adjustments to the negotiating brief as the negotiations continue;

    (d)  the implications of community-level negotiations with one third country for the bilateral agreements between Member States and other third countries

  16. The proposal that the Commission should be granted a mandate to negotiate an agreement with the Government of the United States on a common aviation area raises issues of particular importance for the UK. The air transport market between the UK and the USA accounts for around 40 per cent of the total market between Europe and the USA. Two British airlines, British Airways and Virgin Atlantic, have won leading positions in this market. The bilateral agreement between the UK and the USA is one of the most important bilateral agreements to which the UK is a party. Successive British governments have evolved and implemented policies towards relations with the United States in consultation with British interests.

  17. A particular issue which arises in relation to a common aviation area embracing the EU and US is the matter of competition rules. The United States has anti-trust laws which have been developed over the last 100 years for which the government of the US claims extra-territorial application. The EU has been developing over a more recent period its own competition rules for which extra-territorial application is also claimed. The EU and the US rules are intended to serve basically the same objectives but there are important differences between them, both in the rules themselves and more importantly in the manner by which they are applied.

  18. One important difference is that US law permits enforcement by means of private suits which can result in awards of treble damages; enforcement in the EU does not. Another example is that certain practices which have been declared lawful in the US are being challenged by the Commission under competition law. An example is the certain practice, almost universal in the airline industry, of making incentive payments to travel agents the more tickets they sell and of giving discounts to corporate customers. To allow the application of different competition laws within a single common aviation area in respect of the same airlines, the same customers and the same markets, would create great legal uncertainty and would be damaging to the development of an efficient and stable airline industry, able to attract capital and compete vigorously on fair terms. British Airways therefore considers that the negotiation between the EU and US of common competition rules and their enforcement is a necessary pre-condition to the negotiation of a common aviation area.

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