Examination of Witness (Questions 460
- 479)
THURSDAY 23 JULY 1998
MR PETER
MORRISROE, OBE
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.
Chairman
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?
Chairman
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.
Chairman
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).
Chairman
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.
Chairman
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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