Examination of Witnesses (Questions 1
WEDNESDAY 19 DECEMBER 2001
Chairman: Good afternoon, ladies and gentlemen.
If I may, we shall begin with declarations of interest. Would
any Member of Parliament having a relevant declaration of interest,
please declare it at this moment?
Miss McIntosh: My husband works for Delta Airlines.
Chairman: Anne McIntosh, husband works for Delta
Miss McIntosh: And I have minor shares in BA
Chairman: You have shares in BA and BAA.
Mrs Ellman: I am a member of the Transport and
General Workers' Union.
Mr Donohoe: Brian Donohoe, member of the Transport
and General Workers' Union.
Chairman: Brian Donohoe, member of the Transport
and General Workers' Union. My name is Gwyneth Dunwoody, I am
a member of the Rail, Maritime and Transport Union.
Mr Stevenson: George Stevenson, Transport and
Chairman: George Stevenson, Transport and General
Helen Jackson: Helen Jackson, Transport and
1. Helen Jackson, Transport and General Workers.
Has anybody ever heard of this union? Gentlemen, can I warmly
welcome you this afternoon. Those of you who have been before
us will realise that there are certain ground rules. If you agree
please do not repeat what the other witnesses have said. If, on
the other hand, you disagree and you catch my eye I shall endeavour
to call you. May I ask you, firstly, to identify yourselves and
then I shall ask you if you have any opening remarks. Shall we
start on my left, which is on your right.
(Mr Cahn) Andrew Cahn, Director of Government
and Industry Affairs at British Airways.
(Mr Parker-Eaton) Bob Parker-Eaton, Deputy Managing
Director, Britannia Airways.
(Mr Wiltshire) Roger Wiltshire, Secretary General
of the British Air Transport Association.
(Mr Humphreys) Barry Humphreys, Director of External
Affairs and Route Development, Virgin Atlantic Airways.
(Mr Nicol) Toby Nicol, Head of Government and Corporate
Affairs for easyJet.
2. I may occasionally interrupt by giving your
names, it is because a record is being taken and it helps for
clarity. Can I also remind you that the microphones in front of
you do not project your voices, they record your voices, so we
may need a little effort from you all. Does anyone have any opening
statement they wish to make or may I please go straight to the
(Mr Wiltshire) I have a short opening statement, if
I may. Thank you very much for inviting us to give evidence this
afternoon. The UK airlines were all affected to a greater or lesser
extent by the events of 11 September. Air space was closed affecting
roughly 20 per cent of the aviation business coming out of the
UK and even after all the events were over and the airlines returned
to normal operationally there was a major impact on demand for
air travel, as you probably all know. There was also very soon
after that return to normal operations an insurance change which
threatened all airlines, not just those flying to space that was
closed after 11 September. This event almost grounded all airlines
in the UK. The double-whammy, as I put it, of cost increases and
this major drop in demand has put a major financial pressure on
a number of airlines but their response, both in terms of their
cost level and capacity level and marketing efforts in the last
few months has returned their business slowly toward what were
previously healthy levels. The attacks on 11 September were attacks
against states, not against airlines. The resultant changes in
security, for example, and in insurance, we believe, are as a
result of these attacks on states. It does beg the question whether
airlines and their passengers, customers, should be taking the
costs of these increases or whether that should be the responsibility
of states. The Government's response on insurance was well received
and that allowed us to keep flying, but I think it is important
that the Government goes further in terms of ensuring that the
UK airlines are not disadvantaged in the changes that will be
happening in the future of the airline industry. It is important
we recognise that since 11 September the importance of the industry
to the UK has been well demonstrated and it is important that
lack of disadvantage is maintained in the months to come. Thank
3. Thank you, Mr Wiltshire, that is quite helpful.
Could I ask you, is the airline industry hiding behind the events
of 11 September as a veil for restructuring and from the results
of things that they would have decided anyway?
(Mr Wiltshire) I will ask my colleagues to answer
some of that question but in general, before they do, yes, there
were obviously changes in the aviation market, it is a dynamic
market, various sectors and elements and routes of that market
were undergoing a change in demand and airlines were, as usual,
reacting to those levels of change.
4. What will be the key elements of the restructuring
that takes place?
(Mr Wiltshire) The restructuring I mentioned in my
earlier remarks is about the way in which the industry can consolidate
and deal with change the way in which normal industry is able
to deal with changes in demand and changes in shape in its business.
As the airline industry is an international business, it is international
consolidation that is probably the way forward.
5. Did companies react too slowly to what happened
on September 11?
(Mr Wiltshire) Again, I will ask my colleagues to
answer individually for themselves.
6. Who would like to take that? Mr Humphreys?
(Mr Humphreys) For Virgin Atlantic, I do not think
we did react slowly at all, quite the reverse. We very quickly
identified that there was a serious problem. We have over 60 per
cent of our output on the North Atlantic and clearly we were very
exposed. We took action to downsize the company. We reduced activity
by 20 per cent. Unfortunately, that also involved reducing the
workforce for the first time ever in our history and that was
a very traumatic experience. We have traditionally grown by 15
or 20 per cent a year. For a company whose success has depended
to a very significant extent on the support of the staff it was
obviously very unfortunate what had to happen. However, three-quarters
of the redundancies were voluntary and we feel now that we are
in a position to go forward.
7. So a quarter were compulsory?
(Mr Humphreys) Correct, yes.
8. Right the way across the board?
(Mr Humphreys) It varied from department to department.
9. Mr Cahn, you wanted to comment on that?
(Mr Cahn) I simply wanted to say that of course it
is certainly true that there was an economic downturn which the
whole industry was facing prior to the events of 11 September
and all of us were responding to that already. We, in BA, had
already announced a headcount reduction of 1,800 manpower equivalents
prior to 11 September. It is perfectly true that there was a challenge
for us to face anyway. That perhaps made the unprecedented crisis
and the unprecedented events of 11 September even more difficult
for us to face. We were doing it in the context of a downturn,
not in the context of an expanding market. We too reacted swiftly.
We were confronted by what turned out to be on average a 20 per
cent reduction in passenger numbers. We felt we had to reduce
capacity, we did that, we grounded 20 aircraft, we withdrew from
a number of routes and suspended a number of routes very swiftly
and we announced further job losses, a further headcount reduction,
of 5,200 manpower equivalents.
10. It was not that you had overcapacity on
(Mr Cahn) We are constantly changing our capacity
on routes, of course, as market demand changes.
11. That is not quite what I was asking you,
Mr Cahn, I am sure you are most flexible and rapid in response.
I am asking you did you have overcapacity on certain routes and
was that one reason why you took action in the way that you did
at the rate that you did?
(Mr Cahn) No, I do not think it was. We, of course,
had good routes and less good routes prior to 11 September but
I think the actions we took after 11 September were directly related
to the unprecedentedly difficult trading conditions we found ourselves
in, to the fact that we lost over £48 million in the seven
days following 11 September. It was quite clear that we could
not just continue as we were. We had, like Virgin Atlantic, like
other airlines around the world, to take very swift action.
(Mr Parker-Eaton) I am representing the interests
of the major UK charter airlines in addition to Britannia Airways,
my own airline. My statements will be relating to the whole of
that sector. The restructuring you are talking about in the charter
sector had already taken place. Already across Europe and within
the UK, the airlines had effectively restructured. The charter
sector carries each year around 30 million passengers, so it is
a significant sector. We were expecting a very good year this
year and we were planning on a very good year next year. The responses
that the charter industry have made in the main have been as a
direct result of the 11 September instances.
12. Could I just ask you, Mr Cahn, about the
figures for your USA and Asia Pacific traffic. Is it true it was
down by 20 per cent for the period from April to October 2001?
(Mr Cahn) Our traffic was, in September, down 22 per
cent overall. By November
13. Yes, but these are figures for rather longer
than that, are they not?
(Mr Cahn) I wonder if you could repeat the figures
14. It looks as though your traffic to the USA
and Asia Pacific was down by over 20 per cent between April and
(Mr Cahn) I do not recognise those figures.
15. Well, I assure you that this is British
Airways' monthly traffic and capacity statistics. I am very clever
but on the whole I do not make up statistics.
(Mr Cahn) I was not saying you made them up. I merely
said I did not recognise them. I am not saying they are not true.
Chairman: No. That would not be wise. We shall
leave you to think about that and we will come back to you again.
16. Could I ask about consolidation. I think
Mr Wiltshire said that this is the way forward. If the suggested
merger or consolidation between British Airways and American Airlines
goes ahead, although it has hit some further obstacles I understand,
what will be the effect on other UK airlines would you assess?
(Mr Wiltshire) I cannot speak from a trade association
basis on a specific issue like that. The consolidation I was talking
about generally in the aviation business is the fact that the
aviation business is unable to merge businesses because of the
nature of the regulations that apply to it which are quite dated.
There are a number of alliances between airlines and the one you
alluded to is an alliance proposal. I would have to ask my colleagues
to answer specifically on what the impact might or might not be.
17. Mr Cahn, do you want to comment on that?
(Mr Cahn) Simply to say that I believe the impact
would be overall beneficial to UK aviation and the UK airline
industry for the simple reason that Open Skies would come along
with the alliance and that would provide more opportunities for
18. Mr Humphreys?
(Mr Humphreys) Well, it will not come as a great surprise
to you, Chairman, that I disagree slightly with my colleague there.
I think it would be a total and utter disaster
19. It would surprise me if it was only slightly.
(Mr Humphreys)not only for the industry but
far more importantly for consumers. This is a monopoly being created
and I am confident the competition authorities will reject it,
at the very least imposing severe conditions on it but hopefully
reject it out of hand, and the two airlines involved can get on
with competing instead of colluding.
(Mr Cahn) I want to respond. First of all, there is
no question of collusion and I think that is a word which is not
appropriate nor for that matter is monopoly an appropriate word.
The transatlantic UK/US routes are the most heavily competed routes
around, certainly some of the most heavily competed routes around.
I think there is no question of the competition authorities rejecting
out of hand the proposed alliance.