Select Committee on Transport, Local Government and the Regions Minutes of Evidence


Examination of Witnesses (Questions 1 - 19)

WEDNESDAY 19 DECEMBER 2001

MR ROGER WILTSHIRE, MR BOB PARKER-EATON, MR ANDREW CAHN, MR BARRY HUMPHREYS AND MR TOBY NICOL

  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 Airlines.

  Miss McIntosh: And I have minor shares in BA and BAA.

  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 General Workers.

  Chairman: George Stevenson, Transport and General Workers.

  Helen Jackson: Helen Jackson, Transport and General Workers.

Chairman

  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 questions?
  (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 you.

  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 certain routes?
  (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 again, Chairman.

  14. It looks as though your traffic to the USA and Asia Pacific was down by over 20 per cent between April and October.
  (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.

Mr Stevenson

  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.

Chairman

  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 many airlines.

  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.


 
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