Examination of Witnesses (Questions 60
WEDNESDAY 19 DECEMBER 2001
60. Mr Nicol, are you making money on the low
fares you are charging since the week of September 11?
(Mr Nicol) Yes, we are. What we are seeing is revenues
are about stable. There are two ways of cutting the same cake.
You can either carry less people at higher cost or you can carry
more people at a slightly lower cost. Our revenues are on track.
61. There is a margin on that?
(Mr Nicol) Absolutely, yes.
62. Mr Wiltshire, it has been said that at the
end of all this there are likely to be three major airlines operating
in Europe, one centred around Lufthansa, one centred around Air
France and one centred around British Airways. My understanding
is those three airlines operate from different markets. Would
it be fair to say that the UK market is much more deregulated
and has much more competition for UK headquartered airlines than
either the French market or the German market?
(Mr Wiltshire) I could not comment particularly on
the strengths or weaknesses of the arguments put forward that
you have described. In terms of competition in the UK though,
I think it is fair to say that the UK population and businesses
do have the advantage of a very competitive and very wide range
of air travel products from their airports despite those airports
being quite constrained.
63. Do you believe that the Star Alliance and
the group being built around Air France are both looking to try
to establish a stronger presence in the UK from the UK through
UK subsidiaries at the expense of British Airways?
(Mr Wiltshire) I could not comment on that. We do
not take, as the Association, a commercial position or comment
on commercial situations. I would ask my colleagues to comment
64. Mr Cahn?
(Mr Cahn) If I may just respond to Mr Grayling's question.
Certainly I think it is true that the UK marketplace is more competitive
than the main continental marketplaces, in part because of the
introduction of long haul competition via Virgin Atlantic Airways,
in part by the more recent introduction of competition from the
no frills section such as easyJet. This competition has been very
effective and clearly very beneficial for the consumer and made
the market very competitive. I look forward to the introduction
of equivalent competition on continental markets. I think it would
do a great deal of good to the major airlines on the continent
for that to happen. On the alliances you mentioned, it is quite
clear that the Star Alliance is developing a hub at Heathrow,
indeed has developed a hub at Heathrow. They have stated very
clearly that they are doing it and they plan to invest a lot more
money in enlarging that hub. It is equally clear that the Sky
Team Alliance centred around Air France is growing, is developing
itself around the hub at Charles de Gaulle, which is the fastest
growing airport in Europe. They are both being very successful.
A last point, if I may, Chairman. I believe that the challenge
is to ensure that the British aviation sector, highly competitive
that it is within itself, is able to compete effectively with
the continental airlines and the continental based alliances that
are steaming ahead of us just at the moment.
65. Can you clarify one thing that is not entirely
clear to me. You said that both the Star Alliance and the Sky
Team Alliance are benefiting from either existing or about to
be put in place Open Skies Agreements with the United States and
yet it is also clear from what you are saying that the French
and German markets are actually more closed than the UK markets.
That appears to be slightly contradictory to me.
(Mr Cahn) No, I do not think it is. The Open Skies
Agreements provide for new entrants if they wish to enter. It
is noticeable that they are not entering into the market between
Germany and the USA, for example. If you want to look at a market
which is uncompetitive and is monopolistic, there is one you can
look at. Nor do they have the no frills sector developed, although,
and Mr Nicol can speak much better than I, it seems to me that
the no frills sector is beginning to enter the continent. They
have not done so yet to the same extent they have in the United
Kingdom and, therefore, we have much more competition within Europe
than our continental counterparts do.
66. Is that because there are competitive barriers
that may not be visible but in reality are nonetheless there that
prevent the American airlines and you, Mr Nicol, from establishing
substantial operations in Germany in particular, or in France?
(Mr Cahn) I think Mr Nicol can answer that better
than I because he has practical experience.
(Mr Nicol) We at easyJet have not yet developed into
Germany. We developed quickly into Spain and in Nice. We were
the first low cost airline to set up a continental base in Geneva
and we followed that up last year with Amsterdam and now we are
the second largest user of Amsterdam Schipol airport. It is happening
but it is happening slowly. In terms of Germany in particular
there will be a low cost airline with a substantial base there
fairly soon. Ryanair is already doing it. I do not actually believe
that the threat posed by Lufthansa is any worse, with due respect,
than the threat we believe we faced from British Airways back
when we started in 1995-96, and also that which we saw from Swissair
trying to put us off certain routes out of Geneva. I think there
is a general view that the big airlines will do what they can
to protect their market share. I think, however, the low cost
proposition works very well with consumers and eventually that
wins the day.
67. Do you believe that the American airlines
benefiting from substantial subsidies that have been provided
for them are now dumping seats affecting your marketplace?
68. Who is going to answer? Mr Humphreys, you
have been allowed at least five minutes to yourself.
(Mr Humphreys) Thank you, Chairman. We believe that
there is an uneven playing field without a shadow of a doubt.
It is very difficult to be precise and to pick specific examples
of either capacity dumping or price dumping. Certainly I do not
think anyone would argue that the $18.5 billion that has been
made available to US carriers have not been a major help to them
in recreating confidence in their operations and enabling them
69. You cannot use the word "dumping"
them if you are not aware of any evidence.
(Mr Humphreys) The problem is the pricing market in
aviation is extremely complicated.
70. I think we dimly perceive that.
(Mr Humphreys) Certainly there is evidence, we believe,
that the US carriers have been more aggressive in the marketplace
than they could otherwise have been.
71. Mr Cahn, do you want to add to that?
(Mr Cahn) No, I agree with what Mr Humphreys has said.
72. I want to ask one last question, if I may,
which relates to Gatwick. You said you were using all your slots
at Heathrow, but what is the situation with regard to BA's commitment
(Mr Cahn) We are operating at Gatwick. What we have
done is to reduce our operations somewhat at Gatwick and we have
made slots available. We have put them back into the slot pool
both for this winter season and announced that we will do so for
the coming summer season, substantial numbers of slots. Where
we are not using them, we are not hoarding them, as it was suggested
we might be at Heathrow, we are putting them into the slot pool.
73. So you do not have any commitment to Gatwick
in that sense?
(Mr Cahn) We do have a commitment to Gatwick, Chairman.
We still operate a large service from Gatwick but there are some
slots we are not using. We have had to cut back.
74. What are we talking about?
(Mr Cahn) We have had to cut back capacity as a first
75. How much of that is at Gatwick?
(Mr Cahn) Most of it. All of it has been at Gatwick.
We have tended to shift service up to Heathrow where we have been
able to and thus the slots that have been released have been released
at Gatwick and we have made those available.
76. How many?
(Mr Cahn) I believe 189 in the current season and
fewer than that for the coming summer season. I can give you a
77. How many in total do you have for Gatwick?
What is the proportion of that total at Gatwick?
(Mr Cahn) I will provide you with a note on that,
if I may.
Miss McIntosh: Could I just ask how much was
the collapse in traffic due to events before September 11? How
much had traffic volume collapsed owing to floods in November
2000, foot and mouth disease and obviously the two rail accidents?
Do you have any evidence of that? This may reflect also on easyJet's
figures and Ryanair and Go. What is the break down in the collapse
of freight traffic as opposed to passengers?
78. Can we take the last question first because
we have gone round the first one quite a lot.
(Mr Cahn) What I would like to do, if I may, is give
you those slot figures because I have now managed to find them.
79. Bravo! It is as well to be well briefed.
(Mr Cahn) We have released 179 weekly slots at Gatwick
in the current season and we have already relinquished 132 weekly
slots for the coming summer season.