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


Examination of Witnesses (Questions 260 - 279)

WEDNESDAY 9 JANUARY 2002

SIR ROY MCNULTY MP, MR BOB COTTERILL, CAPTAIN MICHAEL A VIVIAN AND MR CHRIS TARRY

  260. How much of a part?
  (Sir Roy McNulty) I honestly could not quantify it. What we have today is the remains of the overall industry structure that was set up after World War II under ICAO. Within Europe obviously ownership can transfer between European Community countries but there are still many bilaterals with other countries, particularly with the United States, which stand in the way of the sort of rationalisation that I think the industry needs. How much of the problem-nobody I think could calculate that.

  261. We are advised that the consolidation that has taken place, rationalisation as you call it, has led to a vast majority of the American market being in the hands of seven operators, the consolidation that BA has been involved in by taking over airlines accounts for a large percentage of air travel, and yet six out of the seven in the United States are losing money, BA is losing money. It would appear that that path of consolidation has not provided the management efficiencies and utilisation of resources that perhaps are necessary. Would you agree with that?
  (Sir Roy McNulty) I agree. This is a difficult industry. It has been so, to the best of my knowledge, almost forever. It has a tendency, as Chris Tarry was outlining earlier, to pile in too much capacity when times are good, then the headache is that much greater when inevitably the cycle goes the wrong way. The industry has not beaten that habit. To say that the consolidation in the United States has not yielded efficiencies I think would be wrong. There have been major efficiencies achieved., but they have still kept on putting in too much capacity.

Mr Stevenson

  262. Can I move on to slots, have you any estimate as to what effects the economic impact on regional airports may be of this potential change in slot usage? I am thinking particularly of Heathrow and Gatwick.
  (Mr Cotterill) I cannot offhand see why it should make the position so far as regional services are concerned—

Chairman

  263. We know one way a lot of big airlines, particularly British Airways do, they take away the slots that are used for regional flights and use them for other things.
  (Mr Cotterill) I was thinking more in terms of the effects of 11 September.

Mr Stevenson

  264. I will come on to that in a second. The whole issue of slots is, of course, integrally important to the industry, vital to the industry, so it is in that context I am asking the question.
  (Mr Cotterill) I misunderstood. The European slot regulation allows Member States to put aside slots, to ring-fence slots for regional services in certain circumstances. I can see there will sometimes be a good argument for doing so. What we would say is that really you have to look at the costs and benefits in particular cases of doing so. There is a cost in terms of those slots possibly not being used in the way that in aggregate passengers would most value. On the other hand, as I think you are indicating, there are other benefits. What we would say is you need to look at those benefits in each particular case.

  265. Let me give you a specific example, NATS have indicated us to that the variation in the income they get from different sizes of aircraft means that the system is heavily loaded against smaller aircraft. The larger the aircraft they have the more income they get. Each takes up a slot, so we can well see a situation where pressure is going to build on airlines to maximise those slots by using them for larger aircraft rather than smaller aircraft which, by definition, they use for regional services at regional airports.
  (Sir Roy McNulty) If I can comment on the NATS point, the NATS charging structure is not dreamed up by us in the United Kingdom. It is ultimately a set of principles laid down by ICAO and mandated through Euro-control. It is the international system of charging. You are quite right-to NATS it is much more valuable to move a 747 than it is to move something much smaller. The same is ultimately true at an airport, it is much more valuable for BAA to have a 747 land than something much smaller.

  266. I am sure it was BA who advised the Committee in recent evidence, I think the term they used was "given up" 170 slots. I think they were at Gatwick in the main, if not entirely. What is your view about the decision taken by the European Commission that effectively suspends the grandfather rights requirement until 2003? There is suspension, does it not effectively say to airlines, look, you have no need to use them now, you have them, you can bank them. Does that not also mean that other airlines, such as easyJet, or whatever, will not have the opportunity of utilising those slots?
  (Mr Cotterill) My understanding of what the European Commission has said is that for last summer, and its affects on next summer in terms of grandfather rights, that they suspended the "use it or lose it", that is what you are referring to, that was last summer. Most airlines would have made their 80 per cent, which is the threshold, so that did not really matter too much. As to this winter, as I understand it, they have said in principle that there may be a case for it but they have left it to the individual coordinators to look at the merits in particular cases. The BA case you quoted, and I have a similar figure having talked to airport coordinators, those are slots, as I understand it, that British Airways have recognised that it is not going to use, even looking out further. It has dropped those and said that it is dispensing with its grandfather rights on those.

  267. Your understanding.
  (Mr Cotterill) I am pretty sure I am right.

  268. It would be very interesting if we could have that confirmed, that would certainly be helpful.
  (Mr Cotterill) My understanding of the second part is that there are another block of slots that BA is looking at on a monthly basis and the coordinator is looking at on a monthly basis, where BA will be seeking to keep the grandfather rights for those but let them be freed up this winter so they are not wasted. There are two blocks there and the decision lies with the coordinator and they are taking that decision on a month-by-month basis.

  269. Would that decision by the coordinator, I am not asking you to second-guess what that may be, include those slots being used by a competitor?
  (Mr Cotterill) The idea is that those slots are used by other airlines and certainly BA will not have a choice about which airlines uses them, that is for the coordinator.

Chairman

  270. Has anybody done an estimate of what the cost to the passenger would be if they did have to pay for the increased cost of security?
  (Sir Roy McNulty) No. I said we would give you a view on that subject and we will try and provide you with an estimate of that cost when we give you that note.

  271. Do you have an estimate of what the insurance market has done to aviation since 11 September?
  (Sir Roy McNulty) It has not done very much in the sense that there is a big gap that the insurance market left which has been filled by the government so far. I cannot really offer anything more than that.

  272. What do you think the British government ought to do to make sure that the British airlines are not disadvantaged in relation to American airlines?
  (Sir Roy McNulty) They, and we are a part of that process, need to watch very carefully what is done in terms of—

  273. Sir Roy, "need to watch carefully", what does that mean?
  (Sir Roy McNulty) We monitor fare changes.

  274. I do know what "to watch carefully" means, it does mean to monitor. What do we need to do? I use rather plain verbs, what do we need to do?
  (Sir Roy McNulty) I can only offer that we need to watch very carefully. This, as you well know, is a very complex market, with millions of different prices and offers available. I think it is very difficult to see what is predatory behaviour and what is not.

  275. Come on now, I am not going to let you away with that. There is a clear definition of predatory behaviour, as you know, all legislation contains that.
  (Sir Roy McNulty) There is. In this market people have traditionally, and it has been no different this year, made special offers of all sorts of shapes and sizes. The special offers that the low cost airlines are benefiting from in terms of traffic growth are very special deals, and we are particularly watching what happens in America.

  Mr Donohoe: Why America?

  276. Because that is the question I asked.
  (Sir Roy McNulty) The fear has been with the financial assistance the American airlines were given they would use that to unfair advantage.

Chris Grayling

  277. Is it your view, Mr Tarry, that British Airways and British airlines receive the same access to the French and German markets that Britain offer to the French and German airlines? What is the relative competitive position that BA enjoys in Europe with Lufthansa?

Chairman

  278. Discuss in 50 seconds.
  (Mr Tarry) I think these are completely different markets and unless, for example, British Airways was ceded a large number of slots at Frankfurt, or any airport for that matter, it would not contemplate competing in that market because it is a market which is largely transfer traffic, and long haul which would then require a multinational agreement for BA to exercise long haul routes. I have written in previous research that if BA is required to give up slots at Heathrow then perhaps consideration should be given to enabling or forcing Lufthansa to give slots up at Frankfurt. It did not stimulate a reaction then and it certainly seems to have been buried. They are different market structures.

  279. I think you are more of an optimist than I thought, Mr Tarry. Gentlemen, we are very grateful to you. Sir Roy, when you are watching carefully you might keep your friends informed.
  (Sir Roy McNulty) Certainly.

  Chairman: Thank you all very much indeed. Mrs Ellman is declaring her membership of the Transport and General Workers' Union, which has specific relevance to our next set of witnesses.





 
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