Examination of Witnesses (Questions 91-99)
SIR ROY MCNULTY AND MR DOUG ANDREW
WEDNESDAY 1 MAY 2002
91. Good afternoon, gentlemen. You are most warmly welcomed. Can I ask you what discussions you have had about NATS' provision of Oceanic Control Services with ICAO?
(Sir Roy McNulty) I am not aware of any recent discussions the CAA has had with ICAO about NATS' provisioning of oceanic services. I can double-check that and let the clerk know if there is any information I am not aware of.
92. So you do not think there is any question that they might be worried about the disproportionate amount of NATS' profitability and the length of time it has taken to implement some of the technical changes?
(Sir Roy McNulty) No. As the Committee is probably aware, the particular requirement for a new oceanic system in fact went back in time. ICAO found that all the nations concerned could not meet the original envisaged date, so the requirement for the system went back, and I am not aware that they have particular concerns about that situation.
93. You might have heard my interest with previous witnesses in the charges being reduced in January of this year. I gather that you are undertaking a review.
(Sir Roy McNulty) That is correct.
94. Without wishing to pre-empt your decision, have you formed a view of how the level of charges in this country compare with other European countries?
(Mr Andrew) Eurocontrol information shows that up until the start of April this year the UK charge was the highest in Europe. Since 1 April this year the UK charge is now slightly lower than that I think of Belgium and Switzerland. I will send you a note to confirm those numbers. In terms of costs per 100 km handled, UK still remains the highest cost provider in the Eurocontrol system.
95. Have you had the chance to look at Eurocontrol figures for flights coming into other European countries, either the fact that smaller planes might be being used, or that the frequency, particularly of trans-Atlantic flights, has been reduced since 11 September?
(Mr Andrew) We have obviously been following the data both for NATS and for European levels in aggregate. We confirm what Richard Everitt said before, that there has been a reduction in the average size of aircraft, particularly on the Atlantic, which is very big in terms of NATS revenue because of the charging formula, and obviously the volumes themselves on the Atlantic are lower still. On within-Europe flights the volumes look to have come back to the pre-11 September shock and the long haul going east is again roughly back or slightly above. It is a very volatile story though. It is changing week to week.
96. 11 September, I know, has had the most severe impact on both the ongoing depression in the market and also the biggest impact on airlines. Do you have evidence to show that the number of flights and people travelling had already been reduced over that previous year prior? I am slightly concerned in coming back to pre-11 September figures, because I would like to go back to the figures in the year before that to give an indication of the true travelling figures.
(Mr Andrew) You are quite right to pick me up on that. There was a weakening in volumes compared to the previous projections. This was becoming evident during the summer, presumably as the American economy weakened and the European economies were weakening as well. There was an offsetting factor also though of the very rapid growth of the low-frill carriers in terms of movements themselves, which, as NATS mention in their business plan, is actually putting quite a lot of pressure on their costs, because they are extensive users of the more complex terminal air space.
97. It would appear to me from press reports that the regular carriers are prepared to absorb the price increase and pass it on to the customer. Would it not seem appropriate to you that the no-frills carriers should also pay? It is security that has largely increased the charges. Would you not think it appropriate that they also accept that should be passed on?
(Mr Andrew) The airline market within Europe is a de-regulated market, and they will be pricing to whatever demand conditions will allow them to price. If there are price increases, as we can see from continental air traffic control providers, it is likely some of that will be passed on in terms of air fares being higher than otherwise they would be, but it is a competitive question about how much is passed on and how much will be absorbed by carriers.
98. Do you have a view on the reasonableness of NATS asking for an increase?
(Sir Roy McNulty) Madam Chairman, that is what we are in the middle of considering. We have not arrived at a conclusion. It will not be arrived at certainly until it has been through the CAA Board in the third week of this month, and by then we will have a view. At the moment we are thinking hard.
99. Do you have an independent analysis prepared to judge the request for a price increase?
(Mr Andrew) We are using our internal resources supplemented by specialist advisers from the outside.