Select Committee on European Communities Minutes of Evidence

Examination of witnesses (Questions 120 - 139)



Lord Haslam

  120.  May I follow up on that point. It seems to me that although the ultimate solution may be a long, long way away, the objective should be to make the airline industry like any other industry. Therefore, why should one have rules and limits which prevent an airline company buying a company in another country? It does not apply in any other industry and because of that we have all these trappings which we are discussing. We are concentrating on refining these trappings rather than tackling the core problem.
  (Mr Hamer)  That really is our baseline. I suppose, simplistically put, we really do not see why the airline business should not be treated like any other providing a service or seller of a system. However, it is, and what we are looking at here is bringing it one step closer to Lord Haslam's point. It does have to be taken forward. We would suggest being realistic, both from the consumer's point of view and from the airline industry point of view. It has to be taken forward on a controlled basis, certainly on the relationships with third countries.


  121.  I would like to come back, if I may, still on the same point, on this question of alliances versus (I am using my expression) mergers—what you call concentrations. As I understand your point of view, you are right behind Commissioner Kinnock in having a good hard look at the existing alliances. Would that be fair so far?
  (Mr Hamer)  That is a fair statement.

  122.  I will be individual, what concerns me is if those alliances are broken down, you are inevitably going to get pressure on more concentrations of airlines themselves. Indeed, it is happening in the United States now. There is significant concentration of ownership within the United States and certainly co-operation. Every time I think of that one it says to me that it is anti-competitive. I am not hearing yet from you how you think you are going to break that log jam. How you are going to encourage the diminution of alliances but keep everything wide open for the benefit of the consumer.
  (Dr Martin)  There are different sorts of alliances. What we are seeing in alliances between Community and United States carriers, is the Community carriers trying to find some way of getting access to feed in the United States. Transatlantic services only work if you can feed traffic on to your route at both ends. Without the ability to operate aircraft within the United States, our carriers have to form a relationship with a United States carrier. The problem that we see is that they are forming relationships with transatlantic carriers so the relationship, the alliances that are being formed, are between erstwhile competitors. That is a far greater threat to competition than the prospect of Community carriers buying in to second-rank smaller carriers in the United States to provide the feed that they need. We have seen something similar in Europe with KLM, now KLM (UK). It has invested in a United Kingdom carrier in order to provide it with feed to Schipol. That is actually pro-competitive because the consumers are being given a choice of going to Heathrow or going to Schipol. KLM have relations with Brathens which provide the same function. British Airways has Deutsche BA and a French subsidiary which again can provide it with feed from these countries. These are pro-competitive airline relations. So what we are suggesting, as Lord Haslam pointed out, is that if you can remove these barriers to ownership, the airlines will enter into new relations with one other; but, at the moment, the relations which are being established appear to be between competitors, which reduces consumer benefit, rather than with second-rank airlines, which actually can enhance consumer benefit.

  123.  This is a difficult one for you to answer but I am still going to ask it. To what extent do you think you are being idealistic and to what extent do you really think there is a chance of achieving your goal, or at least getting towards your goal?
  (Mr Hamer)  If I may speculate on behalf of the whole Council, this particular question has been a very difficult one for us to come down on one side or the other, partly for the very point that you raise. I think that we have tried to look at it very much from the technical viewpoint and taking forward some basic consumer principles. Having said that clearly, and I think it comes through in our memorandum, we recognise the downside and difficulties as well. Certainly we recognise the fact that we are talking, if you like, from a national point of view from a position of strength. There is no doubt that the United Kingdom is dominant within Europe as far as the aviation industry is concerned. We recognise the point that was raised earlier that it may well be that the United Kingdom in any negotiations, (if this were to go forward), would, in the first instance, perhaps be seen to be losing some benefit rather than gaining benefit. The balance that we have struck, or tried to strike, is based on a long-term view. We believe that the long-term benefits that will accrue, by negotiations on behalf of air transport users carried out by 15 Member States, will be better than those carried out individually by 15 Member States. The other point we would make in addition is that the longer this debate and discussion goes on, we see more and more erosion perhaps of the ultimate negotiating power, if indeed the Commission were to gain competence. We see more and more bilaterals being formed and individual Member States creating those bilaterals on the basis that are politically and economically correct for those individual Member States, not having regard necessarily for what is for the good of the Union as a whole. So it is a very difficult position and certainly if one is to be absolutely realistic about it, one can see both the difficulties and the benefits.

  124.  To what extent do you take environmental considerations into account? The answer "no" is not going to down you. I wondered whether you regarded the environment as a user.
  (Mr Hamer)  It is, of course, something that we have to take into account. It is not, however, something that we believe should have an absolutely overriding influence on decisions such as these.

  125.  The second general question, if I may, and I should have asked this right at the beginning. Is your Council entirely United Kingdom or do you have EU associations? Are there other similar councils outside the United Kingdom?
  (Mr Hamer)  Yes, if I could start to answer that and perhaps hand you over to Dr O'Reilly. We are the Air Transport Users Council. We are based in the United Kingdom. We are all essentially United Kingdom. We are members of an organisation called FATURE and, in fact, we provide the secretariat to FATURE.

  126.  I am sorry, could you identify this.
  (Mr Hamer)  I will, yes. FATURE is the Federation of Air Transport consumer bodies within Europe. It is partly funded by DG VII of the Commission twice a year for meetings. So we meet as a congress, if I can use that word, twice a year. There are similar organisations to ourselves throughout the European Union, in Member States. They are different in the way that they are put together. Dr O'Reilly has just been appointed the Chair of the Irish Air Transport Users Council and will be taking that over in September. Perhaps you would like to go over the European perspective.
  (Dr O'Reilly)  I am in the unique position in that I live in Northern Ireland and come from there; so for a number of years I have served on the British Air Transport Users Council and have been an observer on the Irish Air Transport Users Council, wearing both hats. Recently, as Mr Hamer has said, I have been appointed to take over from the outgoing Chairman of the Irish Air Transport Users Council, which, if I may say, is in the unfortunate position of having absolutely no funding or financial assistance. It is based within the Chambers of Commerce of Ireland, and very much relies on volunteers to go to those meetings and put forward their reasoned opinions and proposals to the Irish Government and through FATURE, the Federation of Air Transport User Representatives in Europe, to the Commission. We would come to it, directly feeding into the Commission, so we have representation not just within the island of Ireland but indeed in Europe. We have very strong links obviously with the British Air Transport Users Council and since I am taking over the Chair those links will, of course, be strengthened. The British Air Transport Users Council is the only type of AUC which has a permanent secretariat, so we are quite strong.

  127.  The only in Europe?
  (Dr O'Reilly)  The only in Europe, yes. It has a dedicated secretariat who work on a full-time basis. The body itself is made up of lay volunteers who are interested in air transport policy issues and give their time. The Federation of the European representatives, as Mr Hamer has indicated, was indeed set up or initiated between the bodies themselves, who go back as far as the late 1970s/early 1980s, when they saw the need for consumers to be represented not just in their own Member States but at European level, where stakeholders for the industry were being represented through airlines and trade unions but the consumers were not having a voice. It was because of that reason that DG VII invited consumers as a collective body to come along to Europe, so that consumers do have representation at the European table.

  128.  So you have marginal funding from DG VII?
  (Mr Hamer)  The Federation, the organisations which make that up, like ourselves, as Dr O'Reilly has pointed out, they are not necessarily funded. In many cases, they are not funded at all. So DG VII creates this congress twice a year, simply by funding two members from each country. They pay the air ticket and that is all. One-half of the day is divided up into policy discussions between the organisations, and the second half of the day is to receive information from DG VII and to give to DG VII views and policy proposals and so on.

  129.  Who funds you?
  (Mr Hamer)  We are funded directly by the Civil Aviation Authority of this country. We have been for the last 25 years. If we were looked at today we would be regarded as the consumer advisory body to the regulator.

Lord Methuen

  130.  You have not indicated who your membership is.
  (Mr Hamer)  It is lay people.

  131.  Is it people like us or is it businesses and travel firms?
  (Mr Hamer)  No, it is individuals. Everybody is appointed as an individual, not representative of any particular body, industrial body, commercial body, political body, or regional body. They are simply consumers of air transport services.

Lord Berkeley]  Could we have a list of members, please.


  132.  You must have such a thing.
  (Mr Hamer)  We will certainly provide you with a list (printed?) and, if it is helpful, our most recent annual report (not printed) which identifies a number of these points.

Lord Haslam

  133.  Just one point. Under the present regulations, how do you view the activities of the OFT and the Kartellamt in Germany? Do you believe they do a good job in terms of controlling price fixing activities? One does not hear often of airline companies being fined. Is there a voluntary, quasi, sort of immunity existing even in Europe as in America?
  (Mr Hamer)  That is quite a difficult question to answer,[1] particularly without straying into the area that, my Lord Chairman, you have identified we should not. All I could suggest is that if one were to look at perhaps recent suggestions from the Office of Fair Trading (OFT) in relation to a particular air transport matter, compared with the reported suggestions that are coming from DG IV, there is a significant quantum difference in the view suggested that might be taken by the OFT as opposed to DG IV. So you have two competition organisations there. Clearly, from the consumer's point of view, we feel that the stronger the regulation of competition the better. I think that is very much where we come from. To say that one organisation is stronger and better than another is very difficult, and we would not really suggest that we have a view on that.

  134.  But have there been any cases in recent times where an airline has actually been fined for this kind of activity?
  (Mr Hamer)  Not that come immediately to mind. There have been on-going investigations into the activities of certain airlines in terms of predatory pricing, and a particular investigation was being carried out by DG IV which have now ceased. We are certainly aware of that. We certainly lobbied on a couple of occasions where fare increases have come through. We have disagreed with those fares being allowed. That is more to do with civil aviation matters than necessarily competition matters. Predatory activity on the part of airlines against each other is our biggest concern rather than necessarily the issue of purely fares.
  (Dr O'Reilly)  Within the last four weeks a case has been brought before the European Court of Justice, where a state-owned carrier has been accused of predatory pricing in order to get a new entrant off the market. The decision, of course, is pending.

Lord Thomas of Macclesfield

  135.  The first question is for Dr O'Reilly. I suppose it would be proper to congratulate you on your appointment.
  (Dr O'Reilly)  Thank you.

  136.  In terms of your looking at the consumers' Federation, have they discussed this issue at all? Have they arrived at a conclusion or will they discuss this issue?
  (Mr Hamer)  It will be an agenda item. Unfortunately we do not actually meet again until November so it is a little way away. We will, however, following our submission today, be informing our counterparts what we have said, with a view to trying to come to a considered opinion for that body by that time.

  137.  Is it likely that they will come to the same conclusion?
  (Mr Hamer)  I would not like to prejudge that. I would not like to hazard an opinion on that.

  138.  [2]My second question is for Dr Martin. Reflecting on your earlier evidence you said the Community was negotiating with third countries, and if a totally liberal agreement was not arrived at then the question would arise of sharing out the spoils between various members of the Community. Am I right?
  (Dr Martin)  Yes.

  139.  Why do you assume that and why would that be needed? Why would not ordinary market forces apply?
  (Dr Martin)  They would. My expectation was that in those circumstances the Commission would bring back to the Council of Ministers the prize of what they had been negotiating: we have conceded these things to the third country and they have offered us access to the following list of cities; they say that we can fly one service a day to each of these cities. Then the question is: should they all fly from Heathrow, or should they all come out of Paris, or should Paris be served from——?

1   The discussion of the advantages or disadvantages of Community competence in this area usually focus on the question of relations with the United States. It should be recognized, however, that the significance of a Community initiative in this field may be more significant, in the long run, in relation to other countries where EU carriers could benefit from additional competitive opportunities. Back

2   COM(97) 218 (final), paragraph 4. Back

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