Examination of Witnesses (Questions 280
WEDNESDAY 8 JULY 1998
DRABBE and MR
280. So you are saying that slots should
be given up without compensation? We have had some interesting
evidence from other people who suggest that nobody knows who owns
the slots and question whether they have a value, and certain
people have denied that they are traded and some of us are a bit
suspicious about that.
(Mr van Miert) Me too.
Lord Thomas of Macclesfield] They
think that some of them might be traded.
281. Yes, some of them might be traded,
but the slots are actually the key to everything in congested
air space around some of the major airports, particularly London
and probably New York. Do you have any view as to how the slots
should be traded, who owns them and who should be responsible
for trading them beyond what you have put down about the competition
(Mr van Miert) Well, as it happens, I was responsible
for this question when I was in charge of transport and I think
Mr van Houtte was even there when we had the Council of Ministers
meeting on the slot Regulation.
(Mr van Houtte) Yes, and farmers were demonstrating
on the streets.
(Mr van Miert) It was then agreed. We proposed
at the time to pool a limited number of grandfather rights, but
all carriers said no and, therefore, all governments said no,
so we had twelve governments against the Commission and they said,
"There is no question of pooling grandfather rights, even
in a limited way", so the actual system now is another one
whereby slots which are not being used are pooled and then there
is a system to give them to new entrants, so that is the system
as it is, but it was crystal clear that slot trading, according
to the Code, is illegal because no one accepted that at the time
and that has not even been discussed. One delegation raised that
question and all the others said no, so it was crystal clear.
Now, in the meantime, mainly because of congestion at Heathrow,
not elsewhere, and no other carrier was really in favour of that.
You occasionally have suggestions on this. But even if we were
to have a system like in the United States, allowing slot trading,
it would not help us at all in the alliance cases because the
question is to try at least to keep competition as long as it
is still there or to make sure that because two big partners are
going to join forces, that eventually the smaller carriers can
take them on, and then you need to make sure that slots will be
made available, interesting slots, for free because, otherwise,
a carrier like British Airways, which has been given these slots
for free, like the others, and which now should sell them to a
competitor that needs to be helped to compete with it, would really
set an unfair advantage. This would be an upside-down situation.
Now, anyway, as it is, slot trading is illegal even if it might
happen from time to time and for the rest, for the sake of being
able to give a positive attitude towards the alliances, then if
they accept the remedies concerned, it means that there can be
no slot trading at all and they should be made available for free.
Chairman] So you are
saying that slot trading is illegal.
Lord Thomas of Macclesfield
282. By what, though, are you saying that
it is illegal?
(Mr van Miert) By the Regulation which has been
agreed at the level of the European Union.
283. So DGVII would take action against
anybody if they were traded?
(Mr van Miert) Yes, DGVII eventually would take
action, so if one day they decide to do so, they can. They can,
but obviously it was agreed at that time that eventually the case
should be looked into after some experience. I know that Neil
Kinnock is doing so with DGVII and, okay, we will see what comes
next, but in any case, as far as a competition case is concerned,
the problem is how to allow others to remain competitors or to
come in as competitors and then slot trading is absolutely the
wrong solution. Even on the American side, if it is about international
business, slots will be traded for free.
284. It is very interesting because many
times in the course of this discussion we have been saying that
even with this decision made today, on many routes there is not
real competition and it seems that one needs a low-cost airline
or two to come in and it seems to be the same in the United States,
from what one gathers, but barriers to entry are high, and some
of them we have discussed. It is partly competition policy, but
how can you see them being encouraged to come in on a general
basis because it will make an enormous difference to the price
that the consumer pays probably if you get a low-cost airline
coming in on a particular route.
(Mr van Miert) I must admit that I am very concerned
because some have been trying, a few with success, others not,
or they have to admit fairly rapidly because they do not have
deep pockets to carry on for some time that they should become
a feeder company or a franchise company and, therefore, not able
to compete with the main carriers. In the case of Virgin, for
instance, after some time they would rather make a deal with another
carrier in order to continue to compete. That has also happened
when we have had a case like EasyJet-KLM. The trouble is that
once such a low-cost carrier complains, it takes a lot of time
before you can act and in the meantime it might well be dead,
and several times dead. So we feel that our instruments are not
good enough to protect them sufficiently and after some bad experience
of this kind, the question remains as to who is going to dare.
(Mr van Miert) Therefore, I am almost convinced,
and this is my personal opinion and I do not speak for others,
but I am really concerned that as things develop now, in a few
years' time we might well have far less competition than even
we have today. To give another example of that, a few days ago
we got a complaint by Ryanair where a big British travel agency
told Ryanair that they were not going to sell their tickets any
more. Why is that so? Because with the override commissions and
the general system of travel agent commissions, British Airways,
as other big carriers, will tell their agents, "Well, we
paid you seven per cent last year. If you do not add another 10
per cent of business, you will get less", so they are forced
to sell more and more tickets of the bigger carriers in order
to keep their income.
286. This is what you mean in your press
release about looking at the computerised reservation system displays?
(Mr van Miert) No, that is still another thing.
287. So the relationship with travel agents?
(Mr van Miert) Yes. We did not take a formal position
today, but we acknowledge to the parties that there is a problem,
an increasing problem, and that it needs to be sorted out one
way or another, so we are going to discuss that further in order
to come up with a solution. The CRS problem is a different one
in this sense: you have your alliance and they will have on the
screen the first page, so to speak, and you will have the same
flight announced twice. If you have several frequencies, you can
almost occupy the whole first page. Everyone knows that for travel
agents, it is a considerable advantage if you can put to the customer
the first choice. If you go to the second page or the third page
of the screen, it creates a real handicap. So we feel, for instance,
that when it is hub-to-hub traffic, there should be only one line
instead of two because it is only one flight, but that has not
been sorted out completely yet and it has to be discussed further
to see the extent to which eventually we need to impose it, but
probably on a horizontal basis, not just in the case of certain
airlines, and it should then be a rule for all the companies concerned.
Lord Thomas of Macclesfield
288. What we understand already from the
airlines is that this is what we call in English a "complex
monopoly", in other words, many monopolies all rolled into
one because, as we have been discussing now, it is slots, it is
baggage handling, it is business travel, it is travel agents,
it is CRS, it is the large corporate agreements, and it is the
ownership of the carriers, which is where we started from, so
it is not one single monopoly, but it is a complex monopoly. However,
my question is to ask whether the new competition from the smaller
airlines, like Ryanair and what-have-you, is that spread equally
over the European Union or is it skewed to one or two countries?
Where is this new competition coming?
(Mr van Miert) We must admit that British Airways
has been making considerable efforts to bring more competition
to the continent, in France with Air Liberté, with Deutsche
BA in Germany, but you see how terribly difficult it is and if
you do not have deep pockets, you are gone, or you just go and
become a feeder, a small feeder or a franchise company.
289. But where are the smaller airlines,
not the big ones, where are they emerging? Are they emerging at
all and are they spread evenly across Europe?
(Mr van Miert) Yes, but they are, for instance,
on regional routes or low-intensity destinations.
(Mr van Miert) Yes, feeders where the others will
not come in, and there is a double tendency in that feeder carriers
will try to have a lower-cost carrier to compete with the independent
low-cost carriers and if they do so, obviously it is trying to
outdo the market, trying to kill them and it is not just for the
pleasure of having a low-cost carrier. So it remains to be seen
how many new companies will survive and who is going to take the
risk to start up a new company given this environment. What is
your feeling in DGVII?
(Mr van Houtte) I think that is probably right.
There is quite a bit of competition emerging in most European
Member States. If you look at Spain or Italy, you find that there
are small airlines which are starting business and developing,
but then, as the Commissioner said, they are facing the choice
of continuing big losses, competing with the main carrier of the
Government, or cosying up to the incumbent and getting into a
sort of franchise relationship and that is when the competition
starts to reduce.
(Mr van Miert) Usually they have to look for a
bigger partner, and this is so in Italy where it is better for
Air One to join forces with SwissAir, so that is the way to survive.
291. So they can compete with Germany.
(Mr van Miert) In this case it is more to have
a bigger partner outside Italy, to get some clout.
292. Can we just turn to the two proposals
that we are discussing today because we have a feeling that many
Member States are not in favour of the Commission's proposals,
but are we correct?
(Mr van Miert) You are putting it mildly.
Chairman] But I am
more interested to know why. Is it sour grapes? Is it because
they think they can do it better and that you are not competent
to do it or is it the sort of old nationalistic idea that you
have to have a national airline and control of all these things?
Lord Thomas of Macclesfield
293. Latter-day Imperialism.
(Mr van Miert) I do have the feeling that it is
all of that together.
294. Oh dear!
(Mr van Miert) Because there is still this very
strong relationship between the incumbents, the previous nationally-owned
carriers and the governments. It is a fact of life and we see
that nearly every day, so that is one thing, and the carriers
concerned will probably feel that traditionally they are better
protected by their national authorities, or at least that might
have been the conviction previously, but nowadays they have to
face up to that not being so. A few weeks ago, Jurgen Weber was
sitting here and he was complaining about the fact that he could
not fly Brussels-New York and I said, "Yes, that is exactly
for the same reasons as others cannot fly between Frankfurt and
the US because you are the only one enjoying the open-skies agreement
in Germany because your Government will not allow others to come
in". Deutsche BA, for instance, is not allowed to come in
and do the transatlantic business because it is not a German company,
although now the status seems to have changed.
(Mr Drabbe) It is not a German company any more.
It used to be majority owned by German banks.
(Mr van Miert) So they now have to face the rather
unpleasant consequences, but they cannot have it both ways.
(Mr van Miert) Therefore, it might well be that
some carriers might take a different view. I was talking to the
new President of Air France a few weeks ago and he said, "Well,
our Government has been against it and it might well have been
that our predecessors were not very supportive, but now we are
prepared to take another view".
Lord Thomas of Macclesfield
296. In terms of listening to your very
frank answers, the decision you have made today with British Airways
and American Airlines is actually counterproductive, it is disastrous
and it is contrary to your ambitions because it is going to cause
more concentration and it is propelling the cartel forward into
another decade or so. I know you have done the best you possibly
can, but it will make the situation worse, if you forgive the
bluntness of the question.
(Mr van Miert) No, you are absolutely right and
to the point because at the given moment we were discussing that
among ourselves as well and asking ourselves, "Will the remedies
be good enough to cure the competition concerns?" Now, in
principle, as with other mergers, though it is not a merger, but
a creeping merger, not legally speaking a merger, but now there
is a trend towards globalisation and, therefore, we should not
in principle go against alliances and I think that we would be
ill-advised to do so, but all the more we have to take care of
the anti-competitive effects and that is what we do. If you put
the question in this way: are we sure that we have the right remedy
which will indeed deliver the goods?
297. You would say yes?
(Mr van Miert) I would say that I do not know.
I must say, I am convinced it will, but if you say, "Let's
bet on it", I would say, "No, sorry".
298. You could say that the code-sharing
was actually creating a monopoly?
(Mr van Miert) It remains to be seen what the
Americans do, but if wide-reaching code-sharing happens there,
instead of having competition between the big carriers, there
would only be three groups left, in fact three economic entities
even if the companies remain, legally speaking, separate, so this
is also of some concern to us because if that develops in the
US, then we certainly will have our big carriers saying, "Well,
look, we should do what the Americans are doing, so instead of
being stricter, you should be
Lord Thomas of Macclesfield
299. More relaxed.
(Mr van Miert) Yes.