Select Committee on European Communities Minutes of Evidence


Examination of Witness (Questions 440 - 459)

THURSDAY 23 JULY 1998

MR PETER MORRISROE, OBE

Chairman

  440.  Internal, external, transatlantic, whatever?

  A.  That is correct, my Lord. It would be perfectly reasonable and quite normal, quite common place, for a company like British Airways to use a nine o'clock departure4 this year on a Monday to fly to Jersey and a nine o'clock departure on a Monday next year to fly to Washington. That is5 perfectly normal.

Lord Methuen

  441.  That cannot be varied on a day by day basis?

  A.  No, there would be a pattern to that throughout the season.

Chairman

  442.  If I may I just want to pursue this question of statistics. You have told us very helpfully, and we have now got to a figure of 425,000, all of whom you say have historic rights—if that is the right word—attached to them. How then do new entrants get in? Statistically how many have got in in the last 12 months, at Heathrow we are talking now, we are using Heathrow as an example?

  A.  I described a situation earlier where twice a year we sit down and assess the capacity of the airport and because of improvements in efficiency we are able to squeeze a little bit more out of the system. Each season there are some new slots made available and also, as I described earlier, there are some unused slots, perhaps less commercially attractive times of day, maybe in the evening. Each season a number of airlines apply for those slots, both existing operators and new operators, and we have a legal duty to share out that limited supply, 50 per cent to incumbent operators and 50 per cent to new entrants. To answer your question statistically, I will take summer 1998, the current season of operating as an example, we had 14 different new airlines who do not serve Heathrow currently apply for access to the airport. Of those only two were offered any slots at all and those were at the margins of the day. That is because we are saturated for most of the commercially attractive hours at Heathrow. That process of squeezing a bit more out of the system only yielded two more slots a day for the whole airport for the whole summer season. The maximum supply in the peak hours would have been two more flights a day.

  443.  To use Lord Skelmersdale's analogy, those are very, very thin crumbs and there are not many of them.

  A.  That is right.

Lord Skelmersdale]  In other words the system is slanted towards the existing owners of slots?

Chairman

  444.  By definition.

  A.  Historic precedence or grandfather rights or historic rights, different words are used for it, are the foundation stone of the aviation industry.

Lord Skelmersdale

  445.  We are talking about new rights.

  A.  Of the new capacity and the new requests, we give 50 per cent to new carriers and new entrants.

  446.  You have said that, would you agree with me, that it is slanted towards existing operators/airlines?

  A.  If you say historic rights are slanted towards existing operators I have to agree.

Chairman

  447.  Mr Morrisroe, just before we leave this—and I know Lord Berkeley has been itching to come in—Heathrow presumably is the extreme?

  A.  Yes.

  448.  What you have described to us at Heathrow, how does Gatwick compare with that?

  A.  Gatwick is congested, some would say saturated, particularly for about five to six hours in the morning period and a couple of hours around the evening rush hour. Outside that there is a number of slots still available and there has been a number of carriers who have successfully obtained new services at Gatwick over recent seasons. It is a jug, a pot, that is filling up very quickly.

  449.  How many new entrants have come in this summer to Gatwick to compare with the two that you talked about at Heathrow?

  A.  I do not have the data on that to hand, I could let you have it.

  450.  Could you let us know?

  A.  Yes.[1]

Lord Berkeley

  451.  Mr Morrisroe, can I refer you to page four of five of the United Kingdom Slot Allocation Processing Criteria paper, a very helpful one. The paper lists criteria in the allocation decision process for slots. I started off listening to your evidence thinking that you were doing the administration but I think in further evidence you have suggested that you actually make decisions and there is legal action taking place because somebody suggested you took the wrong decision. There is an element of decision making in it as well. Who sets these criteria? I find it interesting that the first one is historical precedence and that is rather confirmed by what you said about Heathrow. Secondary criteria the competitive requirements, that seems odd because if there are no new entrants then one could argue there is not much competition. I find it rather extraordinary that the penultimate one, right at the bottom, is the needs of the travelling public. Do you take these things into consideration and again who sets these and are they in tablets of stone?

  A.  A number of questions there, if I may, my Lord. The criteria mentioned in that document are essentially drawn from a document which is written by IATA—International Air Transport Association—and it is called Scheduling Procedure Guide. This effectively is the bible for scheduling processes and it is used worldwide by my equivalents, opposite numbers in Japan, South Africa and all over the world. It is drawn up by IATA which is an airline-owned organisation, therefore it is obviously slanted towards airline interests. IATA itself is quite a broad church, it represents schedule and charter, long-haul, short-haul, international, domestic. So whilst it lists these criteria, there is no real sense of prioritisation amongst them, because there is no consensus really as to what the priorities are or should be on a global basis in the slot allocation process. To answer your final point as to whether they are set in stone, quite the reverse. This document is very dynamic, it is changed at least twice a year, and it is changed with the consensus of all the carriers in IATA. I have the 23rd issue with me at the moment, and it is in fact due for a radical overall shortly.

  452.  That is very interesting, but if BA/AA are required to give up 267 slots, as we heard last week, just as an example—it could happen in any other airline—what would be the process for doing it? Would they give up their slots on the basis of a flight to the United States, or would they be able to substitute a flight to Inverness? Who would make that decision? Secondly, if they had to give it up completely, whose job would it be, and on what criteria, to re-allocate the slots?

  A.  I hope you will allow me to talk in terms of informed speculation on this.

  453.  Yes, crystal-ball gazing.

  A.  Most of those decisions have not been taken. Indeed, the rest of my day is actually to be spent at the Office of Fair Trading where we are dealing with exactly those questions.

  454.  It need not be that particular example. Take any example.

  A.  If you remove it from the immediate case, there are previous examples of alliances between airlines in which the Commission has said that in order to offset any of the anti-competitive effects of those alliances, airline A or airline B must give up slots. There are examples with Sabena and Swissair, Lufthansa and SAS. My understanding is that the Commission will draw the line at deciding how many slots should be given up and which routes competitors should be encouraged to go onto in order to offset the anti-competitive effects of the alliance. As I understand it, the process has never really been determined by the Commission before. I think what is going to happen in the United Kingdom is that we will have to work out that process. ACL's view is that as a process it is really beyond the scope of our company to get our coordinators to make decisions on issues of competitive effects and consumer benefit, therefore what I shall be saying to the Office of Fair Trading this afternoon is that we would like the competitive authorities in the United Kingdom—which probably ultimately means the DTI—to direct us as to which airlines should be given slots to operate which routes once they are released from BA. That is what I would like to see happen, rather than what necessarily will happen.

Chairman

  455.  If I could just take you back, Mr Morrisroe, you defined the slot for us earlier as being—and I am using my words rather than yours—a time, disregarding destination. We are now into an added perspective than in the scenario set by Lord Berkeley; it is not only times of slots, it is also destinations of aircraft, is it not?

  A.  That is right.

  456.  That is a new ballgame?

  A.  That is right.

  457.  You are saying to us that you are not set up to be judge and jury on this one, someone has to give you guidance?

  A.  That is exactly right.

Lord Skelmersdale]  But do you not have a scheme up and running which makes it perfectly easy? The slots involved are 50 per cent grandfather rights. If the powers-that-be—that is, DG VII and the Commission, our own competition authorities and, indeed, the American competition authorities—say, "Right, you must cut BA/AA out of the grandfather rights", you then can carry on in your normal way, can you not?

Lord Berkeley]  You have 267 new slots for new entrants, 50 per cent of which go to the existing people, as you just said, and 50 per cent of which go to the new ones.

Lord Skelmersdale

  458.  The only variant is that you have to cut out the grandfather rights of the people who are giving them up. Is not that a perfectly sensible scheme? If not, why not?

  A.  My Lord Chairman, my understanding as to what the regulators are seeking to achieve here is the re-distribution of those slots, the re-allocation of those slots from the existing operator on any route. Nobody knows where British Airways is going to take these slots from, but the endgame is that they will have to be shared out amongst a defined number of probably United States and United Kingdom carriers operating on specific routes. So it is not quite the free-for-all process of a general slot bidding process which we do twice a year; this is going to be quite specific, and it has to result in the re-balance of competition on specific routes.

  459.  You suggested earlier, though, that BA, being one of the airlines involved, might take their slots anywhere and not necessarily from the North Atlantic route.


1   Note by witness: The following six carriers have started regular operations at Gatwick for the first time in Summer 1998:

Air Moldova

<is9p0>Air Malawi

Air Nostrum

<is9p0>Malev

Armenian Airlines

<is9p0>US Airways. Back


 
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