Examination of Witness (Questions 440
THURSDAY 23 JULY 1998
440. Internal, external, transatlantic,
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.
441. That cannot be varied on a day by day
A. No, there
would be a pattern to that throughout the season.
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 rightsif that is the right wordattached
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
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.
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
447. Mr Morrisroe, just before we leave
thisand I know Lord Berkeley has been itching to come inHeathrow
presumably is the extreme?
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?
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 IATAInternational Air Transport Associationand
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 exampleit could happen in any other airlinewhat
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 Kingdomwhich probably ultimately means the
DTIto 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
455. If I could just take you back, Mr Morrisroe,
you defined the slot for us earlier as beingand I am using
my words rather than yoursa 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
A. That is exactly
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-bethat is, DG VII and the Commission, our
own competition authorities and, indeed, the American competition
authoritiessay, "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.
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:
<is9p0>US Airways. Back