Examination of Witnesses (Questions 340
WEDNESDAY 8 JULY 1998
and MR HUMBERT
Lord Thomas of Macclesfield
340. What would that be?
(Mr Drabbe) Well, basically there are two proposals.
One is to extend the scope of Regulation 3975/87 which would allow
us to apply the existing procedural rules of Regulation 3975/87
to international aviation traffic. The second proposal concerns
an enabling Regulation under which the Council would empower the
Commission to make a block exemption Regulation and which would
then indicate what activities would be legal, also in international
air traffic, and whether either thing would not, therefore, automatically
be exempted. Now, the proposal for the enabling Regulation which
we have proposed issues a number of activities which are normal
in these international regulations and which are covered by the
bilateral agreementsthe air transport agreements by the
Member Statessuch as revenue sharing and joint planning
and co-ordination of capacity. Those would be the areas where
Member States would be most concerned that we would interfere.
The enabling Regulation would allow us to block exempt these activities
under the block exemption Regulation and, therefore, this argument
which runs that by applying the competition rules the Commission
would upset the whole network of bilateral agreements which have
built up over the years, most of the sting is taken out of that
argument simply because they would continue to be able to apply
the bilateral agreements without any reason for us to interfere
from a competition policy point of view. If there were still problems
with a new bilateral agreement, we have built in this consultation
mechanism to which we refer in the papers so I think it would
be, for practical purposes, a system which would work very well
without upsetting the bilateral agreements. I have a very practical
argument for saying this as well in that certainly from our point
of view, as a competition authority, we are not going to scrutinise
each and every of the many hundreds of bilateral agreements which
exist and if concerns such a minor point, we would have difficulties
in doing all this.
341. Would that not logically apply to new
agreements? Let us say you had a new one in operation, would not
the same apply, so, in other words, you would not call in every
(Mr Drabbe) If you are talking about a bilateral
transport policy agreement, an aviation agreement, no, because
if the block exemption were to be there, it would be very simple
to refer to the block exemption and say, "Okay, we do not
need to look at it".
342. But what if it fell outside that, then
clearly you would call it in?
(Mr Drabbe) Then we might call it into question,
but there would still be the possibility of an individual exemption,
since if the block exemption does not apply, there is still the
possibility of giving an individual exemption, but we certainly
would not look at each and every new agreement. We would expect
Member States then, since a block exemption would exist, in their
bilateral agreements to take it into account because they are
under a duty not to do anything which would be contrary to Community
343. Do you spend much time getting the
views of the customers of air services and taking them into account
in all these discussions because we have brought them up occasionally,
but something we obviously will have to take into account is whether
we believe these Regulations will actually help the consumers
to get a better deal than if they do not come in? In other words,
one could ask: who is the better watchdog of the consumers? There
is the British airline consumers' group that we took evidence
I do not know whether there is a European one and I am not sure
how much funding it gets, but it is always useful to remember
that they are the end payers and this is what everybody is working
(Mr Drabbe) We certainly get comments from airlines.
I must say the Association of European Airlines has said that
they are against these proposals and I think that probably reflects
the point Mr van Miert was making about the link between airlines,
or the point you made, I think, of the airlines looking at where
the advantages are and saying, "Well, we do not see the immediate
advantages and so we will stick to the existing situation".
I think the individual airlines argue differently. For instance,
Virgin has argued that it is in favour of these proposals. As
for consumer associations, so far I am not aware of any reaction.
(Mr van Houtte) I have seen some reactions which
were supportive both from travellers, from passengers, and from
shippers because of course a lot of this is also applicable to
cargo, to freight, so I think we do have contacts with those groups.
344. I personally have had comments from
somebody who is very concerned about the freight aspect, but we
have not had any evidence yet and maybe we will have time, though
I do not know whether we will or not, but it is something we have
not actually covered very much. Is there anything you can tell
us as to which Member States might be more in favour of your proposals
than others or is it early days yet?
(Mr van Houtte) Are you speaking to DGIV or DGVII?
345. Well, I am not sure which of you because
I do not know whether you have the same view or different views,
you see. You can both answer, if you would like.
(Mr Drabbe) I think the views would be the same.
346. Of course.
(Mr Drabbe) But the proposals originate from DGIV.
I think no Member State at this point in time will officially
say that they are in favour of the proposals because they also
make the link with the open-skies negotiations with the Americans
in which competition policy is one of the subjects to be discussed,
so they take the position that if they were to give us the extended
scope of this Regulation, that would sort of prejudge the position
they take in the context of the mandate for the Commission on
open skies. They argue that you could go faster on one point,
which is competition policy, than on all the other points and
in particular of course on the point of traffic rights, I think.
Is that correct?
(Mr van Houtte) Yes.
(Mr Drabbe) So officially at this point in time
you will not hear any Member States saying, "We are in favour".
I think inside Member States the thinking about this is starting
and if you talk to officials unofficially, there is some sympathy
and understanding for our ideas and certainly the logic of them
is not denied.
347. So if the Regulations were approved,
the court actions might just not be proceeded with presumably?
(Mr van Houtte) But the court action relates to
the DGVII proposals, not the Competition Regulations, but the
external policy proposals.
348. Of course, yes.
(Mr Drabbe) It is the other way round. We are
the prisoner of the discussion about the mandate.
(Mr van Houtte) If your question relates to the
mandate or the negotiations with third countries, I think it is
fair to say that there is general, but limited, support for the
Commission's proposals, so we have received a mandate to negotiate
with the United States, but the mandate does not clearly cover
the most important issue which is traffic rights, so it is a half-way
house which is not very satisfactory.
Lord Thomas of Macclesfield
349. You can talk about everything, except
(Mr van Houtte) Beyond that if you speak to individual
Member States, you would find a few which favoured the Commission's
proposals, I think, but it is clearly a minority at this point,
but the spirit is developing.
350. There can be a minority, but it can
be an important minority because it might be a major carrier across
the world, or it might be an unimportant minority because it might
be the small operators, so that is the basis of my question: do
you feel that this is going to disproportionately badly affect
some countries' carriers as opposed to others?
(Mr van Houtte) No, I would not think so. Again,
in agreements which do not produce open markets the issue is how
do we allocate traffic rights in the case where we obtain they
and there the Community has shown that it is capable in many areas,
not just air transport, but lots of areas, of developing a common
view and making sure that all Member States obtain an equitable
share of the results and that is the basis of the Community.
351. So that might mean taking slots from
the existing carriers, might it not, and they are certainly not
going to vote for Christmas, are they, if they are turkeys?
(Mr van Houtte) No, but if the Community were
to negotiate, we would expect open market access, or in any event
to see more traffic rights for Community airlines rather than
less, so, in a way, the cake is getting bigger and so I do not
think we would face the hypothesis of taking away traffic rights
352. Bigger only if the infrastructure can
cope with more.
(Mr van Houtte) Of course the infrastructure has
to follow. That is correct.
353. Then there will have to be the sharing
out to the airlines within the European Union, having negotiated
the block which is an internal problem which no doubt Member States
might have views on as well.
(Mr van Houtte) Sure, yes. I think it is difficult
to envisage the hypothesis that any Member State would be worse
off than before. I do not see that happening really.
Lord Thomas of Macclesfield
354. How do you suppose the result that
the Chairman has referred to would arise? Have you got a game
plan or a model as to how slots would be allocated perhaps across
different countries in Europe?
(Mr van Houtte) Again it is traffic rights which
would be allocated. Slots are a local matter which it is for the
airport to make available.
355. Traffic rights then.
(Mr van Houtte) We would first have to look at
what the outcome is and how many traffic rights and to which destinations
have been obtained and then we would have to look at where the
demand for those traffic rights is and that would stem from where
the traffic originates. Maybe Germany will say that Frankfurt
is under-served and we do not have enough frequencies to the third
country in question and then if no Member State objects, then
probably Germany would get a significant piece of the additional
traffic rights. I think it will be done on a case-by-case basis.
There is no formula which I can apply mathematically.
Lord Thomas of Macclesfield] That
is what worries me because would not your answer be very hypothetical
because the only way to test it is to use it?
356. It is a chicken-and-egg situation.
Unless you apply it, the traffic is not there.
(Mr van Houtte) That is how it happens on the
US side. If the US negotiates traffic rights, they then face the
question, "How do we allocate these traffic rights to American
Airlines and United and Delta and all the others?" and they
have a habit of doing this and they do it on the basis of where
the demand is, which airlines can make best use of the traffic
Chairman] And/or political
pressure on Capitol Hill.
Lord Thomas of Macclesfield
357. I do not believe that for a moment.
There is a political deal done because you cannot say where the
demand is going to be and the only way to do that is to test it
and open up new markets.
(Mr van Houtte) One can look at things like load
factors of the aircraft from certain airports. One can compare
frequencies to certain destinations and I think there is an objective
basis for making decisions. It is not sufficient and you need
to elaborate, but it is quite feasible.
Lord Thomas of Macclesfield] The
objective way is to lose money and then you learn very quickly
which will and will not work. However, I rest my case that it
358. Well, I think we have covered everything,
so can I, on behalf of the Committee, thank you very, very much
for sparing so much time not only listening to Mr van Miert's
session, but answering questions yourselves. It has been very,
very interesting and I certainly have learnt a lot and I am sure
my colleagues have as well. We shall report back tomorrow and
do the same thing with Glenda Jackson MP, Minister for Transport,
and see what happens then. You will see the end result in the
(Mr van Houtte) If we can help in providing any
more details or in clarifying points, please let us know.
Chairman] Thank you
5 The Air Transport Users Council. Back