Scope for
government intervention
90. Many of our witnesses believed that the
importance of links to London was so great for many regions that
there was a case for public sector intervention to protect certain
regional air services.[154]
91. Only a few suggested that public subsidy ought
to be paid to support what were in most cases profitable or potentially
profitable routes to compensate airlines for the opportunity cost
of not using the slots for even more profitable services. Plymouth
Chamber of Commerce and Industry suggested that Regional Development
Agencies might be able to pay any additional money to airlines
that was required to ensure that a Heathrow service was viable,[155]
and the CBI said that it would support subsidies for air services
in the same way it supported subsidies for economic development
in peripheral areas.[156]
Mr Keith Boyfield believed that if slots were freely bought and
sold subsidy payments to support the purchase of slots at Heathrow
or Gatwick for regional services would at least make the real
cost of such intervention in the market for social reasons fully
transparent.[157]
92. A number of suggestions and recommendations were
put forward by witnesses for ways in which some measure of protection
or priority could be given to regional services without the need
for subsidies, which are set out in the following paragraphs.
93. The DETR said that the UK would have the chance
during the revision of the European slot Regulation to put forward
amendments: "Particularly if the Commission does seek to
restrict the ability to ring-fence slots, one possibility might
be to propose balancing that by giving greater priority to regional
services in the criteria for the allocation of available slots".[158]
Subsequently it told us that this idea had been "well received"
by officials in DG VII (Transport) at the Commission. It suggested
that airlines benefiting from such priority should be required
to operate a route for a minimum of three years. The Department
expected that some such provision would form part of the amendment
regulation when it appeared. It also believed that a properly
open and regulated system of slot trading could play a role in
making best use of airport capacity.[159]
94. British Midland thought that the new entrant
rule in the present regulation was too loose and that of the 53
new carriers at Heathrow since 1991 too many had been carriers
offering low-frequency long-haul services. These prevented incumbent
UK carriers developing their domestic routes.[160]
95. Manchester Airport believed that the existing
slot regulation was "a flawed instrument which denies airports,
regions and Government the proper ability to define the optimum
use of scarce capacity at key hub airports in each country".
It suggested that there should be a published route development
plan for each 'coordinated' airport, taking into account the regional
need for air travel and/or national priorities for use of that
airport. In the event of an airline wishing fundamentally to change
the use of a slot, there should be a reference to the plan to
see whether the new use of the slot accorded with the plan. If
not, and other carriers wished to operate the route, the slot
should be retained for that route.[161]
The Airport Operators Association agreed that airports should
share responsibility for slots with airlines in order to have
a say in how they were used, and believed that government should
be able to insist on the preservation of regional air links.[162]
96. The Consumers' Association suggested altering
the status of slots so that they were not at the disposal of airlines
but rather of a body such as the CAA which could franchise slots
for regional air services that were deemed essential. If an airline
withdrew a regional service to allow a long-haul flight it would
be open to the airport or government to decide how they should
be used.[163] Liverpool
Airport plc agreed that an independent body needed to have a say
in slot allocation with reference to the needs of regions.[164]
97. Highlands and Islands Enterprise believed that
other airlines could have made a profit from the Inverness-Heathrow
service and recommended that other airlines be asked to tender
for the right to run the service from Heathrow to Inverness that
British Airways had withdrawn.[165]
98. The European Regions Airline Association drew
our attention to the fact that some German airports such as Frankfurt
and Dusseldorf were considering manipulating the frequency of
flights permitted on routes so that unless the aircraft operated
were larger than a certain size, airlines would not be permitted
to increase frequencies above a specified level.[166]
Mr Tony Lucking suggested avoiding wasteful duplication by franchising
the rights to run services on the four 'trunk' domestic routes,
perhaps with a maximum of twelve flights per day with large aircraft,
in order to free slots to be given to regional airports with no
flights to Heathrow.[167]
99. The Consumers' Association suggested that criteria
be drawn up to guide decisions as to which regional air services
might qualify for intervention to create or protect services to
London. First should be geographical factors such as distance
or the impossibility of surface travel. Then, wider issues such
as the need for regional development, access for social reasons,
and equity between regions would be included.[168]
The General Consumer Council for Northern Ireland conceded that
for a route to qualify for protection it would have to support
a reasonable level of traffic.[169]
100. The CAA's Economic Regulation Group believed
that:
"there are strong economic
arguments against ... ring-fencing of slots. The carriage of small
numbers of passengers over short distances has traditionally been
less profitable than operating larger aircraft on longer routes
and so domestic routes have tended to earn less profit (or incur
greater losses) than others. Thus, where there is scarce airport
capacity with available slots having an increasing value in other
uses a progressive squeeze on regional services at congested airports
may continue. Essentially this will mean that scarce resources
are being put to their most productive use, largely reflecting
the preferences and willingness to pay of airlines' passengers
generally. In contrast, ring-fencing of scarce slots would reduce
overall benefit to air users and introduce undesirable rigidities
into the process of slot allocation".
In view of the alternative services to London or
to continental hubs enjoyed by many regional airports, and the
fact that most of the regional routes now operating were denser
than those which had been withdrawn, the CAA did not believe that
there was a serious enough problem to warrant intervention by
government at the national level. It suggested, however, that
local government or businesses might wish to subsidise a regional
air service by means of franchising.[170]
101. The DETR told us that:
"There would be economic
disadvantages in ring-fencing slots. Where airport capacity is
scarce, it is desirable that it is put to its most productive
use. The most productive routes from the airlines' point of view
will be the more profitable ones, and these will also tend to
be the routes most valued by passengers. Ring-fencing of slots
will prevent airlines from putting the slots to their most productive
use as market conditions evolve, and thus will introduce undesirable
rigidities into the process of allocating capacity."[171]
102. However, when the DETR gave evidence Ministers
said that in the renegotiation of the slot Regulation they would
be arguing that domestic services should be guaranteed by carriers
for three years and that 'peripherality' should be a factor in
the new rules.[172]
It also thought that "there could well be an argument for
the reservation of slots for certain regions".[173]
This would not necessarily require a subsidy for the service using
those reserved slots.[174]
103. A number of other witnesses wished to see no
intervention in the aviation market. The London Chamber of Commerce
and Industry thought that the problem with ring-fencing slots
would be that it would not optimise the economic benefits of air
transport.[175] British
Airways believed that "subsidies inevitably distort markets.
Our experience of France ... is that the existence of highly-subsidised,
organised markets makes it very difficult indeed to make rational
decisions in the operation of services and the pricing of services
and the frequency of services and I think in the long run it is
to the disadvantage of the French public rather than to the advantage
of the French public".[176]
British Midland agreed that it was not in the best interests of
consumers, businesses or airlines for a specific slot time to
be reserved at any airport for a specific route, since this would
inhibit the ability of airports and airlines to maximise the capacity
available at an airport or aircraft use.[177]
BAA believed that "it would not be appropriate to ring-fence
slots ... if services were ring-fenced other services would lose
out and that may potentially be to the net disbenefit of the United
Kingdom overall. It would also be counter to the liberalisation
of air services in Europe which has driven growth in new and innovative
airlines and brought significant benefits to the air traveller".[178]
The Consumers' Association thought that while slots for regional
services should be protected, it was important not to fossilise
the market.[179]
104 
