Committee Reports::Report No. 14 - Aer Lingus, Teoranta and Aerlínte Éireann, Teoranta::16 December, 1980::Appendix


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Committee Reports > List of Committees > Joint > 1980 > Committee on Commercial State-Sponsored Bodies > Report No. 14 - Aer Lingus, Teoranta and Aerlínte Éireann, Teoranta

APPENDIX 12

NOTE FROM CIVIL AVIATION AUTHORITY, UK

THE COSTS OF EUROPEAN SCHEDULED AIRLINES

1. Over the past few years a number of studies have been carried out on the costs of European airlines and critical assessments may be found in our own publication — “European Air Fares — a discussion document” published in November 1977 and in the interim report of an ECAC Task Force on Intra-European Scheduled Air Fares published as ECAC Document No. 19 in the early summer of 1979. The most common approach is to compare European Scheduled airlines’ costs either with the costs of charter airlines or of US domestic services.

2. A few years ago we conducted in co-operation with British Airways a study, subsequently termed “Cascade”, the purpose of which was to compare charter and scheduled costs on three representative routes and to identify what proportion of the difference was attributable to features specific to the charter and scheduled modes of operation and what proportion was attributable to pure efficiency differences between the scheduled and charter carriers. The method was to take the cost of British Airways’ scheduled services on the three routes and to make systematic adjustments for the known differences between the two modes. These adjustments covered a variety of factors, but among the most important were seating density, service, standards in flight and on the ground, methods of selling, seat factor etc. After the costs specific to a scheduled service had been stripped away the derived charter cost was close to the price being charged in the market on one of the routes but was 11% and 16% respectively higher than the actual charter price on the two other routes.

3. In this study, as indeed in any study of this type, it is difficult to distinguish fully between cost differences which are attributable to mode and those which arise from other causes, and the Cascade Study is more likely to have overstated than to have understated the purely modal differences.

4. Other studies lend support to the proposition that the costs of European air services are higher than they might be. An “Anglo American” study carried out by British Airways using a method similar in principle to Cascade, compared the costs of the British Airways European network with those of a US domestic airline with a similar pattern of service. British Airways had a considerable cost disadvantage, ranging from 50% to 95% depending on the method by which it was measured, but once again much of the difference was explainable in terms of identifiable and largely unavoidable differences between European and American conditions, such as fuel costs, airport charges, operational constraints etc; nevertheless a quarter of the difference in costs was found to be attributable to “conditions of employment and work place culture”.

5. This study and work carried out by the Association of European Airlines showed sales and reservations costs to be particularly high in Europe—indeed they are some 20% of total cost. A very detailed analysis by the AEA has shown the high level of these costs in Europe to be largely explainable in terms of the respective approaches to and methods of selling air services in Europe and the US, but nevertheless a residual difference remains. However it is our view that the existence of organisational or institutional differences should not be taken for granted to the extent that they lead to cost differences. Indeed high selling costs are a symptom as well as a cause of high fares. Where price competition is prevented by regulation competitive energy is channelled into devices to increase market share which of their very nature tend to be cost-inducing. The two most common manifestations of this form of competition are increased sales and promotional activity and the raising of standards of service and frequency to levels which may exceed those which the market itself would have freely chosen had it been able to trade price against quality. The result is smaller aircraft at lower seat factors than would otherwise have been the case. This cost-enhancing aspect of tariff regulation has been described by many commentators and is now well established in the literature of airline economics.

24 June 1980.

WRITTEN ANSWERS PROVIDED BY THE CIVIL AVIATION AUTHORITY (U.K.) AND THE NATIONAL AIR TRAFFIC SERVICES (U.K.) TO TWO QUESTIONS PUT TO THEM BY THE COMMITTEE

Question 1:	Can anything be done about the indirect routings between Dublin and London?
Answer:	There would be no objection to aircraft operating direct between Dublin and London provided that they operated below FL 245. They would however not receive the protection of controlled airspace and this route would pass close to some well-used danger areas; it would also cross other areas of intense civil and military activity. If aircraft wished to fly above FL 245 a direct route would be impossible during weekdays because of the established Military Training Area (MTA) over a large part of Wales where activity not amenable to air traffic control takes place.
	The controlled airspace system (“airways” in this context) in the UK FIR is established only after long negotiations with all other airspace users. A direct airway between Dublin and London would interfere with UK military, and some other airspace, users to an extent that their activites would be seriously jeopardised and therefore the airways are routed to the north or south (via Liverpool or Cardiff). However, when military activities permit, a more direct route is made available (usually during weekends only).
	Finally, National Air Traffic Services is fully aware of the need for fuel economy by all airspace users.
Question 2:	How vital is the existence of Eurocontrol to the functioning of the European airspace system?
Answer:	The UK considers that there is a place for Eurocontrol in European air traffic management, particularly in the development of harmonised operating concepts, long-term plans, training, and research studies, tests and trials. If Eurocontrol did not exist to carry out these support functions it would be necessary sooner or later to reinvent it.

24 June 1980.