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

APPENDIX 5

MEMORANDUM FROM AER LINGUS ON REGULATORY ISSUES

Aer Lingus would like to summarise and stress some points of general interest to the aviation industry on the regulatory front, which it perceives to be of vital importance to its own future and that of air travel to and from Ireland. Aer Lingus believes in a commercially viable and competitive airline structure subject to sensible multilateral and international regulation.

Within the European Community

The EEC Memorandum on Aviation in the nine member countries expresses the same view and speaks of four directly interested parties:

—the airlines themselves as commercial organisations,

—travellers and shippers,

—workers in the aviation industry,

—the general public.

The Commission recognises that to pursue the interest of any one of these groups to the exclusion of the others would be harmful in its overall effect and this is a view which we share. The Commission is, however, in favour of:

—increased availability of discount fares, and

—some ‘liberalisation’ with regard to traffic rights.

They believe the change should be evolutionary rather than revolutionary as they find the existing general system of international aviation has been serving the public well.

Aer Lingus is a strong proponent of discount fares and sees distinctive market segments, such as the regular business traveller and the once-a-year holiday traveller, which respond differently to differing fares. Aer Lingus is in the market to serve both groups and, indeed, its capacity to serve these two market segments is interdependent. It emphasises that within the Aer Lingus system its average yield per mile is already 30% below the European average even on its higher fares, and that some 70% of its traffic is moving on discount fares of one sort or another.

With regard to the liberalisation of traffic rights, Aer Lingus expresses its serious concern to the Joint Committee lest there should be a development which would increase the opportunities for other carriers to serve Ireland without giving Aer Lingus any new opportunities to serve other markets. This issue is debated frequently in terms of ‘third and fourth freedoms’, e.g. Dublin/London for UK and the Irish carriers, or ‘fifth freedom’, e.g. Manchester/Frankfurt for an Irish carrier.

As the Members of the Oireachtas would expect, the documentation on these matters is quite voluminous. However, the Oireachtas’s own Committee on Secondary Legislation of the EEC in its report of 4 June 1980 gives a fair statement both of the intention of the original EEC Memorandum and of Aer Lingus’ views.

Subject to the foregoing proviso concerning traffic rights the EEC Memorandum on Aviation is acceptable to Aer Lingus but it is much less satisfied with a Draft Directive on competition in aviation which is being privately circulated by the EEC Directorate on Competition. It seems to the national airline that in its present form the Draft Directive shows little understanding of the complexity of the international air traffic system and, if not substantially amended before formal submission to and approval of the Council of Ministers, it could be harmful in its effects. Attachment 1 gives a detailed statement of the Aer Lingus argument on these matters. Attachment 2 is an outline calendar of events related to the foregoing EEC activities. Government support in all these areas is not merely valuable but essential.

Multilateral Regulation

In answer to questions from members from the Joint Committee Aer Lingus in the course of the oral hearing on July 9 stated that the Irish Government’s approach to aviation matters was in accord with that of Aer Lingus, particularly on the important regulatory issues. It emphasised that the Irish Government’s position, moreover, is shared by the vast bulk of the international aviation community as represented by the debates at the International Civil Aviation Organisation’s (ICAO—a body representing governments, not airlines) meetings in Montreal in 1976 and 1979. At these meetings there was almost unanimous recognition of the need for a balanced multilateral system that would fairly take into account the interests of all parties. Au contraire, the US approach for ‘deregulation’ was overwhelmingly rejected.

This US ‘deregulation’ can now be perceived to be having disastrous financial results for the airlines domestically within the US during the current recession. Nevertheless on the international scene the US, with minimal support among the international community, continues to advance some of these policies. In particular it is attempting to destroy the multilateral machinery of IATA in the matter of tariff coordination. In the final attachment (3) to this aide memoire Aer Lingus sets out some of the background to IATA as a body which, under government supervision and subject always to government veto, negotiates fares and rates between carriers. This is the system which, in effect, was set up by governments and which has the almost unanimous and world wide support of the membership of ICAO. When asked by the Joint Committee for a view as to Irish Government policy on these matters Aer Lingus stated that the Irish Government has strongly supported the existence of the IATA machinery and has made formal protests to the US authorities in response to their efforts to prevent the airlines from participating in IATA tariff coordinating meetings. While recognising some of the faults which can develop in an organisation of the complexity and size of IATA, it should be noted that it has recently changed a number of its important rules, giving greater freedom of independent manoeuvre to its member airlines. Aer Lingus urges the Joint Committee to recognise that no realistic machinery to supplant IATA is being offered by any of its critics and urges the Joint Committee to endorse the Government’s stand in favour of IATA and multilateralism in aviation tariff and regulatory issues.

There are other international bodies where Irish Government policy is also advanced on aviation issues, e.g. the European Civil Aviation Conference (ECAC), a sub-organisation of ICAO which attempts to coordinate aviation policies within Europe and also, though less effectively, to coordinate the attitude of the European Governments in matters affecting bilaterals with non-European Governments. Again here the Irish Government pursues a role of seeking for reasonable competition in an economic environment and we are fully supportive of the attitude taken by the Irish Government in these councils.

Current Climate and Consumerism

Despite so much government support internationally for rational regulation in the aviation industry, the system is always under threat from small interests which occasionally see an opportunity for gain through undermining parts of the existing system. The movement which has come to be known as “consumerism” always puts pressure on politicians and administrators to yield on well founded policies. That danger is one which Aer Lingus recognises and which gives it cause for concern.

Aer Lingus believes that it is particularly important that the Irish Government be urged to maintain its present position and seek to gain increasing support and understanding for that position internationally so that the existing multilateral systems will not be undermined. This view is advanced not merely in the interests of Aer Lingus itself, important though it be as a national asset, but in the interests of the markets which it serves, business and tourism, at home and abroad. This point is further developed in Attachment 1 already referred to. Aer Lingus provides the only prospect of reliable year-round service to and from Ireland from the many markets which Aer Lingus serves.

Any ‘deregulation’ which results in contraction of Aer Lingus only reduces its capacity to serve the Irish market and increases Ireland’s reliance on foreign carriers whose record to date in the Irish market has been unreliable in the extreme.

That our concern on this issue of ‘deregulation’ of international aviation is widely shared is confirmed by the following quotation from the Bjorck Report to the Council of Europe which highlights a possible eventual outcome of a ‘deregulated’ international system. Mr. Bjorck is a member of the Swedish Parliament and a raporteur of the Council of Europe’s Study Group on Civil Aviation:

“… there could be a situation of free competition in which only a handful of large airlines would operate worldwide at the lowest possible rates, serving only the densest routes between the major trading nations.”

This throws out a tremendous threat to Irish air services. The fear is that apparently small decisions might be made from time to time which would lead towards the undermining of the Irish aviation network but without their effect being fully understood in time.

Summary

Ireland in its activities in international aviation bodies should strongly support the views developed in this memorandum and attachments. On the home scene, these views should also determine the decisions that will be made on new issues as they arise. Such issues can arise within and outside the EEC with regard to route rights, charter services, applicable tariffs, etc. The Irish Government decisions on all these matters should take full account of the broad spectrum of aviation issues, lest “concessions” on a list of individual points would erode the Aer Lingus viability as a whole and undermine what has up to now been a relatively stable aviation scene into and out of Ireland.

Aer Lingus invites the Oireachtas Joint Committee to take special note of this point because it is in the individual issues, e.g. number of foreign carriers which may serve a particular route, or what tariff is charged (is it ‘economic’ or merely ‘dumping’ or ‘predatory’ price cutting?) that vital questions arise which can affect the economics of Aer Lingus and, accordingly, the viability of future air connections between Ireland and other countries. The majority of the aviation community over the years has taken the view that the number of carriers serving a route should bear reasonable proportion to the amount of traffic available, and that competition—while desirable—cannot go unregulated. Aer Lingus is looking for that position to be sustained as the abolition of a policy of reasonableness in regulation could do the utmost damage to the aviation industry worldwide and, in particular, to the smaller airlines and the smaller communities such as Ireland.

7 August 1980

Note: The Committee decided that there was no need to publish the attachments to this Memorandum.