Vol. 435 No. 3
14 Mr. Deasy asked the Minister for Transport, Energy and Communications the economic air fare between Dublin and London and vice versa; if he has satisfied himself that there is no below cost selling of tickets on this route; and if there is, the plans, if any, he has to deal with this.
The question of investigating below cost selling of air fares is solely a matter for the EC Commission. In accordance with Council Regulation (EEC) No. 3975/87 the Commission is responsible for initiating procedures to terminate any infringement of the provisions of Articles 85 (i) or 86 of the Treaty which deal with concerted practices and abuse of a dominant position in relation to air transport services. Accordingly, I have no direct function in the matter.
I asked a direct question. What is the economic air fare between London and Dublin and vice versa? Surely the Minister can give us that figure. As long ago as 1979 we were told by the Chief Executive Officer that the economic return fare from Dublin to London was £206. It seems to be possible to do the journey for half the sum 13 years later. Can the Minister say why?
The competitive framework of aviation has changed dramatically in the intervening period and it is not possible to give the economic fare. In calculating this fare one must take into account the cost structures of the company providing the service and a range of other commercial factors, including the size of its operations, overheads, staffing arrangements, work practices and so on. On the question of below cost selling, I have no direct function in the matter; it is one for the Commission.
Is there not a strong possibility that the national airline, Aer Lingus, is being subsidised with taxpayers' money to provide uneconomic air fares between Dublin and London in order to eliminate competition on that route and, if that is the case, as I believe it is, should the Minister not be concerned to ensure that this does not happen?
Predatory pricing is not and cannot be an instrument of the policy of Aer Lingus. This is one of the issues on which the Commission is seeking clarification in relation to the application we have made to inject eligible State aid into the company. I should make the point that the purpose of reorganising the company is to ensure the necessary cost transparency so that not only those who work in the company but also the shareholders will have a better fix on how the company is performing. We wish to make it clear to the Commission that the company does not operate a policy of predatory pricing on that or any other route and that it will now operate on a commercial basis. We are confident, given the cost reduction programmes, subject to agreement once certain outstanding matters have been decided at arbitration and following a ballot, that this State aid will be deemed eligible, as I mentioned earlier.
(Limerick East): I put it to the Minister that he has an absolute responsibility to establish what the economic fare is on the London-Dublin route for Aer Lingus in particular, for two reasons. First, Aer Lingus has lost unconscionable sums of money during the past four years by selling below cost on the route to eliminate their competitors. The question is whether this was done by Aer Lingus management on their own or whether the Minister's Department would not sanction the fare increases requested. It is difficult to know where the truth lies, but both are blaming each other.
The second reason the Minister should establish what is the economic fare for Aer Lingus is that his officials will have to answer this question in Brussels. British Midland in its submission to the relevant Commissioner and Ryanair in its correspondence with the Commission claim that if one were to inject £175 million in equity into Aer Lingus on behalf of the Irish taxpayer, this will be used to sell seats below cost on the route once more. Therefore the Minister has an obligation to establish what the economic fare for Aer Lingus is.
The Deputy is trying to face both directions at the one time. On the one hand he has suggested that Aer Lingus has been involved in below cost selling, but on the other he has suggested that the Department refused to sanction price increases to allow them to compete on the route. The Deputy cannot have it both ways. The fact is that the Department has no function in the matter of pricing policy. That is a matter for the company, which has to make commercial decisions. Its competitors, including British Midland, will have the right to make submissions to the Commission and these will be considered by it. We will put it to the Commission that the purpose of the viability strategy is to ensure cost transparency and that the company will not operate a policy of predatory pricing. I agree that in previous years problems were encountered when the overheads could not be met because of the pricing policy adopted. As a result losses were incurred on what was a profitable route. It is quite clear mistakes were made in the past. What I am saying is that if the viability plan is agreed to, this will no longer be a feature of the commercial decisions of the company.
I was hoping that the Minister would come clean on this matter. It is clear that Aer Lingus has been involved in below cost selling on the Dublin-London route for many years to such a degree that it constitutes a criminal activity. It seems to be its policy to put its competitors out of business. The Minister and the Government should be concerned about this activity. It is blatantly obvious that it amounts to below cost selling.
On the question of the previous strategies adopted by the company in respect of competition on what was a profitable route, I agree with the Deputy that commercial mistakes were made. The company sought to provide a different service for a different customer at a price it could not meet because of its cost structures and overheads. If the company was guilty of below cost selling, which I do not admit it was, then its competitors were. The problem was not that it was engaged in below cost selling but that its cost base was too high and it could not make a profit on that or any other route until such time as it addressed the question of the cost base of the company. That has now been addressed and that is the reason it is absolutely essential that the £50 million cost reduction programme be agreed to if the company is to be viable in the future. I am glad to note that a negotiated settlement, subject to staff approval, is an achievable objective. This is necessary if the stragegy is to work.
I would appreciate if the Minister would involve himself instead of passing the matter to the Commission.
