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89.
90.
It appeared that the ATLA had reached its decision without giving sufficient consideration to the economic viability of a three carrier regime and had concerned themselves primarily with ensuring that the average load factor did not exceed 65%. BA had an existing operating surplus on the route of £9.6 million which was just about acceptable, and with one competitor operating three services a week that surplus would become £4.8 million and with one competitor operating daily it would become a loss of £4.1 million.
Mr Nolan said that BA considered that Cathay's proposal was consistent with the conduct of a viable operation on the route and would result in both BA and Cathay being able to achieve a reasonable level of profitability. BA's projection of route profitability on a daily service had assumed competition on the route of three additional weekly services. They had reduced their planned frequencies for Summer 1980 from ten to seven because they had believed that it was inevitable that another carrier would be licensed and the revised operating proposals would enable both carriers to operate profitably and for BA to provide a competitive service.
91. The charter services had been withdrawn in 1979 because of the increased costs of operating out of Gatwick due to the 747 positioning costs and the operation of dual handling facilities. The traffic was now carried as part charter on the scheduled services out of Heathrow which enabled them to offer passengers a higher frequency.
92.
93.
94.
95.
If Cathay were granted rights between Bahrein and London on a dual designation basis BA would have to relinquish capacity on that sector, in which event it would probably also be necessary to make consequential reductions on routes other than London - Hong Kong. It was most unlikely however, for marketing reasons, that BA's services on the London Hong Kong route would ever be reduced below a daily service.
Mr Nolan said that BA's competition on the route at present was primarily from a number of sixth freedom carriers, but another carrier on the route who actively promoted and operated London - Hong Kong would have far more impact than indirect operations. The services provided by the local Far East airlines had increased and this had made a considerable impact in the market place. BA had reacted by changes in frequency and service product and had as a consequence maintained their overall competitiveness. If Laker were to be licensed on the route BA would not have to make substantial changes to their product in order to compete successfully.
Mr Nolan did not agree that some markets could be better developed by connections through Gatwick rather than Heathrow. He confirmed that British Airways had made contingency plans to cover the possibility that none of the applicants was in a position to start services by 1 April 1980. BA would not re-introduce the 3 wide-bodied services it had planned to drop but would operate an additional B707 per week from April to October, a second 707 per week from June to October and one 747 per week in the peak months from July to September 1980 to cover the forecast demands of the market.
Mr Deller said that in any assessment of historic growth rates it was essential that the total scheduled and charter market was considered and the effect of past tariff stimulation should be taken into account in forecasting future growth rates. BCal had merely forecast the amount of sixth freedom traffic that would be captured by a direct carrier under the various alternative regimes but had not submitted any estimates as to the size of the current sixth freedom market or the residual market after retrieval. Cathay had taken their estimate from a ticket survey during a peak month and there was some doubt as to whether it included stop over traffic which was not true sixth freedom traffic. BA's forecast had been based on the international passenger survey and the figures used had been derived over the past five years.
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