HC Deb 29 July 1975 vol 896 cc1502-12
The Secretary of State for Trade and President of the Board of Trade (Mr. Peter Shore)

With permission, I will make a statement on future civil aviation policy in the light of the policy review which my Department has recently completed.

Present policy largely reflects the recommendation of the Edwards Committee which reported in 1969 when it seemed likely that the United Kingdom airline industry would go on expanding fast throughout the 1970s. Since then, however, the airline industry worldwide has suffered a severe setback from the oil crisis and the consequent economic recession. Traffic carried by United Kingdom airlines fell by about 10 per cent. in 1974 and British Caledonian Airways, the airline chosen by the previous Government to fulfil the "second force" rôle envisaged by Edwards, was obliged to make a substantial cut-back in its operations and, in particular, to withdraw its scheduled services from the North Atlantic. Current forecasts indicate that there will be only a gradual recovery over the next few years in the United Kingdom airlines' main markets.

It is against this background of a much less buoyant outlook for our industry that I have had to consider whether it remains in the national interest to continue with existing policy and especially to seek to have more than one United Kingdom airline serving any international long-haul route. In the present difficult conditions facing all airlines, aviation authorities throughout the world, including the United States, have been seeking to limit the competition faced by their main flag carriers. Thus, for the foreseeable future there will be hardly any routes on which we could hope to introduce a second British airline on terms which might enable us to increase significantly our share of the revenue. Moreover, British Caledonian's experience of the North Atlantic has clearly shown just how difficult it is for a second United Kingdom airline to compete profitably against established national flag-carriers.

I have accordingly decided that in future it should be our general policy not to permit competition between United Kingdom airlines on long-haul scheduled services and therefore not to license more than one United Kingdom airline on any given long-haul route.

I realise that this decision will rule out such possibility as there might have been of British Caledonian returning to the New York and Los Angeles routes at some future date or mounting scheduled services in competition with British Airways on other long-haul routes to North America and Singapore for which it was granted licences in 1973. I am, however, convinced that such competition would bring no advantage to British aviation as a whole and that it would cause damage to British Airways without ensuring a profitable operation for BCAL or other British carriers.

Nevertheless, I want BCAL to continue as a schedule carrier on major routes. I accept that BCAL has made a valuable contribution to the total United Kingdom aviation effort in the past few years, that it is valued by many consumers for providing a choice of British airlines on a number of domestic and European routes and that it is the main operator from Gatwick where traffic must be expanded progressively as part of our national airports strategy. I am anxious to retain BCAL as a second centre of airline expertise in the United Kingdom and to do what I can to help make more secure the jobs of the substantial number of workers who depend on BCAL for their livelihood.

I have therefore decided that British Caledonian should have a sphere of influence for its long-haul scheduled activities. This will be based upon its West African and South American services and I envisage a limited exchange of routes with British Airways which would consolidate the two airlines' respective spheres of in- terest and be of benefit to both. I shall arrange further discussions with the airlines, with the aim of securing early agreement on an exchange that would be operationally sensible and reasonably balanced. Within its sphere, British Caledonian will continue to be the preferred airline. I believe that on this new basis British Caledonian's services will be complementary to those of British Airways rather than competitive with them and that this will open the way for closer co-operation to the advantage of both airlines.

British Caledonian will retain its present network of European and domestic services. It will also remain free to operate non-scheduled services throughout the world and on these services it will retain a measure of preference over all other British airlines except British Airways.

I said earlier that I had decided that it was no longer generally desirable to seek to designate more than one United Kingdom airline to serve any individual long-haul route. I have, in this context, looked carefully at the Skytrain service proposed by Laker Airways. I am satisfied that if it were allowed to go ahead in the conditions likely to prevail in the North Atlantic market for a considerable time ahead, it would divert traffic away from the existing services and in particular damage British Airways. I have accordingly told Laker Airways that in these circumstances the Skytrain service cannot be allowed to start.

The United Kingdom airline industry, like that of other countries, has faced and will continue to face a period of considerable difficulty. So far we have withstood pressures better than most and I believe that we can surmount them in the future. I do not think that frequent or major changes in policy affecting the industry are desirable. So my aim has been to make only such changes in policy as are necessary if the industry is to deploy its resources to the best effect in the very competitive international markets in which it has to operate.

These policy changes will need to be incorporated in new policy guidance for the Civil Aviation Authority, for which I shall be seeking the approval of Parliament in due course. I am also considering whether an amendment to the Civil Aviation Act 1971 will be required. I shall set out my proposals in greater detail in a White Paper to be published in the autumn. Meanwhile, I am placing in the Vote Office a note about the factual background to the review.

Mr. Warren

While thanking the Secretary of State for his statement and welcoming his declaration of confidence in British Caledonian and therefore, one must assume, his confidence in the future of British Airways, may I ask whether he is aware that I am extremely worried that he appears to have failed to understand that these airlines operate in an international atmosphere and I regret that it seems that he has thrown away British Caledonian's routes to New York, Los Angeles, Chicago, Toronto, Bahrain and Singapore without seeing how they could be used in negotions with foreign Governments or by allowing the CAA to use his decision in its own negotiations with carriers throughout the world? Throwing away these routes is throwing away an asset which has been hard won.

In regard to the Civil Aviation Authority and its ability to give licences to operate, the right hon. Gentleman has downgraded its position and shown that fact by saying that in the rationalisation that he wishes to pursue the discussions between British Airways and British Caledonian will be led by the Department of Trade and the CAA will only be brought in as an adviser. What will be the value of the authority's licences in the future?

Laker Airways has spent£300,000 in legal fees to win seven hearings on both sides of the Atlantic to try to carry passengers from this country and America more cheaply than any other airline in the world. A total of$71 million has been invested with the approval of the Bank of England in the purchase of aircraft, and the Secretary of State approved the purchase of a third aircraft in May last year. It is a pretty poor show by any standards that the Secretary of State should tell us that he will no longer encourage the enterprise of Laker Airways.

Air transport is an international industry, and I had hoped the Secretary of State would encourage it to expand, but his statement does not do that. He does not show that he understands that the industry must be seen in a European context. He has missed a major opportunity of taking a leading position in the development of European air transportation.

Mr. Shore

I am not sure there is any possibility of us assuming anything like a leadership position in European air transport. This is an area where the EEC countries concerned have only just begun an exchange of views. It is not an area in which there was anything even approaching a common policy. I can put that point on one side.

The hon. Gentleman is unfair when he complains that we have not taken into account the international circumstances in which the industry operates. That has been the most important consideration before us throughout. It is precisely the falling away of international traffic as a result of the great upheaval in oil prices, with all the implications that that has directly on airlines and more indirectly on the general growth of prosperity and travelling, that we have had to take into account in trying to find a new way forward for the British civil aviation industry.

I do not accept that the announcement impairs our rights in the United States vis-á-vis those services that have been designated and agreed between the two countries. These rights are not being abandoned.

I found the hon. Gentleman's suggestion that the Civil Aviation Authority had been downgraded rather difficult to follow. The authority is undoubtedly performing a very useful rôle, and it is not my intention to downgrade it. I shall be having discussions with the CAA about how further discussions between British Airways and British Caledonian can best be conducted in future.

I understand very well the feeling many hon. Members have about the decision on Laker Airways. They should not assume that we do not have the same feelings on this side for the enterprise of this gentleman and his airline. However, we had to consider a specific point—whether it makes sense today. I would remind the hon. Gentleman that the CAA itself concluded only two or three months ago that it would not be right to allow Laker Airways to go ahead for at least a year, given the background of events and the falling away of traffic on the North Atlantic routes.

Mr. David Steel

Since the statement amounts to firmer control over the operations of BCAL, have the Government considered the possibility of taking a minority State shareholding in that company? Since the Secretary of State has acknowledged that it is important to expand BCAL's domestic and European services through Gatwick, what undertaking has he given that these services will be profitable in view of the growing competition of the shuttle service which is presently running from Glasgow, and which in future will operate from Edinburgh as well? My hon. Friends and I are also concerned about the decision on the Skytrain. If Laker Airways is not to be given the go-ahead on that project, what undertaking has British Airways given that it will look into the possibility, which could be of great benefit to the consumer?

Mr. Shore

It does not lie within my power or that of anyone else to assure the profitability on BCAL's short-haul European routes. I accept that there is a general lack of profitability on the domestic routes, and it is my wish that that situation should be rectified as soon as possible.

The hon. Member asked about a State holding in BCAL. We considered that possibility very carefully, but it seemed to me that this was not an area in which it was necessary or right for the State to take a holding. This is an industry in which we already have a dominant major public corporation, the principal flag-carrier of the country—British Airways.

Mr. Donald Stewart

Is the right hon. Gentleman aware that there will be major relief in Scotland that BCAL, which has a Scottish ambience and an ability to promote Scotland abroad, has some measure of reprieve? However, we fear that instead of being given a quick bullet, the airline has been condemned to a slow lingering death. The Secretary of State said that only one United Kingdom airline would he licensed on any long-haul route. If the situation improves, can this decision be reconsidered at a later date? Will the right hon. Gentleman confirm that the routes already granted by the licensing authority and not activated by the Government are to be dropped?

Mr. Shore

I do not look upon the decision about BCAL as being a slow, lingering death. In some ways there will be greater certainty than before in the airline's affairs. The proposed talks between British Airways and BCAL, in which I hope, to their mutual advantage, that they can make adjustments in their routes, will lead to a strengthening of the position of both airlines.

I should be reluctant to say anything at the moment about whether my decision on the routes can be reconsidered. We have to consider carefully, as I am sure the House will want to do in the debate which I hope we shall have, not only the existing situation hut dual designation and the long-term trends. We must face the fact that the possibilities of dual designation in the kind of pre-determined air service agreement of today are enormously curtailed.

Mr. Dan Jones

Were these proposals discussed with British Airways? Is my right hon. Friend aware that it is on the record that routes previously developed by British Airways have been conceded to BCAL and that this could not possibly have done the economics of British Airways any good?

Mr. Shore

I have discussed with British Airways not only the thinking that went into the review but also the outcome. It would be wrong for me to say that British Airways had no interest in the return of these routes, but I think I am correct in saying that British Airways recognises that in the general conclusion which I have reached there is advantage to it as well as to BCAL and that this therefore offered the possibility of a solution which is acceptable all round.

Mr. Tebbit

I first welcome what the Minister says about looking forward to a debate on this matter. Does the right hon. Gentleman believe that what he is proposing will do all that he can do to ensure the profitability of British Airways? Does he realise that in allocating these routes himself he implies that he has made a judgment that if BCAL is competently managed it should be profitable on the basis of the routes which he is allocating to it? Does he think that Freddie Laker, with three DC10s and his handful of employees, is such a menace to British Airways with its scores of aircraft and its 60,000 employees that he must be put down in this ruthless manner in order to protect British Airways? Does he feel that he has now changed the relationship between himself and the CAA to such an extent that there should be legislation to emphasise the fact that the CAA is now nothing more than an office boy and that the Secretary of State has taken over personal management of the policy which the CAA was given to administer?

Mr. Shore

I am sure that none of us thinks anything of the kind about the CAA and would not dream of describing in those terms the relationships which exist, relationships which are well known to the House and which were laid down in the statute. My relationship with the CAA is one which I certainly hope will develop as usefully in the future as I have found it to be in the past.

I think we have looked after, and that we must look after, the major British carrier. I think we have helped to do that and I believe that that would be the judgment of all. We have also helped BCAL as far as we can, and I have considerable confidence in the very competent and energetic management which BCAL has the good fortune to have running its affairs.

I regret the necessity of doing what I have done with regard to Laker Airways, but I do not think that we have acted ruthlessly. We had already had to rule out the possibility of Skytrain operating for at least a year and I think it is only fair for me not to play Mr. Laker along. That is why I have said openly that, for as far ahead as I can see, I do not see how we can let him proceed without damaging others and still bring benefit to the nation as a whole.

Mt. Dalyell

Although my right hon. Friend's decision may earn him rebukes from the Conservatives, many of us feel that he is right about Skytrain. I wish to ask my right hon. Friend about the minority routes and BCAL. How does he see the development of the South American route, and has he anything to add to what he said to the hon. Member for Roxburgh, Selkirk and Peebles (Mr. Steel) on the vexed question of the minority rights?

Mr. Shore

I have nothing to add about minority holdings in BCAL which I do not believe are necessary or desirable. I believe that the routes that BCAL already has hold good prospects for expansion. The South American route has developed fast because it is in an area of great economic advance, particularly in Brazil and elsewhere. In West Africa, subject to what my right hon. Friend the Minister of State said a short time ago, there is a substantial and growing market of which I have no doubt BCAL will be able to make the best possible use.

Sir G. Sinclair

Will the right hon. Gentleman accept that his statement will cause a good deal of anxiety around Gatwick, which is in my constituency, both for the future of the private enterprise airlines based there and for the future of employment. My constituents will watch carefully how his statement works out in practice and whether giving extra security by protecting certain routes is balanced by the cutting down of the freedom to explore new routes and operate worldwide, which he is now taking from British Caledonian and which is one of the main prospects of earning money both from this country and from America that Freddie Laker and his enterprise had ahead of them. My constituents will look at his performance in this area carefully. I shall be fully briefed by the time we debate the matter.

Mr. Shore

I am glad to hear that the hon. Gentleman is, as I am sure he would have been anyway, in close touch with his constituents. It is difficult in present conditions to avoid anxiety in many British industries. However, the conclusions that I have reached today are designed to be as helpful as possible to the main interests concerned. I cannot say beyond that what the future will bring, but I have considerable confidence in the strength of the British aviation industry.

Mrs. Thatcher

I should like to return to the subject of Laker Airways. Is not the nub of what the Secretary of State is saying that the private carrier is so efficient and so good for the consumer that the nationalised industry cannot compete?

Mr. Shore

I honestly do not think that that kind of over-simple free enterprise rhetoric is the right way to approach the future of the civil aviation industry. All who have had to deal with the civil aviation industry know that to begin with we are dealing with a highly regulated industry in which there is massive international competition. Further, anyone who knows anything at all about it knows that the great problem in relation to the whole of the North Atlantic is massive over-capacity.

Several hon. Members rose

Mr. Speaker

Order. We are operating under a guillotine today. This cannot continue very much longer. I shall allow one hon. Member from each side to ask a question.

Mr. Cryer

Will my right hon. Friend accept that the decision not to go ahead with Skytrain for at least 12 months will be widely welcomed by Labour Members, because many of us believe that the long-term effect of such a move would have been disastrous? Will he accept that many of us will view with surprise his decision not to absorb British Caledonian into British Airways? Surely, as a result of Clause 4 it should be our policy to do just that in this situation? Finally, what arrangements will be made for the use of Concorde, the biggest financial disaster we are likely to have for some time in the future? Will Mr. Freddie Laker be able to buy Concorde and take the losses as well?

Mr. Shore

I have not considered Mr. Laker as a possible operator of Concorde, but the question of Concorde's operation is a separate one. The absorption of BCAL by British Airways was one of the possibilities that I considered. One of the things, among others, that worked against any such solution was, I fear, the fact that had BCAL been absorbed into British Airways—incidentally, British Airways was not anxious to do this—it would have led to a considerable rationalisation and reduction in the number of people employed at Gatwick Airport and the surrounding area.

Mr. Monro

Is the Secretary of State aware that Scotland is proud of British Caledonian and will be concerned at the statement that he has made? Has he had discussions with British Caledonian about the profitability of the routes to Africa and South America? Does British Caledonian agree that those routes will be profitable, because the long-term future of this fine airline depends on this result?

Mr. Shore

It is for BCAL to say what it thinks about its future. The hon. Gentleman will find that it is reasonably confident about its prospects in the period ahead. As I said earlier, it has good management, and I believe that it will be successful.