§ 4.13 a.m.
§ Mr. Kenneth Warren (Hastings)
I am very grateful to have this opportunity of raising the subject of two Votes, Class IV and Class VI, and in particular the relationship of those Votes to the decision announced in the House two days ago in respect of the future of the Laker Sky-train project.
The situation, as I understand it from paragraph 10 of the Civil Aviation Guidance published in 1972, is that it is the job of the designated authority to encourage the provision by British airlines of services that will foster the development of United Kingdom trade and tourism and strengthen the balance of payments.
2308 There was no change in that objective in the anouncement this week, and that one welcomes. But what was difficult to accept—I regret that I shall have to make numerous references to this— is that when on 29th July the Secretary of State said that he hadaccordingly told Laker Airways that in these circumstances the Skytrain service cannot be allowed to starthe was making an announcement which had been made known to Laker Airways only within the previous two hours.
That is particularly short notice, and not the kind of consultation that one would expect the Secretary of State to have with an important British airline of international calibre or the kind of consultation that he said he had had with British Airways. In reply to the hon. Member for Burnley (Mr. Jones), he said:I have discussed with British Airways not only the thinking that went into the review but also the outcomeI understand that Laker Airways submitted substantial documents to the Secretary of State during his own review of the future of British aviation policy. These have been discussed but at no time during the discussions were there consultations about the future of Skytrain let alone its stopping.
Not only was Skytrain stopped but there was another peculiar feature to this mystery.
§ The Under-Secretary of State for Trade (Mr. Clinton Davis)
Is the hon. Gentleman suggesting that Mr. Laker was never seen in the Department of Trade about his submission? I should like him to specify his complaint. Is he saying that it was wrong of the Secretary of State to advise Mr. Laker, as he had advised other parties to the matter, only a short time before the announcement was made? Does he think that the Secretary of State should not have done that at all?
§ Mr. Warren
I think the Minister has misunderstood what I have been saying. I have said that submissions were made by Laker Airways to the Secretary of State during his own consideration of what he wished to review in civil aviation. I also said that discussions had taken place on the study submitted by Laker but that it was not until less than two 2309 hours before the announcement that Mr. Laker was told that his Skytrain project was to be stopped. Other airlines had enjoyed better consultation. I am sure that the Minister could list the consultations with British Airways, beforehand and not on the day when it was made known to them what the future would be.
§ Mr. Clinton Davis
I do not blame the hon. Gentleman for not knowing the confidential matters which went on in the Department prior to the announcement. But would he not accept from me that the Secretary of State did not disclose at an early stage his conclusions, either to British Airways or to British Caledonian? It so happened that they were seen a short time before Mr. Laker, but there is nothing sinister in that. It would have been wrong, would it not, for the Secretary of State to make his decision known to any of the parties concerned a considerable time before it was announced in the House?
§ Mr. Warren
I do not want to be diverted into consideration of the consultations with other airlines, but in this case less than two hours before the announcement was the first time that Mr. Laker knew that the Skytrain was to be stopped. That was an important matter for a company which with the Government's authority, had invested $71 million in the project.
I should like some guidance. The Secretary of State said on Tuesday that the Skytrain could not be allowed to start, whereas the hon. Member for Keighley (Mr. Cryer) made an assumption,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 …?"—[0fficial Report, 29th July 1975; Vol. 896.]It will be useful to hear whether it is to be stopped, as the Secretary of State said, or has been shelved for only 12 months, as his hon. Friend seemed to believe.
I give the history of the project. The first application was made for the Sky-train on 15th June 1971. Permission to operate it was granted by the Civil Aviation Authority on 26th September 1972. On 28th February 1973 the British Government designated Laker Airways to operate as a United Kingdom flag carrier on the London-New York route. 2310 On 13th March 1974 the United States judge, Mr. Greer Murphy, recommended to the United States Civil Aeronautics Board that Laker should be allowed to operate the service. That recommendation is contained in a substantial document, the significant statements contained in which show clearly that an experienced but neutral party, assessing the capability of an applicant came to a clear decision, which was relayed to the Civil Aeronautics Board and passed for decision formally to the President of the United States. On page 32 of his findings he said:The record clearly establishes that Laker possesses the financial, organisational, and operational qualifications to be found fit, willing, and able under the provisions of Section 402"—which is the permission to operate.
Elsewhere in the document the judge made clear the ability of Laker Airways when he said:Laker's proposed services is within the scope of the Bermuda Agreement.There was no doubt about the way in which the service could operate. The judge went on:Issuance of a foreign air carrier permit to Laker authorising it to engage in the scheduled foreign air transportation applied for will be in the public interest.There was clear evidence that on the United States side of the Atlantic every circumstance was in favour of Laker Airways.
In addition, a number of documents show that the Department of Trade was fully in favour of the efforts being made by Laker. A document dated 11th September 1974, which was sent to Mr. Laker and which was signed by the Minister, says that he was pleased that Mr. Laker had been keeping in close touch with the officials in the United Kingdom. He goes on:You … will therefore know that both formal and informal representations were recently made to the US authorities on this matter. These should have left them in no doubt that we expect full compliance with the terms of the UK/US Air Services Agreement, as regards the designation of Skytrain".A letter written on 30th September to Mr. Laker on behalf of the Secretary of State supports those representations and views.
2311 On 4th October 1974 the Secretary of State wrote to Mr. Laker saying:We have continued to take the opportunity whenever possible of reminding the US Government of the strong representations we have made about your permit. … If we are able to make quicker progress with the US Government so that Skytrain can start in the course of the winter, we will naturally consider negotiating an amendment to the agreement".We wonder why Skytrain became involved in that review. It is clear that the Government wanted to do that long after the fuel crisis and the recession of passenger traffic burst on the world. That letter was appended to the statement of the Department of Trade of 23rd September which mentioned the agreed 20 per cent. cuts in the North Atlantic airline capacity. All this came after the cut in airline capacity caused by the fuel crisis and at a time when the Government were still thoroughly backing the Laker Skytrain.
I come once more to the queston of what caused the Government to include the Skytrain in the review. On 7th February this year the CAA upheld the licence application of Laker Airways after the revocation of the British Airways appeal against it. We end up in February this year with the statement that it was recommended by the CAA that operations should commence but not for a period of 12 months. I should like guidance whether this is a rolling situation. Was the hon. Member for Keighley right in saying that it was a 12-month period, or is the project shelved entirely?
§ Mr. Clinton Davis
I shall in due course enlarge upon the matter, but my hon. Friend the Member for Keighley (Mr. Cryer) was not entitled to draw the conclusion which he drew. He did not have the advantage of seeing the statement, and he may have misconstrued it and confused it with the CAA observation that the service should not start for at least 12 months. Suffice to say that my hon. Friend was not entitled to draw the conclusion which he drew from any words used by my right hon. Friend.
§ Mr. Warren
I am grateful to the Minister for his intervention. When he replies to the debate I hope that he will tell us what is to be the future of Sky-train. Will it be allowed to proceed?
I have gone through this extensive preamble about the history of the pro- 2312 ject because many important officials in this country and in the United States administration have been pressed and have taken time to try to promote this British project and to find a solution which would be of benefit to the United States Government and people and to the British Government and people. Many of them, particularly those in the Civil Aeronautics Board in the United States, must be mystified why this tremendous pressure should have been exerted over such a long time, why so many dollars should have been allowed to be invested when the United Kingdom has a distinct deficit of dollars to expend on any capital equipment and why there should be this continual wish to drag down the project.
There has been a remarkable amount of confusion about what the passenger gets for the ticket he buys. The tickets cost £59 single fare and were not to be sold more than six hours before departure. The ticket enabled a person to travel without further booking restrictions, it was valid all the year round and there were no over-booking problems. I have no interest to declare except that one day I hope to be able to buy a ticket for myself. There is considerable misunderstanding about the cost of flying the Atlantic.
Mr. Henry Marking, who is a great authority on aviation and a competitor of the Laker Skytrain, is a man whom I greatly admire. In the BBC television programme "London South-East" at six o'clock on the evening of 30th July in reply to a question whether the Sky-train would be reasonably priced he said:It is more expensive than ours, £99 to £109; you can't get better than that.In trying to research the fare structure, one problem is to find out exactly which are the apples, which the pears and which the oranges. With great respect to Mr. Henry Marking, there is a substantial difference between what he was saying and the reality of what Skytrain offered.
I hope that in due course one of my hon. Friends who has been looking at the consumer side of the problem will catch the eye of the Chair to talk about the kind of market penetration that would be involved in the Skytrain, compared with British Airways. I under- 2313 stand that the £99 quoted by Mr. Marking refers to an off-peak period, and that the £109 involves what is called the "shoulder period". For those fares it is obligatory to buy a return ticket, whereas the Skytrain tried to offer a £59 single ticket at a standard rate all the year round.
There are certain other conditions, which are very important, attached to the fares quoted by British Airways. They show the difference between the kind of service available on the Skytrain project and the kind available on a normal IATA carrier. On the Apex system in the United Kingdom one must book 60 days in advance. The Canadians have a similar system. In the United States, on the ABC system, one must book 90 days in advance. These are typical booking conditions. A non-returnable deposit is demanded, and one can be liable to pay the whole fare. Insurance can be taken out against having to do so, but it costs £5. The many terms and conditions in the small print mean that there is a world of difference between the kind of fare and service offered on the Skytrain and that which is available from IATA scheduled carriers.
I have quoted the off-peak and shoulder fares. The peak fare at the height of demand is not £99 or £109 but £136 return—a return ticket being obligatory—compared with £59 single on Skytrain. A return fare on Skytrain would be £118, but one would not be forced to buy a return ticket. This means that a different kind of service is being offered.
It has been suggested that we should not be able to compete with the Americans, because they would easily step into the breach and soon put Sky-train out of business. I find that there is no American law which would allow competition to Skytrain by a United States supplementary carrier of the kind that Laker Airways is. I presume that it would not be possible to enact a new law to allow direct competition with Skytrain any faster than it could be done here.
Members of IATA, such as Pan American and TWA, could not offer such fares as £59 single, because under the IATA rules everyone must agree on the fare. At present none of the IATA 2314 carriers is even thinking about offering a fare as low as that which could come on the Skytrain.
Before the civil aviation review there were nine operators operating across the Atlantic. One was British Airways, another, British Caledonian, still had the routes assigned to it, and the third. Laker, had the licence. After the review of civil aviation we no longer have the opportunity of offering three British carriers across the Atlantic. We have only one. So the chance of spending pounds for one's flight across the Atlantic is substantially reduced. A traveller is far more likely to have to spend dollars or other foreign currency to get across the Atlantic. This reduction in competition is a great disappointment to the air transport industry generally on this side of the Atlantic and in particular to this country.
I am sure that the Minister will correct me if I am wrong, but I understand that even at the late hour when Mr. Freddie Laker was able to see the Secretary of State this week, Mr. Laker immediately offered to accept a restriction in the authorisation of the licence to a period of two years as proposed in Judge Murphy's recommendation in the United States to the Civil Aeronautics Board. Mr. Laker also went on to say that if, after 12 months, the experiment was unsuccessful, he would voluntarily get off the route. Unfortunately the Secretary of State felt that he could not accept that proposal.
My hon. Friends and I hope to be able to persuade the right hon. Gentleman that there are important arguments here. While we appreciate that, because the Secretary of State has received little notice it was impossible for him to change his policy at that moment, we hope that he will consider looking at the whole problem one more time.
I feel sure that the right hon. Gentleman would find tremendous co-operation across the House in trying to find a workable solution which would not cut into British Airways' market or into the ability of the British to get the best possible share out of the North Atlantic route. There has been a two-year delay on this project which has gone across two Governments. That has meant, in the opinion of some, a loss of $200 million of revenue to this country from tourists who would have come but who have not been able to afford the air fare.
2315 I remind the Minister that there is this question of the $71 million of investment, approved by the Bank of England, which involved the purchase of a third DC 10 last year, which specifically carried the blessing of the Secretary of State for Trade. That aircraft was imported duty free on the instructions of the Secretary of State. I am delighted that this was possible. There were certain onerous terms and conditions laid down for the operation of the aircraft in a letter dated 29th April to Mr. Laker in which it was said that the Department would want a record of each flight undertaken and the date, departure and arrival point and mileage logged. Very courteously the letter went on to say:I hope you will not find this too onerous a taskThe last sentence said:In conclusion I should like to wish you every success with your new venture.The conditions laid down are important because they also show the constraints under which Laker Airways is forced to operate with this aircraft, with or without Skytrain. One was that the aircraft should be used during its first three years commencing June 1974 for at least half of its revenue-earning mileage on non-stop flights exceeding 2,500. It is difficult to find sectors in which to operate exceeding 2,500 miles which do not involve crossing something like the Atlantic on a non-stop basis. Another condition was that if, in any of the three years, the conditions laid down were not complied with, the duty-free direction would cease to have effect and the duty would become payable.
At the moment if Laker Airways cannot manage this because Skytrain has gone out of the window, Mr. Laker will become lumbered with the duty on the whole aeroplane. Lastly, it was a condition that the aircraft should be used only for the maintenance of overseas services. That is not very onerous because it is impossible to fly over 2,500 miles in Britain without passing over a bit of water. It will be seen that there are some important and complicated aspects to this. I regret that I have taken so long in trying to describe them. However, even at this late hour, I welcome the opportunity of having a chance of trying to set the scene for Skytrain. Per- 2316 haps there would not have been another chance to do so.
I ask the Secretary of State and his Ministers to look at this project once more. I am not a Front Bench spokesman, although I happen to be the chairman of a relevant committee, but I assure them that I shall give my personal endeavours to trying to find a way to make this scheme work. We are considering a unique transportation system. It is a system which will extend the opportunity to travel and enable people to know more about the world in which they live. It is an idea which is typical of the inventive genius of the British people.
We have always led the world in various forms of transportation. Here we have a leadership system which is a new and exciting idea. It is a concept for which people have been waiting, on both sides of the Atlantic. It is a means of bringing people together. It offers a chance for people on either side of the Atlantic to see each other's countries and to take part in an exchange of ideas. They would have the opportunity to get to know each other in a way that would not otherwise be possible, given the general level of fares.
I hope that the Minister will not take it amiss if I say that at a time when his Government are repeatedly castigating private industry for its failure to invest in new, modern equipment, here we have a potential $71 million investment which is not being allowed to proceed. The first leader in today's edition of The Times is entitled "An Industry Outclassed", but the Skytrain is an industry that is anxious to go. Hundreds of new jobs would be created by allowing Sky-train to fly. The money has been invested, the market is ready. It would be possible for Lakers to get going in a remarkably short time. This year's summer season has been missed, but the scheme would probably be ready in the spring of next year. That would probably be the best time to get it off the ground.
The British air transport worker is an unusual person. He operates on a 24-hour clock. His enthusiasm for the industry is quite unusual. He is a man who wants to see his industry succeed. He is a man devoted to trying to make it succeed. I think that we must take every possible opportunity to encourage 2317 him. It would be nice to see incentive, encouragement and collaboration given across the Floor of the House, in what is otherwise too dull a world.
§ 4.43 a.m.
§ Mr. Norman Tebbit (Chingford)
Like my hon. Friend the Member for Hastings (Mr. Warren), my purpose is not to upbraid the Minister over the review of civil aviation but to seek to persuade him. Certainly it is not my intention to attack or criticise British Airways in any way. Nor to say that the Secretary of State is wrong in his efforts to protect it. However, I fear that he has perhaps made the error of over-protecting it.
The review of civil aviation policy could not have been an easy matter for the Secretary of State. He had to make difficult judgments. If my colleagues and I differ from him, we do so not so much on grounds of ideology as on the judgment we make of the practical problems that aviation faces, the opportunities which are in front of it and the best way in which British aviation can take advantage of them.
I understand the anxieties which I think were in the right hon. Gentleman's mind about over-capacity on the Atlantic route and throughout air traffic generally. I share his anxieties, as everybody does in the aviation industry, and I would be the first to accept that there is no proper free market in the North Atlantic travel business.
There are seven carriers now on the London-New York run, only one of them British, all of them national carirers, often subsidised, and often taking loss-making business—indeed, they are seeking loss-making business—and some of them ought to get out of that business. Very few will, because they are national air lines, and national air lines are part of national prestige.
Efforts towards a reduction of capacity on the Atlantic route at the moment by agreement are certainly not unreasonable, and I well see the possibility that the Secretary of State feels that the advent of Laker Airways with the Skytrain on the North Atlantic could make it more difficult to achieve capacity cuts which he may feel are necessary.
But the problem, I suggest, is not only one of capacity. It is the related problem 2318 of fare levels and revenue yields. Fares and, even more, the actual revenue yields, are liable to fall or, in these inflationary days, to rise less quickly when there is over-capacity on a route.
It seems to me that the case against Laker which must have been deployed in the Minister's office or in the Minister's mind must have been threefold: first, that Skytrain would add to excess capacity; second, that by offering such a low fare it would further dilute passenger yields and lower the total revenue on the route; and, thirdly, that it would not generate new traffic but would divert traffic from the existing carriers.
I will deal first with the question of capacity. Most of the capacity on offer is not British capacity, and it is with British capacity that we should be most concerned. As the advent on the route and the subsequent withdrawal of British Caledonian showed, the privately owned airline will react in a logical manner to an over-capacity situation. British Caledonian withdrew. Indeed, it withdrew in just the manner that Laker Airways had forecast it would, because Laker had always suggested that it was unlikely that British Caledonian would succeed in offering a similar produce in the competitive market against the "big boys" who in fact had superior equipment generally.
Skytrain would risk Laker's money. If he began to lose money badly, undoubtedly he would withdraw. Any question of over-capacity would have been dealt with. Capacity control is then automatic in that sort of situation.
Secondly, on the matter of fares and revenue yields, as my hon. Friend has said, Skytrain offer a very simple deal: £59 single fare with the restrictions on booking time which my hon. Friend mentioned; no discount; no agents' fees; no fiddles; no back-door sales of discounted tickets; no over-booking situation either.
Mr. Clinton Davies
And possibly no return flight. If the return flight is booked, a passenger may then have to come back on a scheduled flight at considerably increased cost.
§ Mr. Tebbit
Of course, everyone recognises that there might not be a return flight available on the day on which one wants to come back, but if one were extremely anxious to get on a flight on the particular day, there is little doubt that a queue would form at the booking desk before the six-hour limit, and that those who were there first would get on the aeroplane. I think the Secretary of State would recognise that that would mean that those most anxious to get aboard would in general do so. If a situation arose where people were being turned away, I imagine it would show that there was a demand for the service far in excess of the demand which its critics are forecasting. So I think that it is unlikely that there would often be a 100 per cent. load on these services. If there were, it would be a very good justification for starting them.
In contrast to that, what is the position today on fares? I went a little further than my hon. Friend. I rang British Airways, the scheduled carrier on which I would naturally go to America. I asked what I would have to pay to fly to New York in the next day or two. As always, the sales assistant was very helpful. He asked for how long I wanted to go. For a stay of 14 days in America, the return fare was £238.70. If I wanted to stay from 22 to 45 days, it was £198.20. I said that I was not sure how long I wanted to stay. I was told that in that case I might have to pay the normal fare of £306.80 return, although I could take one of the cheaper rates and then, if I found that I ran out of its terms, pay the difference. If I had known two or three months earlier that I might want to go to New York, I could have bought an Apex fare ticket at £160.20 return, or as little as £118.50 if I wanted to go in the winter and not at present. I might have been able to purchase an ABC ticket under similar circumstances—the ticket to which Mr. Henry Marking referred in his television broadcast—the off-peak price varying from £99 to £109, but £137 this month, with conditions almost indistinguishable from Apex. Then the assistant mentioned—this was over the telephone, which no doubt was why he mentioned it—that perhaps the youth fare might interest me, valid for anyone between 12 and 23 years of age, valid for one year, bookable less than five days in advance, at a price of £180.60.
2320 By this time, I began to imagine the customer might be a little confused about the best and cheapest way to travel. That is no criticism of British Airways. These are the IATA structured fares which are applicable to more or less all the airlines operating on the route. But what a complex system, what a series of disincentives to travel, and what a difficult situation for the ordinary man who does not make a habit of travelling to America but who, perhaps, hears suddenly that a close relative is sick in America, wants to go, does not know how long he will be there, but wants to get aboard an aircraft and fly there as quickly as possible. How easily he might slip into paying £306 return when he need spend only just over £100 if he knew what was available, or, if he had been granted prevision to know that his relative would be ill so that he could book two or three months' earlier.
By the time that the agent's commission and the other selling expenses are paid, just what is the real revenue yield to the carrier? I know that my hon. Friend the Member for Romford (Mr. Neubert) is in this business and is quietly wondering to himself what is the real revenue yield.
We know that, in addition to legal cuts, there have been vast ticket fiddles, with major TATA carriers discounting their own tickets at prices far below the agreed figures. Against all this, we have Freddie Laker's £59 each way, very few niggling restrictions and, above all, no restrictions on the length of stay or the age of the passenger, with every penny paid for the ticket going to the airline, to the people who actually offer the service to the passenger and not to other parties.
It is hard to believe that the revenue dilution would be as significant as IATA airlines claim, because they claim that they offer a variety of legal cheap fares.
There is also the question whether the passengers will be drawn from existing passengers or will be new travellers. Those who pay the standard fare of £306.80p at present are unlikely in general to transfer to the Laker Skytrain. They are mostly business travellers who want to book the day that they go or sometimes in advance and have all the advantages of flying that sort of schedule. They are unlikely to shift to Skytrain.
2321 Who would travel on Skytrain? I should like to refer to a survey which was carried out in April, 1975. This survey, I know, will appeal to the Minister. It is a research study conducted for Laker Airways Limited by Market and Opinion Research International. I am sure that this company is known to the Minister and his hon. Friends as it was chosen to do polling and research work for the Labour Party. Moreover, the Labour Party has won a couple of elections recently, so it is probably not a bad firm to use.
In the summary it says:Only one person in forty"—that was the sample interviewed—had holidayed in the USA in the last three years, but a quarter spontaneously mentioned the USA as a destination they would like to visit, and when prompted, over 60 per cent. said that they would 'very much like' or 'quite like' to visit the States. … So there is no lack of people who would like to go to America—and all but five per cent. would go for 'personal' reasons (holidays, visit friends, etcetera).Only 2 per cent. said that they would use Skytrain for business reasons.
The survey goes on to say:The preferred length of stay is relatively long—well over half would want to go for at least a month.Despite the large number who would like to go to the USA, only one in four considers it at all likely that they will go there in the next few years. The reason?—mainly the cost of getting there.… People's estimates of the cost of flying to New York vary wildly from around £40 to well over £300, with only five per cent. believing they could go for under £60. If a sub-£60 fare were available, the likelihood figures change dramatically—over half (almost double the earlier figure) would then be 'likely' to go.That is the justification for the belief that the Skytrain would bring a completely new group of travellers to the United States. This was a deep survey and one on which Lakers based much of their case.
Perhaps it is equally worth noting that in this random sample there were included an above-average number of C1 and C2 respondents, and also a higher than average number of Labour Party supporters—for people were asked about their politics too.
It seems to me that there are four reasons, other than purely partisan why the Secretary of State may have reached 2322 the conclusion that he should put down Laker's Skytrain.
The first is that it might interfere with his hopes of limiting capacity. I believe that, although it would increase capacity, it would increase the British share of the market and would increase traffic, too. Therefore, it would be a favourable, not an unfavourable, factor on the route.
Secondly, he might have believed that it would divert passengers from existing carriers in substantial numbers and dilute revenue. I suggest that there are very good reasons for believing that that is not so.
Thirdly he may have realised, perhaps quite late in the day during his review, that if he committed himself to a policy, mainly concerning British Caledonian, that there should be no direct competition between British scheduled carriers on long-haul routes, he would, perhaps in logic, have to include the Skytrain in that general policy and therefore ban it, although the considerations which apply to Skytrain and to British Caledonian's competition are completely different.
Fourthly, it has been suggested that the suppression of Skytrain was part of a deal with the United States authorities over Concorde. I ask the Minister to be particularly careful to deal with that point when he replies. The suggestion has been made that the British Government had put such very strong diplomatic pressure on the United States Government to help get Concorde admitted to New York in particular that we had caused the Federal Government a degree of embarrassment which they accepted.
But they were also suffering from another embarrassment. The American Government have been suffering from the embarrassment of being in clear breach of the Bermuda Agreement by refusing to allow the Skytrain to start. It is suggested that it was broadly hinted, in the nicest possible way, that perhaps the British Government might get rid of that that second embarrassment for the US authorities refusing Skytrain operating permission for ever.
§ Mr. Tebbit
The Minister shakes his head. I am glad to see that he does. I am happy to accept the assurances which I think he will want to give, because it 2323 would be a good thing to have this story, which is going around, cleared up and denied tonight.
The argument which I have sought to deploy is not that all the considerations are so overwhelmingly pointing in one direction that we would have to be crazy or perverse not to have come to the conclusion which my hon. Friends and myself have reached about Laker. I am suggesting that there is a balance and, indeed, that the balance is such that there must have been some degree of doubt in the minds of the Secretary of State and his advisers whether the Skytrain should be put out of court for ever or should be started perhaps next year.
If so, he ought to have given the benefit of that doubt to the consumer and to the innovators. He should have accepted that British Airways is a very fine, indeed great, airline which is much too good to be broken or even seriously embarrassed by little Laker. I suggest that Laker and Skytrain complement British Airways in many ways rather than compete with it. Those who start travelling on Skytrain as youngsters, when they are not particularly well off, will tend to graduate as passengers of ordinary IATA carriers.
The Secretary of State should have echoed the words of Judge Murphy in his recommendation to the United States CAB:Laker is fit, able and willing"—and later:It is in the public interest to allow Sky-train to go ahead.
§ 5.5 a.m.
§ Mr. Michael Neubert (Romford)
After sitting through a substantial part of the seven-hour debate on Scottish affairs, I can still see the swirl of the kilt and hear the skirl of the pipes. If I inadvertently refer to British Caledonian instead of Laker Airways, I hope that I shall be forgiven.
I declare an interest as a travel consultant but also as a member of the great travelling public who cannot afford to travel to the United States as often as they would wish and who are being deprived of the opportunity by the Government's decision on Skytrain.
2324 The fear that Skytrain would divert traffic from British Airways was a major factor in the decision, and we should examine more closely the kind of people who will be excluded from widening their horzons by visiting the USA. There are those who do not wish or cannot afford to stay for the minimum period laid down in the excursion fare structure. They may well be working people of the kind represented by the hon. Member for Keighley (Mr. Cryer), they may be nurses or even Members of Parliament. This is an untapped source of traffic. There are also those people who have to go at short notice, perhaps because of a family bereavement or because they are given short notice of leave. They are not catered for in the cheap fare structure because that is hitched to bookings made well in advance. There are also people who wish to go for a longer period than provided for in the excursion fare scheme. They might want to stay with relatives on an extended visit or tour the country. Finally, there are those people who would want to stay for an indefinite period, spending as much time and money as they can afford in the United States and perhaps even returning by a different route on a different airline.
All this represents an untapped market for the Skytrain project and would not detract from British Airways' traffic. If there were any doubt about that, it was resolved in the conditions attached to the licence given to Laker Airways in 1972. Tickets could not be booked more than six hours before departure, they had to be purchased on the spot and, to make sure there were no intermediaries, agents or touts, there was the novel and surprising suggestion that travellers should have their hands stamped to show that they had bought tickets that day. It was not possible to book seats until tickets had been purchased and they were guaranteed only for that day's departure. Travellers had no priority to reservations on the following day if flights did not operate. In addition, only 15 kgs of free luggage was permitted instead of the normal 20 kgs.
§ Mr. Tebbit
Laker Airways wanted those who had failed to get on board a particular flight to have a degree of priority on the next flight, but this was ruled out by the CAA, who imposed these extra conditions.
§ Mr. Neubert
Part of my case is that the conditions to be imposed by the CAA were very stringent and included all the items I am detailing now. In-flight catering was not included in the price of the ticket, but it could be purchased on board.
One major condition not so far mentioned was that the flights should be operated from Stansted, Essex. I have a constituency interest to declare in that Rom-ford is well located for convenient access to Stansted, and a large number of my constituents would benefit from Sky-train.
In the last few years a Romford-based tour operator has established himself successfully by basing his holiday programme on flights from Stansted, ironically, by using a Spanish airline. That airport, however, is not convenient for the vast majority of travellers to the United States. The typical British Airways passenger would not be able to fulfil all the conditions, especially since, being compelled to use Stansted, he would have no interconnecting domestic flights. The conditions were therefore designed to ensure no diversion of British Airways passengers.
There would also be a loss to our balance of trade from tourism if Skytrain did not operate. This is not only a question of British people travelling to the United States. The service would not create a massive drain on the sterling reserves because there would be return traffic from the United States. Since the United States has a larger population than Britain, the likelihood is that more tickets for Skytrain would be sold in the United States than would be sold here. Britain would thus enjoy a balance of trade surplus.
§ Mr. Warren
Surveys have shown that the split of passengers would certainly be expected to be about 60 per cent. from the United States and 40 per cent. from Britain, with a consequent dollar inflow for Britain. Some people have put the split as high as 70 per cent. to 30 per cent. in our favour.
§ Mr. Neubert
The Under-Secretary knows how important tourism is to us. In 1974 it was worth £1,000 million, and that was an improvement of £200 million on the previous year. One factor in that 2326 situation, however, was the drop in American traffic. Although tourist traffic has increased by 13 per cent. in the first four months of this year, there is an evident lower percentage of Americans in that total. With the news that the dollar rate for the pound is now 2.15, there is the chance that Britain will be more attractive. Air travel for the Americans at the fare levels proposed tonight would be a considerable attraction and would draw on a great potential as yet untapped.
One further condition was imposed by the CAA in granting a licence. It was that by limiting the frequencies and capacity they provided for a maximum in the year of only 250,000 passenger journeys. At present the traffic across the North Atlantic is about 10 million passenger journeys. That is the proportion of capacity that we are talking about, and we are discussing it in relation to a new market.
The subject of investment has been mentioned. A total of $71 million has been invested in new jet equipment on which there has been very little return so far and which has been given virtually no opportunity to earn foreign revenue. In all these circumstances should we not look to British Airways which has greatly influenced the Minister's judgment, to be a little more magnanimous?
It is an airline which, according to last year's report flew over 500,000 flying hours and 200 million miles. It can afford, with its worldwide prestige to be a little more generous to those who seek to operate in the same market. It still seems to hanker after monopoly, which I find surprising. It is symptomatic in its attitude, even these years later, to British Caledonian's access to routes once operated by British Airways. Those routes, which were transferred on the setting up of the second force airline, represent a small fraction of British Airways' worldwide network. The figure that I have in mind—subject to correction—is about 2 per cent. Even with that small fraction at issue there is a continuing resentment among certain members of the British Airways staff which comes out from time to time.
I should have thought that the Laker Skytrain project was not a very significant threat to British Airways at all. Freddie Laker has, by his imagination, developed 2327 ideas in air traffic which have brought immense benefit and pleasure to many hundreds of thousands of people who, perhaps, might never have had the opportunity of travelling more widely were it not for men such as him. I should like to quote him. In January this year—not much more than six months ago—he said:The people who are running national airlines today don't understand the interdependence of the whole tourist industry, and they don't understand ordinary people. There are 10 million in the U.K. and 50 million in the U.S. who are potential Skytrain users and who will never cross the Atlantic otherwise. Competition in the market place is the essence of a sound economy and air tourism has to be given a new dimension. Nobody has ever fought inflation or depression by contraction. If they had anything but rocks in their heads they would know that only vision and expansion is going to save this country's bacon.It is astonishing that after such characteristically robust plain speaking Freddie Laker is still as popular as he is with so many prominent members of the air travel industry, including his competitors. He is popular because they recognise in what he says that pure unalloyed spirit of enterprise which once made this country great and could make it great again. We diminish ourselves and our future if through over-caution on the one hand or short-sightedness on the other, we seek to cabin and confine the imagination and energies of such men.
§ 5.18 a.m.
The Under-Secretary of State for Trade (Mr. Clinton Davies)
If I speak for rather longer than I would have hoped at this hour of the morning, it is because in a sense I want to pay tribute to the Conservative Members who have participated in this debate. I found the debate interesting because each hon. Member was able to apply in a constructive manner an expertise and at the same time to adopt arguments which did not totally overlap. I ask them to accept that I say that in no patronising way. We have our political differences, but there is no reason why one should not respect the qualities of one's friends on the other side of the House.
They invited me in their speeches to listen, in the hope that they might convert me to their point of view. Having been invited to do that, perhaps I may adopt a somewhat similar stance in the 2328 debate and tell them something of the difficulties, as I see them, which prohibited the Secretary of State—and, in the way that I was able to play some part in helping to arrive at the decision, myself as well—from coming to the conclusion which they have reached.
I was delighted with the posture which they adopted in their remarks because it contrasts very favourably with some of the shrill criticism one read in some of the popular newspapers when this decision was announced. I think that the hon. Member for Chingford (Mr. Tebbit) put his thumb absolutely on the bull point here when he said that this was essentially a matter of a balance of judgment. Of course it is. I recognise, too, that there are obvious attractions about the whole concept of being able to travel to the United States apparently more cheaply, certainly at certain times of the year, than on the scheduled services, notwithstanding the Apex and ABC concepts which have been introduced.
I shall try to spell out the problems, but I ask hon. Members to accept that there could be opened a Pandora's box of problems. I do not believe that any responsible Government, in considering this matter, could have ignored the problems. Of course, it is a matter for hon. Members at the end of the day—there is no vote after the debate—to determine whether what I shall say during my observations is commendable to them.
Perhaps it would be helpful if at the outset I summarised the situation as I see it and then, in rather the same style as the hon. Member for Chingford, went on to develop the arguments that arise from the summary.
First of all, we came to the conclusion that the totally changed circumstances on the North Atlantic since Laker Airways received the licence from the CAA necessarily led us to the conclusion that we should abandon dual designation and, of course, embark upon capacity rationalisation. Secondly, it was recognised by the CAA in January 1975—this was a point not stressed in any of the speeches to which I have listened—that Laker could not operate now or until the market resumed a healthy rate of growth. That was the CAA's conclusion.
Perhaps the Minister would also mention that the CAA, at the 2329 same time as that judgment, made the point that Skytrain would have been operating then but for two years during which the United States authorities engaged in what has been called "unconscionable procrastination"—a memorable phrase.
§ Mr. Davis
I think that I adopted that phrase at some stage during Question Time, and I do not dissent from that propostion in the least.
Thirdly the CAA came to the conclusion by and large—and I hope that I do not do the CAA any injustice in summarising the position—that there would be no advantage and probably a slight loss, which I think the CAA estimated as about £1.l million on the balance of payments if the introduction of the Skytrain service were coupled with a reciprocal service by a United States carrier and that that would also be merged with a substantial loss for British Airways.
Fourthly, I would contend that Laker's own assumption as to profitability and certainly his assumptions about enjoying a monopoly with this service were unrealistic. Fifthly, the difficulties to which I have already alluded would be out of all proportion to the concept of Skytrain itself, difficulties which would inevitably emerge and difficulties which could easily subsume the concept of Sky-train, with the prospect that the heat in the kitchen would become so intense that, after some interval, Laker would withdraw but it would not be a simple situation consequent upon the withdrawal, because he could leave behind a fair measure of chaos. Sixthly, I do not accept that the travelling public would derive the considerable advantages in their entirety that hon. Members have spoken about previously.
My seventh point has not been referred to, but I hope that hon. Members will forgive me if I refer to it. That is the refutation of allegations of bad faith by the Government in which Mr. Laker has indulged. I want to deal as well with the argument about duty remission.
It is essential to consider the decision first in the context of the whole review. It cannot be treated in isolation. My right hon. Friend emphasised in his statement on 29th July that in the changed circumstances now facing civil aviation, he had 2330 decided that in future it should be our general policy not to permit competition between British airlines on long-haul scheduled services. That was commented on in a fairly balanced judgment in The Financial Times on 30th July:The conclusions appear for the most part to be a reasonable compromise. They recognise the practical limits to competition in an industry which is in any case dominated by the decisions of Governments, both in licensing new entrants and in negotiating traffic rights with other Governments. At the same time they accept that the private sector has made a considerable contribution and must be allowed to prosper.it went on:Most of British Caledonian's gains on the North Atlantic were at the expense of British Airways. During the period of dual designation, both airlines made heavy losses.I know that that refers to British Caledonian, but it reflects in part at least on one of the arguments of the hon. Member for Chingford.
It went on:Moreover, the introduction of a second British airline has to be negotiated with the host Government, substantial concessions have to be granted, so that, overall, the gain to the United Kingdom may be slight.In fairness, I should say that it went on:The Skytrain proposal is in a different category, since it is designed as a low-fare, no-reservation service, which no other airline is at present flying. The question which has to be asked is whether the Skytrain service is sufficiently novel and sufficiently cheap to attract a new class of passenger and so enlarge the total market.Those are the arguments which hon. Members opposite sought to establish.The Government believes it would merely take business away from British Airways but this needs to be supported by much fuller information on relative prices and market potential than was made available yesterday.That was a reasonable, balanced judgment. I hope to respond to that invitation. The Civil Aviation Authority's decision in February 1975 read in part as follows:We regard the Skytrain experiment as one to be launched in propitious circumstances when the operator and the public can have confidence that the experiment will prove successful and when diversion from other carriers would be likely at worst to fall within tolerable limits. We are forced to the conclusion that the Skytrain service should not be inaugurated until the market has resumed a healthy rate of growth.The hon. Member for Hastings (Mr. Warren) asked why we included Skytrain in the review. I suggest that it 2331 followed ineluctably from the conclusion reached by the Civil Aviation Authority in February and that in those circumstances my right hon. Friend was perfectly entitled to make, and indeed was drawn irresistibly to, the conclusion that it was necessary to consider it in his overall review of British aviation policy.
§ Mr. Tebbit
I am sure that the Minister will have read in the transcript of the Civil Aviation Authority hearing in January the preceding paragraph and the last sentence of the next paragraph, which read:Nonetheless we believe, and in evidence British Airways acknowledged, that a segment of demand exists within the United Kingdom that, though smaller than it would have been two years ago, may nonetheless be substantial within the meaning of Section 3(1)(a) of the Civil Aviation Act 1971.45. In sum, notwithstanding the weighty and well argued case advanced by British Airways, we conclude for the reasons set out in paragraphs 42–44 above that it would be wrong to revoke licence IB/24214 and we decide accordingly.
§ Mr. Davis
That is true. I am tempted to read the whole report, but that would take all morning. After the last debate, I am not sure that we should penalise the speakers in the next debate.
I referred to paragraph 48, which says:… on all forecasts it is unlikely to be for at least 12 months but nobody can today foresee with any degree of precision the date which may be appropriate for launching the service.Mr. Laker assumed that as the period of 12 months had been mentioned he could start the service in April 1976. But he ignored the rest of the conclusions. I do say that he had no basis for coming to that conclusion, especially in the context of the situation, which remains the same.
In answer to a Question from my hon. Friend the Member for Feltham and Heston (Mr. Kerr) on 21st March the Secretary of State for Trade said that he agreed with the conclusion of the Civil Aviation Authority. I now say, with the authority of the Secretary of State, following the civil aviation review, that I cannot see that the introduction of Skytrain can be justified for a considerable period of time.
§ Mr. Warren
The Minister made a definitive statement. But he also informed us 2332 of many new facts which were not previously known to this House. Those facts are of considerable substance in terms of his judgment about submissions made by Laker Airways, especially about the market, whether the market exists, and whether Mr. Laker's figures are correct. It would be most valuable if those matters could be looked at by Mr. Laker and the Department. As there is a difference it should be investigated. I am sure that the Minister would not want to discover that his figures were as wrong as he believes Mr. Laker's figures to be.
§ Mr. Davis
I rely in part upon the conclusions of the Civil Aviation Authority which investigated in great detail the submissions made by Laker, and I shall later refer to specific paragraphs in that report. In answering that question on the spot I cannot speak for my right hon. Friend. We shall publish a White Paper, and the conclusions which we have reached will, I am sure, be carefully considered by the hon. Gentleman—and indeed the whole House—in determining whether we have made the right judgment about this and other matters. The White Paper will contain fuller information than has been made available to the House thus far in the Vote Office and the Library.
I come to the question of the North Atlantic market, which has presented so many difficulties for British Airways, British Caledonian and, perhaps above all, the two major American Airlines, TWA and Pan-Am, in the last year or so. The position has changed dramatically since the Skytrain concept was originally proposed and the CAA licence was granted. The Civil Aviation Authority fully recognised that in its decision in January to renew the Skytrain licence.
The CAA was told by British Airways that in 1974 traffic between London and New York had declined sharply for the first time since the war and British Airways forecast no growth in 1975 and only a modest growth, probably not exceeding 6 per cent. at best, in 1976. The CAA considered that these forecasts might have erred on the side of optimism, and my right hon. Friend's statement was designed to reflect the severe setback suffered by airlines world wide as a result of the oil crisis and the consequent economic recession.
§ Mr. Warren
I am sure the hon. Gentleman realises, despite that statement by British Airways, that the CAA turned down the British Airways appeal. Whether or not the CAA felt that those figures were optimistic, it did not accept British Airways' argument.
§ Mr. Davis
The CAA did not accept the totality of the argument. Certain features of the argument were accepted by the CAA, as is demonstrable from the report, which I have here and threaten to read in totality.
It is right that I should spell out to the House so that it is on the record the stark nature of the information I have summarised. In 1968 profitability for North Atlantic IATA carriers was represented by a £75 million surplus. It went down to about £65 million in the following year. In 1971 there was a remarkable drop to a loss of £100 million. In 1972 there was a loss of £23 million. Then the rot set in, with a loss of £160 million in 1973 and £300 million in 1974. Those are dramatic changes which occurred within a relatively short period.
The continuation of the setback can be demonstrated by the fact that TWA in the first five months of 1975 lost $110 million and in the same period Pan-Am lost $50.3 million. We do not know the figures for British Airways in that period but it seems probable that when the total annual figures for British Airways are published in August the loss is likely to be about £10 million, but that is not simply North Atlantic travel, and it is not to be compared with the substantial losses suffered by the American airlines.
§ Mr. Neubert
The Minister is basing his case on the CAA judgment that such a project as Skytrain should not be instituted until the market resumes a healthy growth. Presumably both he and the CAA have in mind a general world economic improvement bringing about that growth, which one also presumes would occur within the present high fare structure of IATA airlines. Does the hon. Gentleman not think that that growth should be resumed by the introduction of a low-fare project, much more within the capacity of people to pay?
§ Mr. Davis
I am coming to that argument in the order in which I have 2334 arranged my speech, so I ask the hon. Gentleman to be a little patient.
My third point deals with the profitability and impact of Skytrain. I do not doubt that even at this time—but I believe that it would be for a fairly short period—Skytrain could earn substantial profits for Laker if it were introduced now. But the level of profitability depends on several factors, which in my judgment would not continue for long, and are based on a series of assumptions which I described before as unrealistic.
Laker's most optimistic forecasts depend on his enjoying a monopoly. There is no question about that. But it is the conclusion of my right hon. Friend and myself that he would inevitably have to compete with at least one United States carrier offering the same service. That is not an idle threat that has been made by Pan-Am, TWA and the five United States supplemental carriers. I do not say that all the suggestions would bear fruit, and one can reasonably discount a great deal, but I believe that at the end of the day some competition along similar lines is bound to emerge.
§ Mr. Tebbit
My understanding from Laker Airways is quite clear—that it has always assumed that its period in a monopoly position in the Skytrain market would be relatively short, and that it would welcome an American carrier coming on to the market, because that would engender much more interest in the United States, which is the larger market, in the concept of Skytrain travel, from which Laker Airways would benefit.
§ Mr. Davis
Again my argument is anticipated. Perhaps I should leave time for a question-and-answer session at the end of the debate. But I do not think that you would encourage that way of carrying on a Consolidated Fund Bill debate, Mr. Deputy Speaker.
The second assumption relating to Laker's forecasts is that he would achieve an exceptionally high all-year-round average load factor of, I think, 76 per cent. That is a very high load factor to seek to achieve. It would also depend on having a fare approved, not only by the CAA but by the United States authority, that would enable him to compete effectively with the existing promotional fares.
2335 The CAA in January asserted that the Skytrain fare would almost certainly require further review before any question of the introduction of its service arose. That is stated specifically in the report. Even if the optimistic assumptions to which I have referred prove to be correct, much would depend on the success with which Laker could compete with a United States skytrain service—and possibly not just one but two. I have said that in my judgment that would undoubtedly occur almost simultaneously with Laker's introduction of the service, that it would be the inevitable price to pay for the initiation of such a Service. The best to be hoped for is that Laker could acquire half the available traffic, or one-third if there were two United States skytrains. Would we not then be faced with the prospect that British Airways would seek to activate a similar service, despite the CAA view that Laker, in its judgment, was an experimental service—a one-off service? There is no indication that the CAA would agree to British Airways undertaking a service of this kind—
§ Mr. Davis
I do not know. This is a matter for speculation. The hon. Gentleman may be right. But it would be manifestly unfair if the American carriers were operating the skytrain services, together with Laker, while British Airways was excluded. It is one of the difficulties of the Pandora's box to which I referred. What would happen is that we would be inviting a shambles on the North Atlantic route when we require order and when order can be achieved.
What I have said concerns the profitability of Laker if it were to start Skytrain in the foreseeable future. What we have also to have regard to is the damage it would undoubtedly cause British Airways. Conservative Members seek to minimise that, as does Mr. Laker. It is right that I should examine this proposition in a little depth.
The calculation of British Airways, which was not rejected by the CAA, is that the losses that would be caused to it would be about £3 million a year. This would double if United States skytrains with about the same capacity as Laker were to start, too. We would be faced 2336 with a possible loss—indeed a probable loss—to British Airways of about £6 million a year. That loss has to be dealt with. It can be dealt with by subsidy, but that is not the Government's view of how we should deal with this sort of situation. The alternative is to put up fares elsewhere so that the consumer would have to pay for this in another way.
I contend that there would also be damage to the balance of payments. If there were two skytrains operating, each would earn about £8 million a year, but mainly at the expense of existing services. In reply to what has been put by Tory Members, let me quote from paragraph 37 of the CAA report. The arguments were repeated by the CAA in its conclusion when it said:It follows from all these circumstances that although, as British Airways recognised, a 'Skytrain' service would still be likely to generate some additional traffic"—which it puts at 25 per cent. approximately of skytrain passengers—traffic would need to be diverted from other scheduled services and from charter services on a much larger scale than seemed either necessary or likely in 1972, if the very high 76 per cent. break-even load factor is to be achieved by 'Skytrain' on a year round basis. We cannot assume that any substantial period would elapse before the introduction of a matching service by a United States carrier or of some other competitive reaction, which would compound these effects.That is the, way in which the evidence that hon. Members have relied upon was dealt with by the CAA. That cannot be swept aside as of no consequence. The CAA is a serious body that considered the evidence seriously. In the final analysis it came to a different conclusion from the Government, but that is a difference of emphasis. I do not think it can be said to be very much more than that. The CAA rejected the fundamental arguments on which hon. Members have sought to rely in this debate.
If the two Skytrains operate, each will earn £8 million a year mainly at the expense of existing services. They would earn £10 million from Pan-Am and TWA and £6 million from British Airways. Those are more or less the figures put to the House in the course of the debate.
I submit that the surplus of £2 million that would be earned by Laker would be whittled away by certain other considerations which have not yet been mentioned. 2337 First, it must be recognised that Mr. Laker undertook substantial loans on favourable terms when he purchased his DC 10s. It is true that the terms involved considerable payments of interest. That is a factor that has to be taken into account when considering the balance of payments situation. Secondly, his maintenance charges arise mainly in the United States. He does not have his DC 10s maintained to any extent in the United Kingdom.
§ Mr. Tebbit
But those charges will remain in being as a charge on our balance of payments. They are there already. The only way they can be got rid of is if Laker sells the aircraft, or gets them off his hands and loses all that he has invested in them up to now.
§ Mr. Davis
In coming to my conclusion I am relying on the argument which was deployed before the CAA and which was clearly considered by it in its conclusion. Having regard to all the charges that would be involved, the CAA calculated that the net loss to the balance of payments would in the region of about £1 million a year. I ask the House not lightly to reject the conclusions that the CAA reached in that respect.
§ Mr. Warren
The CAA, having gone through all these examinations, came to the only judgment it could make—namely, that Laker should have the licence and should have the right to operate.
§ Mr. Davis
I cannot resist the temptation of referring to the interjection of the hon. Member for Chingford, who said that there is a bit of this for everybody. In a sense that may be the difficulty that the CAA had to face. Of course, it did not authorise the immediate operation of Laker. The arguments of the hon. Member for Hastings all lead to the conclusion that Laker should have been permitted to operate immediately.
§ Mr. Warren
I do not want to prolong the dialogue, but I want to be certain we agree on the facts as they have been deployed in this complicated argument. It is my understanding that the best and most opportune time for Laker to operate would be in the spring, and it is to be hoped that the economy will be on the upturn by that time. Nobody is looking for an immediate start of these 2338 operations. What I am looking for now is a deployment of argument between perhaps Laker and the Minister to clear up the very contentious facts that he is propounding with which the company will disagree immediately they have the opportunity in the morning.
§ Mr. Davis
It is very difficult to digest at this hour, but the hon. Gentleman is in conflict with his hon. Friend the Member for Romford, who was arguing that, notwithstanding the difficulties, the depression and recession on the North Atlantic, inflation should be fought, as Mr. Laker suggests, by adopting the techniques of expansion, vision, and so on. "Now is the hour", as I think Gracie Fields used to put it. I must go through this argument, because I recognise it as serious. But I think that the CAA was right in saying that there would be a net loss to the balance of payments.
My next point is that British Airways would operate with more empty seats, which would make complete non-sense of the policy that we have been trying to establish, not only here in Britain but in the United States of America as well, to reduce the number of empty seats flown across the Atlantic, because such waste is unacceptably damaging in present circumstances. I do not imagine that the hon. Gentlemen who have just intervened would feel that that was a wholly wrong conclusion.
The hon. Member for Chingford referred to the need for capacity rationalisation. British Airways, Pan-Am and TWA have, with the support of the Government of the United States and ourselves, arrived at a series of agreements to rationalise capacity on most of the North Atlantic routes. That capacity is at present tailored to meet the market demand, and we believe the result will be an improvement in profitability.
One cannot at this stage judge the results immediately—it is impossible to do that—but the agreements, which last until April next year, are beginning to have the intended effects, and as a Government we certainly wish these arrangements to continue for as long as they are required.
What I say about Skytrain in this respect is that its introduction would make it very difficult to persuade the United States air lines to continue to 2339 restrict their capacity, and the whole of the present structure could well be in jeopardy. I believe that it is a real risk.
§ Mr. Davis
The hon. Gentleman says "Now we know". He always knew, I am sure, that this was one of the relevant factors that had to be considered. Let us remember that on his own admission on the radio and television the other day, Mr. Laker described himself as a buccaneer. He rather liked that description, I suspect. But I do not believe that the scheduled air services of the world are necessarily areas for buccaneering.
The interest of the travelling public was the next point raised very persuasively by the hon. Member for Romford, supported by his hon. Friends. I do not accept that the market at which Skytrain has been aimed will be neglected as a result of the decision. I believe that the introduction of Apex and ABCs has proved already to be of considerable advantage.
Opposition Members seek to say that the Skytrain service—which, of course, varies at different times of the year in relation to its competitiveness with those types of fares—overall is preferable and likely to be cheaper. I have already made a concession in part on that. But obviously we are considering the general advantages and disadvantages as a whole. This is part of them. I think that hon. Gentlemen may concede some of the arguments in this case to me. I have made a concession in Dart about this, but I do not think that the situation can be considered simply overall on fares. It has to be looked at seasonally. The figures have been quoted already, and I see no advantage in repeating them.
I turn next to the investment in the DC 10s. The figure of $71 million has been mentioned. Mr. Laker said that our action was immoral because he had invested specifically for the Skytrain service with the approbation, as he put it, of successive Governments. I do not accept the allegations of Mr. Laker in this respect. In the first place, he took a very calculated risk. He did not know at the time that he purchased those DC 10s—at least, he did not seem to recognise—that there might be problems with the 2340 American authorities. He could not know, even if the licence had been granted, what conditions for the aircraft might be imposed by the American authorities if they had performed their part of the Bermuda agreement. It is perhaps a little strange that Mr. Laker should have rushed into the purchase of the DC 10s unless there were other reasons which persuaded him that they constituted a useful investment in themselves, quite apart from Skytrain.
The other day, The Guardian described it as "a massive gamble". I do not know about that. Mr. Laker saw the opportunity to buy the three DC 10s at a very low price, with low rates of interest from the Japanese banks and, generally speaking, on very good terms. Thus, even if Skytrain did not operate, he would make good use of the DC 10s. So he has. Laker is a profitable enterprise today. In the immediate future, if Mr. Laker could operate Skytrain tomorrow for a short period of time, he would show even greater profits than by the present use he is able to make of the three DC 10s.
But only part of the investment of $71 million which he claims to have invested specifically for Skytrain could have related to Skytrain. We know that the capacity on Skytrain was to be limited by the CAA licence to a daily DC 10 service each way in the summer and a maximum 189 seats daily each way from October to March. Therefore, that implied the use of a Boeing 707 in that season or a severely under-capitalised DC 10 during that fairly long period of the year. He might have needed a backup service, but I do not think that Mr. Laker would contend that the supporting DC 10 and the third DC 10 would remain idle. They would be used on other services, of course. Accordingly, it is misleading for Mr. Laker to suggest—and the argument was taken up by the hon. Member for Hastings—that the $71 million was an investment in Skytrain.
It is alleged that the Government permitted Mr. Laker to import his aircraft free of duty and it is implied that therefore we should remain committed to Skytrain. The hon. Member for Hastings referred to the letter of 29th April, setting out certain conditions. I shall deal first with the remission of duty. That had nothing to do with Skytrain at all. Section 6 of the Import Duties Act 1958 2341 specifically provides that duty remission depends—I have to introduce the Schedule when offering a resumé—on whether competitive British-made products are available at the time and not on the purpose for which the products are to be used. Therefore, it follows that the remission of duty had nothing to do with Skytrain as a project or a concept, although Mr. Laker has sought to argue the point in that way. I am glad that the hon. Member for Hastings did not pursue the matter in the same manner.
§ Mr. Davis
I shall come to the conditions. I shall deal with all the points made.
The conditions concerning the issue of the duty-free licence, were put forward solely to ensure that the DC 10s were used on routes for which the version of the TriStar that was available at the time did not have sufficient range. That was the purpose of those specific conditions.
The hon. Member for Hastings will remember that one of the difficulties about the TriStar at that time was that it might not have a sufficient range to cross the Atlantic, hence it did not—although it had Rolls-Royce engines built in this country—represent a competitive British made product. Nevertheless the Treasury was concerned that the conditions ensured that the remission of duty was not obtained under any sort of false pretence. I am not suggesting that Mr. Laker had that in mind. The imposition of those conditions were a perfectly satisfactory safeguard. I reject the charge which has not been made specifically by the hon. Member for Hastings but which has been made by Mr. Laker.
I have conceded before that I do not approve of the way in which the United States held up or failed to comply with the obligations under the Air Services Agreement in respect of Skytrain. Both Governments had to put up with a great deal of delay concerning that matter. Unhappily it is not altogether unusual for the United States Government to deploy these tactics, and I say that with much regret. It has happened before in other respects, quite apart from Skytrain.
We are still concerned about the matter. That is one reason why we have told 2342 Mr. Laker, and shall be informing the United States authorities, that certainly for the time being we are not withdrawing Mr. Laker's Skytrain designation as a scheduled service carrier. We shall continue to remind the United States authorities of our views on this matter.
Mr. Laker told us that he might have to sell his DC 10s. I do not think that will be the case. I do not think that it is such a tragic story as he seeks to represent, because on BBC Radio the other day he said:I will continue to be a buccaneer, and I can tell Mr. Shore and all people that think like him, that Skytrain will remain on the DC10s until the day I die".He will not sell them. He will leave Skytrain on those DC 10s until the day he dies. Therefore, we should not take all Mr. Laker's propaganda quite as seriously as he would like us to take it. We must not be gullible about that. I do not think that the arguments that Mr. Laker has always adduced have impressed hon. Gentlemen opposite any more than they have me.
§ Mr. Davis
Then the hon. Gentleman must be acquitted of the charge of taking the matter as seriously as I had hoped he would.
I apologise to the House for taking so long to reply, but, as I indicated at the beginning, I felt that the arguments put forward by hon. Gentlemen ought to be taken seriously. Indeed, I have given way on a number of occasions because I felt that they ought to be able to deploy their arguments, even during my speech, if they felt that I was going wrong on any particular point.
I admit to having been a little critical of Mr. Laker, but I should point out that he is a beguiling, successful character, a man of considerable enthusiasm and zeal, whom all of us greatly admire. There is no doubt that he is an impressive chap in every respect. That does not mean that one necessarily must accept the conclusions of the arguments that he adduces so purposefully.
My right hon. Friend and I believe that Laker Airways will bend its energies towards the greater carriage of charter traffic on the North Atlantic and, indeed, in other markets. I hope that it will be successful in doing that. Certainly the 2343 Government are prepared to give Mr. Laker—still a relatively small airline operator, but with a most successful charter record—the fullest support in the development of the United States charter market. That was said by my right hon. Friend in answer to a Question on 21st March 1975, and it still operates today.
This has not been an easy matter. None of the decisions which we had to take on this airline review has been easy. We have tried to approach the matter in an undoctrinaire manner. I hope that we have arrived at the right conclusions. We cannot be sure. We are not infallible. I hope that the House will recognise that some powerful arguments have led us to a conclusion which I understand is not a happy one for Mr. Laker. Indeed, it certainly has not pleased the hon. Members for Hastings, Chingford or Romford. However, it is a conclusion which we have reached in good faith and in a way which we believe will be to the long-term advantage not only of British Airways but of the British travelling public as a whole.