HC Deb 23 June 1977 vol 933 cc1754-65
The Secretary of State for Trade (Mr. Edmund Dell)

With permission, I should like to make a statement on the conclusion of the United Kingdom-United States air services negotiations.

Agreement was reached yesterday on the main provisions of a new air services agreement. Final texts still have to be completed before the new agreement can be formally signed and come into effect. This will probably be at the end of next month. The agreement will then be laid before Parliament as a Command Paper. Meanwhile, services will continue as at present.

The most important and novel feature of the new agreement is the mechanism to control capacity on North Atlantic routes. This is designed to reduce the waste of fuel and other resources that results from flying too many empty seats, while preserving competition and benefiting the travelling public. This has from the outset been one of our most important objectives.

Moreover, our airlines will be able to open up new routes to the United States. The new points are Houston, Atlanta, Seattle and Dallas-Fort Worth, and a non-stop route to San Francisco. These routes will enable us to increase our penetration of the North Atlantic market. We have also got a better route across the Pacific for future passenger and cargo services from Hong Kong to the West Coast of the United States.

We have also secured agreement to single designation by both sides on all the North Atlantic routes except two. This means that with these exceptions the British carrier will face competition from only one American airline. The Americans will be putting two airlines on New York and Los Angeles. My intention is to designate Laker as our second carrier to New York. We shall retain the option to designate a second carrier on some other route. I intend to keep this open.

We have obtained substantial reductions in the rights of United States airlines to carry fifth freedom traffic beyond London and Hong Kong to other destinations, although some important fifth freedom rights will continue. A number of these rights will disappear immediately, others after three and five years.

There will also be greater flexibility for the airlines, our own as well as the American, to carry passengers on the same aircraft to more than one destination but without the right to pick up passengers from one destination point and take them to another. This is a new concept which should contribute to more economic use of resources. But we have given notice to the United States authorities that if it turned out to our disadvantage we would want to review it.

A new tariffs article has been agreed which removes the ambiguities of the old tariffs article and should avoid the disputes that have occured in the past.

It has also been agreed that, in accordance with my airports policy statement of 5th April, the new routes to Houston and Atlanta will from the start come into Gatwick. This will also apply to the Dallas route, provided that the British carrier uses Gatwick.

New routes have also been agreed linking Bermuda and our dependencies in the Caribbean to the United States.

Finally, the Americans have agreed to work with us towards a new multilateral arrangement on charter services between North America and Europe. We already have a bilateral arrangement with the United States, which is working well. This will now become part of the new air services agreement. The development of charter services, which both sides desire to foster, will offer further benefits to the travelling public.

I believe that this agreement will open a new and expanding era. It will provide significant new opportunities for the airlines of both sides and promises real benefits to the consumer. It will give British airlines a fairer opportunity to fight for a bigger share of a growing market.

Mr. Nott

May I confine myself to three particular questions at this stage? First, could the Secretary of State prevail upon his right hon. Friend the Leader of the House to enable us to debate the heads of agreement as soon as possible, because we would like the opportunity in the House to assess the advantages and disadvantages of this agreement and it would be useful to do so before the Summer Recess?

Secondly, may I ask the right hon. Gentleman whether, with the benefit of hindsight, he still thinks that he was right to abrogate the agreement in the manner and at the time he did last year? Does he not think that many of the advantages which he has obtained from this arrangement could have been obtained without the brinkmanship which arose?

Thirdly, has he ever known any cartel, whether an industrial one or a Government one, as in this case, which has in the end proved of greater benefit to the consumer—and I am talking of the airline users in this case—than the free play of competition?

Mr. Dell

At any rate, I congratulate the hon. Member on posing those questions rather than making the silly and, may I say, ignorant statement that he issued to the Press yesterday. As to a debate, that is a matter for my right hon. Friend the Lord President, but I will speak to him about it because I should be very glad to have a debate.

The hon. Member asks whether I was right to denounce the previous agreement and to do so at the time I chose. Yes, I was right to do so. I have gained benefits from doing so. The time was carefully calculated. My own view of negotiations of this kind with major commercial interests involved is that the final agreement should and could be concluded only at a time of crunch. Whether that had happened in the last few days, in six months' time or in three months' time would not have made any difference at all to the situation. The timing was right, and we have gained from what has been done.

As to a cartel, the hon. Gentleman speaks as though the airlines operated in a free market. He should wake up to the situation that the operations of airlines are subject to Government agreements. What we have been trying to do and have succeeded in doing in this agreement is to improve the conditions from our point of view. That could be done only by the Government's intervening to denounce the previous agreement and to negotiate a new one. We have done that successfully.

Mr. Russell Kerr

Is the Secretary of State aware that there will be widespread satisfaction, certainly on this side of the House, at this fair and just resolution of a difficult situation which has affected relations between the United States and this country? Is he also aware that his Department's initiative in seeking to resolve this difficult problem in the way it did will certainly earn the gratitude of very many people, not least those in the airline industry?

Mr. Dell

I am grateful for what my hon. Friend has said. I am particularly grateful to him for describing the agreement as fair and just. The main thing about this agreement was that it should be acceptable to both sides and should be able to provide a framework within which both sides could operate. I was very glad to see on the tapes last night that the Chairman of Pan-Am, while conceding that there had been a transfer of economic benefits from the United States flag to the British flag, said he welcomed the fact that a framework had been created within which both sides could operate. That was what we were trying to do, and we succeeded.

Mr. Tebbit

Will the Secretary of State go further than merely talking to his right hon. Friend the Lord President and actually press for a debate. Is he aware that questions and answers of this sort are bound to deal with matters so particular as to ruin the attempt to understand the whole package, or in generalities so general as to be almost banal?

In the meantime, will the Secretary of State say how he satisfied himself that allowing services by an American carrier to start from two American gateway cities —namely, Atlanta and Dallas—while allowing only one city to the British carrier concerned would be fair? Can he tell me what it is that so pleases him about getting services to a British carrier across the Pacific from Hong Kong to the West Coast, because I was flying such services 17 years ago?

Finally, could the right hon. Gentleman say a little more about how—[Interrup- tion.] If the hon. Member for Feltham and Heston (Mr. Kerr) will wait, I will get to something he can understand. Can the Secretary of State say a bit more about how the capacity limitation agreements will work?

Mr. Dell

I shall certainly speak to my right hon. Friend, but it might be better for the House if a debate on this subject took place after the agreement had been signed.

As for the hon. Gentleman's suggestion that there is some inequity in the solo rights for three years granted to United States airlines as against British Caledonian at Houston, taking the national position overall, including Manchester, and the relative value of these points, we were of the opinion that this was a reasonable deal. I should also say that we were asked by British Caledonian to obtain for it solo rights at Houston for a period during which it could build up that traffic. That was a very difficult demand to satisfy but we satisfied it and we have, therefore, provided British Caledonian with a very significant selling point as well as, through the system of capacity control, enabling it, when it goes into Atlanta, to go in with some prospect of success.

As for the route to the West Coast, this is something which the associates in Hong Kong wanted. They wish to develop it for a period and they think this is a valuable route to have been included in the agreement.

As regards the working of the capacity control mechanism, this derives, first, from the existing situation and, secondly, from estimates made by airlines as to the capacity that should be provided during the next similar period, with provisions for a fall-back mechanism in the agreement. This is a mechanism which obviously has to be seen in some detail, and no doubt when the Command Paper is before the House the hon. Gentleman will want to examine the details.

Mr. Pardoe

Whatever the right hon. Gentleman may say about there not being a free market before the agreement, is he aware that any consumer ought always to look with a jaundiced eye at any agreement which allows producers to limit competition and that this agreement does just that? Will he therefore tell us what benefits consumers will receive? Will there be any lower prices? Will there be any greater choice? Will there be any better services which we have not had so far?

Secondly, why has the right hon. Gentleman left open the question of the second British carrier on the Los Angeles or other North American routes? There is a second British carrier, British Caledonian, which claims that it has been very adversely affected by this agreement. Why has British Caledonian not been designated for the second route?

Mr. Dell

The benefits to the consumer will derive from a number of elements in the agreement. The first is that in our judgment and according to our calculations—I have not seen these challenged, and I believe that the United States accepts them—the savings in the waste of energy and of capacity flying across the North Atlantic should eventually lead to lower fares in real terms. What consumers want in transatlantic travel is lower fares in real terms. They do not want empty seats. The other element in the better provision for consumers is the additional gateways into the United States that we have as a result of the agreement.

On the question of a second British carrier, in our judgment Los Angeles is not at the moment worthy of dual designation because the amount of traffic does not justify it. It is open to us to select a point in the United States at the time we wish for dual designation. That is a matter that we now have to consider, and that is an option that I must keep open for the time being.

The hon. Gentleman referred to British Caledonian being adversely affected. I am prepared to go into that matter in detail, if necessary, but it is not true that the agreement adversely affects British Caledonian. The agreement is beneficial to British Caledonian on terms far better than the company could have expected to achieve and certainly better than would have been achieved under the Bermuda Agreement.

Mr. Conlan

Will my right hon. Friend be rather more specific and tell us whether the new agreement allows United States carriers to fly more passengers into British territories than British Airways and the other British carriers may fly into the United States?

Mr. Dell

My hon. Friend will appreciate that the number of passengers who travel on airlines within a system of single or dual designation will depend on the competitiveness of the airlines. I cannot command the relative competitiveness of particular airlines. The combination rights granted under this agreement will enable American airlines, without taking on new passengers at London, to go forward from London to other destinations. We have similar rights in the opposite direction. I am coming nowhere near to saying that the agreement results in a fifty-fifty splitting of passengers. We have tried to give British airlines a better opportunity to get a fairer share of this relatively rapidly rising market.

Mr. Adley

If the criticisms of the hon. Member for Cornwall, North (Mr. Pardoe) have any validity, should they not be aimed at IATA rather than at the Bermuda Agreement? Have Concorde's-landing rights at New York and Washington been reconfirmed in the new agreement? Have the persons signing the agreement on behalf of the United States-Government authority to sign on behalf of all 50 States in the Union? Will the right hon. Gentleman confirm that the British Government are entitled to expect the American Government to assert our rights in any court dispute which may subsequently arise about the conditions entered into in the agreement?

Mr. Dell

In respect of Concorde, we have the same rights under the new agreement as under the old. The prospects for Concorde at New York in the immediate future depend on the results of court proceedings now in progress in the United States. I hope that they turn out favourably in the end. The trial period in Washington ends in September. I am satisfied, after examining the procedures through which the United States Government have to go before confirming rights at Washington, that they cannot confirm those rights before about February. I think it is unlikely that Concorde's rights at Washington will not be extended up to the date of that determination. I very much hope that the determination will be in favour of Concorde.

The question whether the treaty is signed on behalf of all 50 States raises interesting points about the federal constitutions. I think that the hon. Gentleman knows the situation there as well as I do.

Mr. Raphael Tuck

I congratulate my right hon. Friend and note the reluctant, grudging approval by the Opposition for what he has done. Will he instruct the Opposition on the outcome of the operation of a free-for-all in this area, which they seem to advocate so actively?

Mr. Dell

My hon. Friend is no doubt aware of the very large losses made by American airlines on the New York route. One achievement of the agreement is that passengers will obtain better fares in real terms. It is no use the Opposition trying to pretend that this is a free market. The hon. Member for St. Ives (Mr. Nott) is perhaps new to this subject and does not understand the element of control on the civil aviation scene. That no doubt led him to make the curious remarks that he thought it right to make yesterday. We are dealing with a situation in which Governments are involved. In my judgment of that situation, Governments should support their national airlines as well as protect the interests of consumers.

Mr. Donald Stewart

Is the right hon. Gentleman aware that there is already considerable doubt whether the agreement is as benefical to United Kingdom airlines as the statement suggests, that the optimistic forecast in the last paragraph may not come to pass and that, therefore, an early debate on this subject would be welcome? Will he assure the House that the terms of the agreement are wholly in accord with the policy principles agreed in the House last year?

Mr. Dell

On the second point, the terms of the agreement are very much consistent with the policy that was debated in the House two years—not one year—ago. One thing that surprises me is that, although the Opposition seemed to go along in general with the policies outlined by the Government at that time —leaving aside Laker Skytrain—they seem to have reneged on that view. The right hon. Gentleman said that there was doubt as to how beneficial the agreement will be to British airlines. I should emphasise that the extent to which the agreement is beneficial to British airlines will depend to a significant extent on the competitiveness of British airlines. We have achieved a framework that gives them better opportunities. That is what we sought, and that is what we achieved.

Mr. Viggers

Is the right hon. Gentleman aware that direct air links with a number of United States cities—I have specific knowledge of Houston—will be warmly welcomed in those cities and should also be welcomed here because they will strengthen Britain's position as an entrepot? Will he tell us more about the new combination rights? Is he satisfied that there will be no loss to British carriers from the fact that Pan-Am and TWA have the opportunity to switch passengers on through flights from London to Europe?

Mr. Dell

I am grateful for what the hon. Gentleman said about Houston and the warm welcome he gives to the agreement. He should see the combination rights against the background of the cancellation of the significant fifth freedom rights which United States airlines had. Some of those are immediately cancelled. But those being operated from this country are to be cancelled in a phased way. It is against that background that the combination rights have to be seen. We have certain equivalent combination rights. Nevertheless, combination rights could be a cost to this country which would have to be set off against the benefits.

I said in my statement, as we said in the course of the negotiations, that we would watch the operation of these combination rights carefully. If they operate to our disadvantage, this is a matter which we shall wish to discuss under the consultation provisions of the new agreement.

Mr. Sandelson

My right hon. Friend has referred to the specific benefits to be derived by British Airways and British Caledonian. Will he say something about the charters, bearing in mind the statement made yesterday by the spokesman for the Opposition, the hon. Member for St. Ives (Mr. Nott), in which he suggested that charters were at least as well off, and probably better off, under the old arrangements?

Mr. Dell

The position of charters is entirely satisfactory under this new agreement. This is another curious aspect of the statement by the hon. Member for St. Ives yesterday. He seemed to think that charters operated in a free market. We have done well in charters because there is a favourable agreement with the United States governing their operation. That agreement is now incorporated in a sense into this new agreement, but it is likely to be continued with its favourable elements as a result of the new agreement. Therefore, the point that the hon. Gentleman made yesterday about charters is another example of his entire ignorance of the subject.

Mr. Trotter

Is it not to be regarded as fair that there should be, as the hon. Member for Gateshead, East (Mr. Conlan) outlined, an equal division between the United Kingdom and the United States services between these two countries? Is it not a fact that that was the aim of the Government—to achieve parity—and that they have failed in that objective?

In particular, how is it that a cargo service has been authorised from Houston to London when there is no equal provision for the United Kingdom operator to operate a cargo service in the opposite direction? Is that not damaging the passenger service, which should carry cargo on that service?

Mr. Dell

I shall check what the hon. Gentleman says, but I think that he is wrong about cargo between Houston and London. As for equal division, we have achieved single designation on all except two routes over the North Atlantic. That is a very significant achievement. I was told by the Opposition during the process of the negotiation—when I learned from the hon. Member for St. Ives that they were taking a helpful attitude by keeping silent—that single designation was something that the Americans would never accept. They have, in fact, accepted it on all routes except two.

Mr. Neubert

Does the Secretary of State agree that one of the welcome features of the agreement is the full establishment of the Laker Skytrain on the London-New York route? If this prompts American competitors, as is likely, will they be subject to the same very stringent conditions as have been imposed on the Laker licence at both ends of the route, including the use of Stansted Airport?

Mr. Dell

I have just confirmed that I am right about cargo between Houston and London. There are equal rights in both directions. It is one of the oddities that it should be considered by some that they are entitled to solo rights from London to Houston on cargo. We could not achieve that, but there are equal rights in both directions.

In reply to the question about Skytrain, we shall have to see what proposals the United States makes by way of such reciprocity as it may wish to exercise.

Mr. Roper

I congratulate my right hon. Friend and his Department on their remarkable breakthrough in persuading the United States to accept the idea of having some measure of capacity control, which we were told for a long time was anathema to the Americans. When are we likely to have the details of the White Paper? Has my right hon. Friend's Department made any calculations of what the increasing share of North Atlantic traffic will mean in the rate of return on capital invested by British carriers in aircraft on these routes?

Mr. Dell

As to the time when the details of the agreement will become available, as I said in my statement the intention now is to write the detailed agreement. We expect that to be signed by the end of July, and then the details will be made available to the House.

My hon. Friend asked me whether we had made any calculations as to the rate of return on British capital invested in the airlines. The calculations which we have made so far show that there are likely to be beneficial results to the British airlines in revenue terms arising from this agreement, but these must necessarily be highly speculative. The result will depend on the competitiveness of the United Kingdom airlines, and the return on capital will depend on the rate at which they exploit their new opportunities.

Mr. Higgins

Whilst I accept that the arrangement may do something to ameliorate the effects of an imperfect market, may I ask how the Secretary of State proposes to ensure that reduction in costs is reflected in price and not in profits? Secondly, what does he believe will happen to the aircraft and aircrews which are not needed as a result of the capacity restraints?

Mr. Dell

I hope that the latter will not occur. As for how we shall control prices, there is a tariff article in the agreement and no doubt the degree of competition which exists in this field will help.

Mr. Nott

Will the Secretary of State explain one other point about single designation? We had always understood that this was what he was out to achieve. There is double designation on two main routes. Is it not the case that if the number of passengers builds up on any other routes a trigger operates and then it is possible for double designation to arise? The right hon. Gentleman said that he had achieved single designation. That is clearly not generally the case. It is not even the case, is it, on other routes if the traffic builds up to a certain level?

Mr. Dell

There is a threshold in respect of gateways with single designation—600,000 passengers in two consecutive years. Where there is solo operation, it is 450,000 passengers in two consecutive years. Our estimates show that it is unlikely, especially taking into account the fact that in due course new gateways will be open, that these thresholds will be reached until at any rate the late 1980s.