HC Deb 25 July 1991 vol 195 cc1320-7 12.29 pm
Mr. Anthony Steen (South Hams)

It is fitting that, before we go into the recess, we should discuss airports and airlines and I am grateful to you, Mr. Deputy Speaker, for giving me the chance to talk about the British Airports Authority.

When the Government privatised BAA, they were breaking fresh ground. No one had any idea of the impact that the privatisation would have on aviation. Five years on, the Monopolies and Mergers Commission has taken a look at the way in which the BAA has operated and has made recommendations to the Civil Aviation Authority, the regulatory body.

Hon. Members who were in the House in 1985—I cannot see too many of them here today—will remember that at the time of the privatisation of the BAA I warned that privatising all the London airports in one unit was fraught with danger and likely to prove anti-competitive. I am afraid that that has happened. The MMC report recognises the advantages that have accrued to BAA shareholders—the pension funds and others—but it has also drawn attention to the fact that BAA is being run somewhat anti-competitively. Airport charges, landing fees, passenger fees and parking fees have been grossed up and the charges have been passed on to the airlines. These charges have been set at the whim of the management, so discriminatory practices have crept in.

The smaller domestic, regional and British airlines have suffered from discrimination. The landing fee at Heathrow has risen by 107 per cent. in the past five years and has been applied regardless of the size of the plane. A 50-seater plane—shall we say, a Brymon plane to Plymouth—will be charged the same as a 400-seater jumbo landing from New York. A 146 plane belonging to Manx Airlines with 85 seats will also pay the same as a 400-seater jumbo.

It might be appropriate to declare an interest. I fly Brymon Airways most weekends down to my constituency and I help Manx Airlines, which is part of the Airlines of Britain group, to which I am an adviser.

I have complained not only about landing fees but about parking fees. Landing fees have risen for smaller airlines and declined for jumbos; parking charges have fallen for jumbos and increased for smaller airlines. So small regional airlines flying short-haul planes to and from Europe or around Britain pay far more each time they land and park at Heathrow than would a jumbo that sits on the tarmac for 12 to 24 hours having deposited 400 people at a terminal. That is discrimination against people and airlines wanting to fly around Britain or Europe; and it is positive discrimination in favour of those who want to fly long-haul to and from the United States, India or the far east.

It seems as though BAA welcomes the maximum use of each slot, and I understand that, but we cannot have the whole of Heathrow full of jumbos. That would not be possible even if it were desirable.

At present, 70 per cent. of traffic at Heathrow is short-haul and only 30 per cent. is long-haul. The reason is simple: every jumbo that takes off must be fed by the small, short-haul airlines. That is recognised by Schiphol airport in Holland, which is making considerable strides in attracting regional airlines from all over Europe to deposit passengers, not at Heathrow but at Schiphol, attract the long-haul carriers into Schiphol and send them out across the Atlantic and elsewhere. In order to have a prosperous long-haul industry, one needs feeder aircraft. I am concerned that BAA's policy of trying to get more and more long-haul aircraft and fewer short-haul aircraft through a discriminatory pricing policy means that, in the long term, Heathrow could cease to be the No. 1 airport in the world.

A privatised public utility with a total monopoly hold is starting to price out smaller aeroplanes from Heathrow. How much longer can Brymon Airways or Manx Airlines continue to offer a service? How long can Brymon fly from Heathrow to Plymouth for £195 return—more than the apex fare to Gibraltar, Barcelona or Milan?

The Monopolies and Mergers Commission report must be welcomed, as it recognises that the formula that the Government adopted in 1985, called RPI minus one—the retail prices index minus 1 per cent.—was not strenuous enough and worked largely against the British-owned airline industry. The Monopolies and Mergers Commission said that BAA has been an amazingly successful money machine, which had been good for shareholders, pension funds, big institutions and large airlines with large aeroplanes. Clearly, regional and short-haul airlines are the losers and, even more so, the travelling public—the consumer. As charges go up for the short-haul lines, so the price of tickets reflects that, and increases.

The MMC suggested that the formula of RPI minus one should be changed to RPI minus four. The retail prices index minus 4 per cent. would be the maximum that BAA could charge over the next five years for landing, parking and so on. I believe that the MMC got it right, but the CAA—to which it reports—has an ever better suggestion. It suggested that the profits were still too great when based on the RPI minus four formula, which should be changed to RPI minus eight.

I pay tribute to the new chairman of the CAA—Christopher Chataway. I am delighted—as I am sure the whole House will be—that he has come back to public life; it was an enlightened decision to suggest that he should be chairman of that regulatory organisation.

The CAA's public decision to recommend that an RPI minus eight formula be applied to the running costs at BAA's airports is an enlighted and courageous move.

Mr. David Wilshire (Spelthorne)

Before my hon. Friend's enthusiasm for the CAA report runs away with him, will he comment on some inconsistencies in it? The report states that BAA should raise its charges by less than inflation, but the CAA increased charges by 45 per cent. The report says that BAA is a low-risk business and needs only a 7 per cent. return, while the CAA wants an 8 per cent. return. The report says that the MMC is wrong and the people who brought out the report are not financial experts. The report claims to be a CAA report, yet I am told that just two CAA employees will make the final decision. Instead of enthusing about the report, will my hon. Friend accept that it is flawed and written by people whose philosophy is, "Do as we say, not as we do."

Mr. Steen

I always enjoy commenting on my hon. Friend's remarks, but on this occasion I shall pass because he has made his points and I do not wish to be drawn on them.

Whatever the formula—I am sure that my hon. Friend the Member for Spelthorne (Mr. Wilshire) will wish to listen to this carefully—what is crucial is not how much the landing fees, passenger fees or parking fees may be, but how BAA applies them to individual airlines. The question is whether it is able to discriminate, as it has in the past five years, in favour of larger airlines and larger planes to the detriment of our smaller airlines which use smaller planes. There is nothing to stop BAA continuing to discount the total landing, passenger and parking fees by the percentage prescribed in the formula and applying it to the individual carrier as it pleases. I am sure that my hon. Friend the Minister realises that that is the critical issue. It does not matter whether the restrictions are greater or fewer. The application of the formula by BAA should be the same for all airlines and should not discriminate against our smaller British airlines.

The trouble with the privatisation is not that it has been too successful, but that its success has allowed restrictive practices that discriminate against those who want to fly in Britain or around Europe. It is an anti-competitive practice to try to drive airlines away from Heathrow and towards Gatwick or Stansted where they may not want to go and where the consumer definitely does not yet want to go. It is not fair competition.

There are two points. First, there is the formula about which my hon. Friend the Member for Spelthorne spoke with great gusto, as is his norm since he feels that an injustice has been done and the CAA has got it wrong. Secondly, there is the way in which the formula is applied.

Oddly enough, the MMC report and the Civil Aviation Authority report—whether it was prepared by two men or 200—have ducked the key issue. Paragraph 18 of the CAA report says: The CAA agrees with the MMC that this highly important issue of aviation policy can only be dealt with properly in a wider context, and that they are not able to comment on whether a limit should be placed on the airport's scope to rebalance charges. That is a total cop-out and it can be dealt with only by the Government. That is why I am delighted to see my hon. Friend the Minister in his place. I am sure that he will wish to get to the root of the problem. It strikes at the basis of Government aviation policy as to charging, discrimination and the power of the airports authority, though a pricing mechanism, to direct where airlines should fly. The argument is not about numbers and percentages—RPI minus six, eight or 10—but about fair competition and achieving a marketplace where smaller carriers operating smaller short-haul planes do not find themselves priced out and disadvantaged by a private monopoly that used to be in the public sector. It is about the Government halting the discriminatory practices of the BAA which favour large carriers and wide-bodied planes.

Will the Minister make it clear that BAA will not be allowed to cock a snook at the Government's approach to the aviation industry, that it will not be allowed to prejudice short-haul aircraft, and that they will be put on a level footing with long-haul aircraft?

As the Minister knows, we are all consumers. My right hon. Friend the Prime Minister made that clear on Monday, when he announced the citizens charter which recognised the right of citizens to be protected against the sort of practices that I have described. When I asked my right hon. Friend the Prime Minister whether his charter would extend to the aviation industry he said that it probably would not. However, he said nothing about airports.

I invite my hon. Friend the Minister to realise that I am talking about the pricing mechanism of the airports authority and citizens' right of protection from that practice rather than the operation of individual airlines, where there is opportunity for competition. Why should not the consumer have a cheap and efficient service to regional and European destinations? Why should he have to pay extra if he flies to an EC country rather than to the United States or to the far east?

It is clear that, whatever formula BAA has to accept, it will lose some income. It must not be allowed to try to recoup its losses from the travelling public or from airline operators. The trouble is that it believes that it will be given a licence to print money indefinitely. It is now horror-stricken that that may not be true. It has threatened that the projected loss of income will lead to all sorts of disasters and has hinted that it may no longer be able to build the fifth London terminal and that the Paddington to Heathrow rail link will be seriously delayed.

That is scaremongering. It is a bit thick for the authority to whinge when it has spent £300 million on an improvement programme at Stanstead. That was its commercial judgment. Despite the fact that passenger traffic hardly justified it, that was its decision; it had nothing to do with the Government. Such expenditure was a question for the management, who decided to spend that money when they could have spent it on Heathrow, which desperately needs it. It was as though the authority were building a monument to itself, just as Brunel built the great western railway. It took a commercial decision and should not expect too much sympathy when it finds itself short of a few bob.

BAA is not the first private company to find itself in need of some extra finance. Unlike other private companies, its monopoly position enables it to make good its losses by clobbering the travelling public. I do not think that that should be allowed. I am sure that it will not be allowed, because we are extremely fortunate to have not only a new chairman of the Civil Aviation Authority but a new management team under the direction of Sir John Egan, whose track record is well known. I am sure that if the enthusiasm that he showed at Jaguar is converted to airport strategy, it will be an exciting time for us all. I wish him well.

I venture to make a few suggestions which I hope will help Sir John Egan when he is considering how to raise sufficient finance. As a private company, there is nothing to stop BAA going to the stock market for extra funds through a rights issue. There is no reason why its manpower should not be reduced; a leaner authority would surely be cost-effective. Could not the number of landing slots be increased so that more traffic could use Heathrow? In 1985, it said that 275,000 movements was the maximum, but today the figure has risen to 385,000. There is additional space, and if the air traffic controllers could be freed of some of the restrictive trade union practices, more planes could land, which would generate more income for the BAA.

Why does not the BAA consider selling an airport or two? It has enough airports. Surely it could do without, say, Prestwick. The fact that three London airports are under the same management has militated against competition. Why not sell off Gatwick and Stansted? Bringing a new player into the market would stop restrictive practices, and the market would drive down overheads. Consumers and airlines would benefit, but possibly not the shareholders of the authority, although with the cash realised it could build the Paddington to Heathrow link and begin the fifth London terminal.

When BAA was privatised in 1986, the Government were moving in uncharted waters. The fact that the authority has been such a success clearly shows that the Government were right, but several lessons have been learnt in the five years since it was privatised.

The most important point is that private monopolies can be as anti-competitive as public ones. The regulatory authority, in this case the CAA, can and should ensure that the regulations and formulae prevent that from happening. It is not a question of the Opposition saying, "I told you so," but of the Government recognising the new problems that have arisen as a result of our imaginative privatisation proposals and introducing the necessary safeguards so that our short-haul airlines in Europe and our regional airlines throughout the country are not driven out of Heathrow by the pricing mechanism.

Freed of any pricing regulations, BAA would without doubt feel obliged to obtain the maximum revenue for its institutional shareholders. The job of the House is to ensure fair play— to ensure that this privatised company is subject to the rules of fair competition that regulate the rest of the private sector.

Our airline industry is far more frail than it was five years ago. Airlines are going bust, but airports are not. We must make sure that our airport authority helps our airline industry and assists the British companies that fly round our shores and into Europe. That is where our future lies, and the Government's job is to ensure that a healthy airline industry is not destroyed through predatory pricing and discriminatory practices.

12.50 pm
The Minister for Shipping and Public Transport (Mr. Patrick McLoughlin)

I congratulate my hon. Friend the Member for South Hams (Mr. Steen) on his success in raising this issue. It is some time since the House debated aviation and, as usual, when it is debated we hear different views from my hon. Friends about the right way to go forward. My hon. Friends the Member for South Hams and for Spelthorne (Mr. Wilshire) and I are convinced of the need for a good, healthy aviation industry. It is important that that industry should not deteriorate in some of the ways suggested by my hon. Friend the Member for South Hams.

First, I shall outline the arrangements for the regulation of BAA's airports and the involvement of the Monopolies and Mergers Commission. The mechanics of the system are rather different from those which apply in other regulated industries. Because of that, and because the present review of BAA's London airports is only the second time that these arrangements have come into play, the system is perhaps not widely or well understood.

I recognise that the provisions in this part of the Airports Act 1986 appear somewhat complex and certainly do not make for easy reading. For that reason, too, I take this chance to explain briefly the nature of the regulatory process before returning to the specific points that my hon. Friend made.

A system of economic regulation of all sizeable airports was established by the Airports Act, before the privatisation of the former British Airports Authority. Privatisation has allowed BAA's managers to get on with the job of managing, has ensured a large and continuing programme of investment and has brought many benefits to the air traveller. Heathrow remains the world's leading international airport and, as my hon. Friend said, we want it to retain that position. Gatwick airport is not far behind.

When the Government privatised BAA, they were conscious of the need to guard against the risk of exploitation of the natural strength of airports which found themselves in a largely monopolistic position. The present regulatory regime is the result.

The first tier of regulation, which applies to all airports above the certain maximum turnover, is exercised primarily by the Civil Aviation Authority and has to do with preventing trading or pricing policies which discriminate unreasonably against particular airport users, or against the holders of rights or concessions at an airport. It also enables the CAA to act against the fixing of airport charges at artificially low levels, which would be harmful to another airport's business.

A second and still more stringent tier of regulation, and the one with which we are concerned today, is applied at the more powerful airports: specifically at Heathrow, Gatwick and Stansted, and also at Manchester. It provides for the CAA to set a limit on increases in airport charges. Since 1987, when the system was introduced, that limit has been expressed in terms of a formula which relates permitted increases in average annual revenue per passenger", to movements in the retail prices index. The present price-cap formula covering the three BAA London airports limits increases to RPI minus 1 per cent.

The 1986 Act provides for the price cap formula to be reviewed every five years and for the CAA then to establish a new formula for the coming five-year period, having first taken the advice of the Monopolies and Mergers Commission. That extensive report was presented to the CAA not long ago. The present formula for the BAA airports expires at the end of March 1992.

Last December, therefore, the CAA referred the three BAA airports to the MMC, with a request for advice in two areas. First, the MMC was asked for advice on the price cap that should apply for the coming five years. Secondly, the MMC was asked to report whether the airports have pursued, through their airport charges or through their operational activities, any course of conduct adverse to the public interests and, if so, to advise how this might be remedied.

Over the past six months, the MMC has reviewed substantially the entire business of the three airports, and in doing so has taken evidence from a wide range of bodies and organisations, including, of course, BAA itself. My Department was among those which put views to the Commission, as those who have read the report will know.

The main findings of the report were that from April, increases in airport charges at Heathrow and Gatwick, and at the three BAA airports taken together, should be limited by the formula RPI minus 4 per cent.; but that in the event that BAA started building a fifth terminal at Heathrow in 1995–96, the formula in respect of Heathrow should be amended to RPI plus 1 per cent., and that for the three airports together amended to RPI minus 1 per cent. The commission also identified a weakness in BAA's arrangements for consulting users about charges for certain of its facilities and it has recommended measures to remedy this.

The commission's third main recommendation was that the regulatory formula should be amended as and when necessary, to compensate BAA for the effects of the abolition, of duty-free and tax-free sales, and for any changes that might be required in connection with frontier controls post-1992. Finally, the commission recommended an increase in the proportion of costs arising from new security measures which may be recovered through the charging formula, and a reduction in the recovery period.

Let me say a word now about what happens next. The determination of the price formula which will apply from April is a matter for the CAA, which must have regard to the commission's advice but is not bound to follow it. The authority has published its proposals for a new regulatory regime and these are the subject of consultation. The authority has included in its proposals a draft condition to tackle the shortcoming in BAA's consultative arrangements—a shortcoming that BAA itself has acknowledged. My hon. Friend went over the points relating to the fact that the CAA was recommending RPI minus 8 per cent.

In a short debate such as this, the arithmetic may be a little complex, so I shall move on to some of the other points made by my hon. Friend. He asked whether it was possible for BAA to sell a London airport to raise funds. Under the special share arrangements, BAA could not dispose of any of its three London aiports without the permission of the Secretary of State. The special share in BAA was taken by the Government for reasons of national interest. I have no reason to believe that BAA is considering the course that my hon. Friend suggested. If it were to propose to sell one of its London airports, the Government would need to take a view on the matter at the time such a proposal was made.

The merits of separate ownership of the London airports were, of course, discussed at the time of privatisation, when some argued for splitting them up. The Government took the view then that this would not in practice be beneficial, because it would be unlikely either to bring real competition—given Heathrow's natural dominance—or to remove the need for new airport regulation.

Mr. Steen

What about the charging of smaller airlines, which discriminates against them landing and parking as compared with long-haul flights?

Mr. McLoughlin

I realise that both my hon. Friend the Member for South Hams and my hon. Friend the Member for St. Ives (Mr. Harris), who is also here, take this point seriously. It is in the interests of both BAA and the country to have a multi-airline industry. The important point that my hon. Friend made about the need for regional services to and from our major international airports is not lost on me or my right hon. and learned Friend the Secretary of State. We know that there is concern that charges make access difficult for carriers on the domestic routes.

My right hon. and learned Friend the Secretary of State has said that he would consider it unacceptable if airports, through their charging policies, abused their position or exploited their users. He has referred to legislative safeguards against unreasonably discriminatory pricing. There is a mechanism that enables airlines to appeal to the CAA. The CAA has produced recommendations following the MMC's report. They will have to be considered before any decision can be made on the next step.

I have tried to answer as many question as possible in the time available to me. We could talk for much longer within the framework of a proper aviation debate, because I am fully aware of the great interest that my hon. Friends, at least, take in these matters.

Mr. William Cash (Stafford)

On a point of order, Mr. Deputy Speaker. A decision has been taken today by the Luxembourg court that affects the sovereignty of the House and the manner in which the Merchant Shipping Act 1988 should be implemented. We respect the rulings of the court but its findings recently have suggested that Acts of this Parliament are significantly at risk. There is no doubt that in the treaty that is about to be proposed there arises serious doubt about whether the competence of the House will continue in the way that it has in the past. It is of grave importance that we ensure that the competences and privileges of the House are maintained and that, by one means or another, we ensure that we maintain our sovereignty in the House on behalf of the entire electorate.

Mr. Deputy Speaker (Mr. Harold Walker)

The hon. Member will recognise that, notwithstanding the seriousness of the matter that he has raised, it is not one for me.

Mr. David Harris (St. Ives)

Further to that point of order, Mr. Deputy Speaker. Given the importance——

Mr. Deputy Speaker

Order. I hope that the hon. Member will be brief. Points of order will eat into private Members' time.

Mr. Harris

Given the importance of the European Court's decision, Mr. Deputy Speaker, is there any chance, even at this late stage, of a Minister making a brief statement?

Mr. Deputy Speaker

The hon. Member's remarks will have been heard——

Mr. Dennis Skinner (Bolsover)


Mr. Deputy Speaker

Order. The hon. Member's remarks will have been heard by the occupants of the Treasury Bench.

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