HL Deb 18 February 1971 vol 315 cc775-804

6.41 p.m.

BARONESS BURTON OF COVENTRY rose to ask Her Majesty's Government whether they are aware of increasing consumer dissatisfaction with the structure of international air fares, in particular the effect this has in discriminating arbitrarily between different classes of traveller and between travellers from different countries, and in restricting the choice of fares and services available; and whether they will take steps to ensure that international negotiations on traffic rights (between Governments) and fares (between airlines in IATA) take more account of the consumer interest in air travel.

The noble Baroness said: My Lords, there is increasing consumer dissatisfaction with the structure of international air fares, and I should like to tell the House how I came into this. I came into it actively on December 23 last, when I read that inclusive tour fare levels were to remain mainly unchanged and certain new tour-basing prices were to be offered, but that the traveller using normal services was to pay more. Being a person who uses normal services, in common with many other people, I wondered why there should be this discrimination. Apart from the ethics of the matter, increasing fares is obviously no way to increase passenger numbers. But it was the discrimination that rankled.

On December 28, The Times printed a letter from me on this subject, and other correspondence appeared. Since then a good deal of information has come my way, and for much of this I am indebted to three sources. These I should like to acknowledge as Mr. George Smith, research officer of the Consumer Council, which unfortunately goes out of business tomorrow; Mr. A. J. Lucking, a businessman and well-known authority on these matters; and The Times for a most helpful leader on January 7 last. As an example of information that was given to me, I was told that London/Paris yields to B.E.A. only 75 per cent of the published fare. In other words, many of the passengers are carried, for one reason or another, at half-price, and I want to ask the Minister whether that is true. I asked a Question in the House on January 26, and referred to the London/Paris yield as a supplementary point. Obviously, the Minister then replying could not answer without notice, but said he would look at this. I am hoping that when the noble Lord, Lord Drumalbyn, comes to reply this evening he will tell the House whether my information was correct and, if so, whether normal standard fares are pushed up to compensate.

The noble Lord, Lord Balfour of Inchrye, very much wanted to be present in the House to-night for this debate. His authority and knowledge on air matters are. I think, known to everybody in this House and outside. Unfortunately, he is in Australia, and he asked me to express his regret to the House. In his letter to me, the noble Lord said: IATA has become too powerful. It is entrenched too firmly. From another source, my noble Leader, Lord Shackleton, has stated that this is a complicated subject; in fact, a complete jungle. He said that the dissatisfaction is getting so grave, and the bureaucracy involved in the Administration so great, that he felt the whole matter should be looked into fully. The Minister will recall, I am sure, that the noble Lord, Lord Balfour of Inchrye, too, was of the opinion that it was about time we had a hard look at this International Air Transport Association so far as this country is concerned—its powers, administration and relationship with Her Majesty's Government.

This is my objective to-night. It is not a Party political issue, and I should have put down this Question whatever the political complexion of the Government. It would also have been the objective of the noble Lord, Lord Balfour of Inchrye, if he had been here. It is the wish of a great many people connected with air transport, and I hope very much that it will be the decision of the Government. My purpose in raising this matter to-day is twofold: first, to make air transport available at the lowest price; and, secondly, to end discriminatory pricing because it is unfair. Under the official protection of Governments, the airlines have been building up a system of deliberate discrimination between classes of passenger.

A leader in The Times on January 7 went on to say: Those who travel for specially chosen periods pay far less than those who go for a shorter or longer period; those who allegedly belong to an affinity group (and have done so for six months) enjoy privileges not available to those who are too honest or too ill-organised to produce the necessary evidence; those whose seats are bought by an inclusive tour operator get them for very much less than those who buy their own. None of these arguments has anything to do with the cost of transporting or handling passengers. There is no reason why airlines should not sell wholesale at a different price from retail or give significant discounts to those who book early, or fly when no one else wants to fly, or are prepared to stand by. But what the airlines have been trying to do is to create artificial classes which will generate new traffic at lower fares without allowing regular travellers to enjoy these fares. This, my Lords, is the heart of the matter.

The House may be aware that the committee of consumer representatives from Britain, France, Germany, Norway, Sweden and Switzerland, set up following the Zurich Air Fares Conference in May, 1970, has written to member Governments of the European Civil Aviation Conference objecting to the present system of fixing air fares in Europe. The committee wants more consultation between consumer organisations and airlines and Governments, and says that the present system keeps fares on scheduled services artificially high. Among its members are Mr. George Smith, of the Consumer Council, and, in his personal capacity, Mr. Lucking. The aim of this committee is to co-ordinate the views of European consumers on air fares, with regard to their respective Governments, in order to ensure that proper attention is given to consumer interests.

It may not generally be realised that Europeans travelling by air pay higher fares than do overseas visitors travelling in Europe. This is because airlines' revenues are diluted by inclusive tour and group tour fares and the IATA 20 per cent. rule, which allows extra mileage to be travelled for the same fare. This means that, in effect, Americans can stop over in London and travel to the Continent free. One result is that European airline revenues have been reduced, in particular for B.E.A., on infra-European routes. The result of this is that regular scheduled air fares from London to the Continent are 20 per cent. higher than the average for the whole of Europe, and much higher than in the United States. Another result is that the European fares offered to travel agents arranging holidays through the airlines are not as low as they could be. The committee mentioned earlier wants Governments to ask their airlines to drop the practice of using intra-European trips as "loss leaders" for Americans.

Another factor which I wish to bring to the attention of the Minister is discrimination between standard fares and what I may call "creative" fares. Scheduled airlines have introduced a wide range of low fares in Europe to compete against charter services. These creative fares are set, at what appear to be uneconomic levels which can be supported only by maintaining standard fares at arbitrarily high levels. This is not just a figment of my imagination, my Lords. I was very interested to see, in the Financial Times on Tuesday of this week, February 16, that there was an inset on, "U.S. Travel and Tourism", and on page 18 their aerospace correspondent, Michael Donne, when speaking of load factors and variations, had this to say so far as the United States is concerned: This situation is important for the schedule-service passenger in two ways. First, it encourages the schedule airlines to try to reduce their fares in the winter months to stimulate travel. But, at the same time, it creates an overall economic problem for those airlines that results in depressed revenues and perhaps also losses, which in turn oblige them to seek higher scheduled fares at other times of the year". So it would seem to be the same position in Europe and in the United States of America.

The Committee I have been talking about proposes that Governments should require carriers to prove that creative fares do not penalise standard fare travellers. My Lords, as I expect the House will know, the range of choice of fares and services in Europe is very limited. In particular, the availability of lower fares is severely restricted. Perhaps I may just cite the three broad categories of tariff. First, we have the scheduled services linking major political and commercial centres and some holiday destinations. Standard fares, first and economy class, are normally charged on these services. Their advantage to consumers is that they operate at average load factors of under 60 per cent. so that seats are available at short notice—and I would ask the House to note those words, "so that seats are available at short notice".

Secondly, we have charter flights operated by non-scheduled airlines in connection with the provision of package holidays which meet the demand for holiday travel at relatively low cost because they offer a specialised service which allows low costs and high load factors. These are available to most of the holiday destinations in Europe. Thirdly, we have the scheduled airlines which have set out to compete in this market through special "creative" fares such as their inclusive tour (ITX) fares on some scheduled flights, generally to holiday destinations. These ITX fares are not published: they are made available to travel agents providing associated food and board. Also in this category of fares are the night fares, the excursion fares and the weekend discounted fares made available by scheduled airlines on a limited range of flights.

What I want to stress to the Minister, if he does not know it already, is that from the consumers' point of view the first major gap in the range of services is the lack of cheaper fares available direct to the public without strings on the main routes served by scheduled airlines. The committee of consumer representatives proposes that Governments should either require scheduled IATA airlines to offer lower public fares on scheduled services or license more non-scheduled airlines to operate low-cost services on major trunk routes. I wonder whether the Minister, when he winds up, will tell us if it is correct that the IATA cartel prohibits price competition on scheduled flights. The fundamental need is for our Government to become identified with the consumer interest, which is the public interest: we are all consumers. Public opinion, as realised and publicised by this Government, can be effective, and public opinion thinks that something should be done.

As The Times makes clear, airlines work together to achieve a common position in the International Air Transport Association, IATA, while regulation must come from individual Governments working singly. It is not surprising that the most effective protector of the international public interest has been the American Civil Aeronautics Board. This is an agency whose Government do not own airlines and which dominates so large a sector of world aviation as to be able from time to time to impose its will. I hope very much that when my noble friend Lord Donaldson of Kingsbridge comes to speak later in this debate he will tell us more about this particular aspect.

My Lords, on world fares the time has come for a major reappraisal: a political effort from Governments—and I am now, in conclusion, coming back to unfairness concerning the traveller paying standard fares. I think everyone in the House will agree with me that there is nothing so infuriating as being treated unfairly. To quote from the Financial Times of January 28 last: A further impact on the tour business by B.E.A. is expected later this year when new IATA regulations come into effect to allow tour passengers to travel on scheduled flights at substantial discounts. Under this rule B.E.A. will be able to sell otherwise empty seats to tour operators for as much as a 50 per cent. discount.

I have made inquiries, and I have several questions to ask. As I understand the position, the B.E.A. move, called the "top-up" system, will offer package-tour operators blocks of 10 seats or more on scheduled flights at rates that will be competitive with any rates the non-scheduled charter airlines can offer, and in any case "substantially less" than the normal scheduled fares. I was told that in some cases the cuts could range up to as much as 50 per cent. or more, which corresponds with the Financial Times figure. The tour operators will be expected to pass on the benefits of these cheaper seats to their customers in the form of cheaper package holidays. The cheaper seats will not be sold directly o the public by the airline. I should like to say quite clearly, in case it is thought otherwise, that I am not trying to stop or curtail charter flights or package holidays. What I am trying to stop, because I think it unfair, is that passengers in the same scheduled flight should pay, for that flight, varying fares. The fact that the fares will vary very substantially makes matters even more unfair, but it does not affect the principle.

I have three related questions here, arising out of the new IATA regulations. When do B.E.A. decide that seats are empty, and how far in advance of a scheduled flight are those seats allocated to tour operators? What is normally the latest date a passenger can book a flight on a scheduled service, important for business as well as for holidays? Just let us suppose that individual businessmen discover suddenly that they have to be somewhere in Europe, and quickly. They know that seats are available at short notice on scheduled flights, which is why they pay standard fares. I want to ask the Minister: are they told, or will they be told under these regulations, that no seats are available because a block has been allocated to a tour operator some time ago at a greatly reduced price? I do not know whether your Lordships noticed, in the Financial Times last Saturday, the 13th, a letter which stated, among other points: Surely the time has come for a return to first principles on the question of air fares. For the ordinary traveller, business or private, the fares go up and up. For sellers and consumers of holiday package tours larger reductions and of wider scope are continually being announced. Air traffic is a public utility and State airlines ought to observe the equities of public utilities. The lines may be expected to say that the conditions of booking—length of advance notice, timing of flights and numbers travelling together, justify the difference. No data seems to have been offered to justify such wide differences and in any case booking conditions could perfectly well be built into a general differentiated air structure.

My Lords, in connection with these last three questions, I want to repeat what I said earlier about the first broad category of tariff available. Scheduled services link major commercial and political centres and some holiday destinations. Standard fares—first and economy class—are normally charged on these services. Their advantage to consumers is that they operate at average load factors of under 60 per cent. so that seats are available at short notice.

A debate on an Unstarred Question in your Lordships' House means that the Minister has the final word, so I want to be sure that my questions are clearly stated. Will the scheduled services just mentioned, with their standard fares compensating for seats being available at short notice, be affected by the B.E.A. "Top Up" system and if so in what way? Is it correct that the tour operators know now which blocks of seats will be available to them; and, if not, how far in advance of the actual flights concerned will they know? Presumably they will not be informed on the day of the flights that 10, 20 or 25 seats have suddenly become available and that they can have them. As I said before, when are seats empty? I should like to ask the Minister whether, under this system with the new IATA regulations, it will be made clear, at B.E.A. reservation offices that for a certain pre-flight period of x hours, x days, or x weeks—and I should like to know the period—although there may be some 20 seats empty on aircraft, these are only for special passengers paying less fare, maybe some 50 per cent., and are not on offer to standard fare-paying passengers? Is this really what the new IATA regulations say shall be done; and is it accepted that B.E.A. shall treat its standard fare-paying passengers in this way?

I am not a spoilsport, and I do not wish to curtail lower fare opportunities for travellers. I just think that these should be available to everyone. To revert to part of The Times leader: There is no reason why airlines should not sell wholesale at different prices from retail or give significant discounts to those who book early, or fly when no one else wants to fly, or are prepared to stand by. That I accept completely. But I have here an advertisement from the Financial Times of February 5 last. It says: BEA 'DriveAbout' holidays are the newest idea in real all-in, go-anywhere tours. Your 'DriveAbout' package includes: Flights (whenever you like) to and from any of eight principal destinations in Spain: … and many other things. It is an excellent bargain at a wonderful price. If intending travellers write now they will get full details. In this advertisement, prices are quoted up to March 31 and up to July 15; so presumably the scheme is in operation now. Could we be told if this is so? Is this the IATA Regulations in advance? And is this supposed to be the dead winter season? Obviously, the flight times and dates are known and, equally obviously, one assumes this package holiday is by scheduled flights. It must be if flights can be "whenever you like". Will the Minister comment on these and also on the reason advanced for standard fares being higher than package ones; namely, that seats are available at short notice? How can they be available at short notice under these conditions?

I feel that membership of IATA means that the Government have responsibility for everything that I have been talking about to-night. The Minister must be aware of the increasing consumer dissatisfaction with the structure of international air fares. I think he must be aware of the effect this has in discriminating arbitrarily between different classes of traveller and between travellers from different countries and in restricting the choice of fares and services available. The purpose of this debate is to ask the Government whether they will take steps to ensure that international negotiations on traffic rights (between Governments) and fares (between airlines in IATA) take more account of the consumer interest in air travel.

7.6 p.m.

THE EARL OF KINNOULL

My Lords, I am sure that the whole House is indebted to the noble Baroness, Lady Burton of Coventry, for raising this very important topic on the future structure of the international air fares and, indeed, routes; and for introducing the subject with her usual courtesy, charm, forthrightness and thoroughness. She showed herself to be something of a master of her subject. It is a very difficult subject, and I would congratulate her on the case she put. The noble Baroness's Question primarily refers to the increasing consumer dissatisfaction at the numerous discriminating classes of fares available on the international routes, and asks whether Her Majesty's Government will see to it that in future the IATA agreements will take more account of the consumer interest. As the noble Baroness said, the problem is becoming more acute mainly because the charter industry is increasing very rapidly—at something like 30 per cent. a year.

As a consumer myself, I know only too well that when one contemplates going abroad on holiday, one of the main features of air traffic at the moment is whether or not one has been able to choose the best terms; whether one has become a legal member of one of the affinity groups; whether one has taken advantage of the package tour under the IATA agreements; or whether or not, at the worst, one is simply on a scheduled service.

One can trace the history of the structure of charter fares back to the 1960 Civil Aviation Act, under which the Government introduced two sets of regulations, first in 1960 and then in 1964. In those days, the charter services and package tours were in their infancy and one assumes that the policy of the Government of the day was to encourage their growth. It was then that the various categories were distinguished, notably the charter affinity groups and the policy of the separate fare concept. The reasoning and equity behind why a chartered affinity group was to be allowed special privileges over a non-affinity group is something about which many people have been mystified for years. I hope that my noble friend will take the opportunity to-night to explain the philosophy behind it. These groups have become prominent in recent years in such incidents as bogus affinity groups being stopped at the last minute at airports. Many innocent people have been stranded, not realising that membership, to be effective, must be of at least six months' duration. I hope that my noble friend will be able to tell us something of the policy of Her Majesty's Government on the future of these affinity groups.

The Edwards Committee Report on Air Transport in 1969 went into the question of air fares and traffic regulations in some detail. I believe that the Committee made very wise observations. In the first place, they pointed out that the rapid growth of the non-scheduled services as distinct from the scheduled services, and the manner in which charter operators had exploited their opportunities, had rendered the distinction between the charter and non-charter (which had been formalised in international agreements and domestic legislation) very largely irrelevant. Moreover, since chartered flights had increasingly begun to operate to schedules every bit as regular and systematic as their counterpart, one could almost say that the use of such terms as "scheduled" and "nonscheduled" services had become ineffective and misleading.

The distinction of the scheduled services arises from the common carrier legislation imposed on all scheduled operators who are required to provide a regular, continuous and reasonable capacity for all those who wish to use their service. In other words, my Lords, the scheduled operator caters for all passenger needs and the passengers expect the service to be available when it suits them. The scheduled operators have a very important part to play. The Edwards Committee, as the House will recall, made a number of specific proposals. The first was that the regulatory policy should be directed towards defining those routes which required protection for reasons of public policy, and should limit the quantity and price of inclusive tours on those routes to the extent necessary to preserve scheduled services; in other words, it was a question of the difficulty of striking the balance between protection for the scheduled services and over-protection.

I should like to draw to the attention of the House the second observation of the Committee: On other routes where the public policy arguments for the preservation of scheduled services are less powerful, a freer policy should be pursued in the inclusive tour field. We recommend that the regular authority should select certain popular holiday areas where for at least an experimental period all minimum prices for inclusive tours should be abolished. Thirdly, the Edwards Committee recommended that the A.T.L.B. and the Board of Trade powers of international fare regulation should be combined. As we know, the A.T.L.B. at present deal only with domestic fares. It would be of general interest, I believe, if my noble friend could say how far his Department has got in considering these recommendations.

Finally, my Lords, I should like to refer to one aspect of the noble Baroness's Question; that is, the situation facing many of the airline operators. With competitive rates and fares coming down, while everything else seems to be going up, there must come a limit beyond which the quality of service cannot be maintained. I believe there is a need for recognition of the fact that the quality of the product cannot be maintained unless the price bears a sensible relationship to the cost of providing it. The danger of allowing charter fare rates to go below a certain level must in the end be something which could affect the public interest and not just the airline and tour operators.

The two specific dangers to which I would draw the attention of my noble friend are, first, that where margins are small, should there be a contraction of growth in the industry, a number of tour operators would be in serious financial trouble; indeed we have had cases of this. Secondly, there is the obvious need for airline operators to maintain their financial stability and operational integrity. There should never be any reason for cutting corners and so reducing safety and reliability?

My Lords, these, I believe, are problems about which the industry is generally worried. They could prove to be against the consumer interests to which the noble Baroness has so rightly drawn attention, and I hope that my noble friend will be able to give us some assurance on these points.

7.15 p.m.

EARL AMHERST

My Lords, I would agree with what has been said about the way in which the noble Baroness, Lady Burton of Coventry, has presented the picture, and the immense trouble she has taken to get a lot of facts straight. I am dismayed that she should tell us that the Consumer Council is going out of business to-morrow, as I had one or two suggestions to make whereby perhaps it would have been able to make its views better known. But there may be successive organisations to represent the consumer. If the Consumer Council is not in future to represent the general public, it will be just a question of what the public that flies now wants. I agree with the noble Baroness that we all should like to fly free, or with the cheapest ticket we can get. No one wants to pay a penny more than he has to, and many people do not wish to spend a penny at all. The question is how to achieve that.

I think, my Lords, that we should look at the different classes of passengers. There are those passengers who, for social, business, prestige or personal reasons wish to fly first-class and can afford to do so. There are those who want to fly on the regular scheduled services, paying regular fares, because they want a choice of service and a choice of the day and the time when they travel. They do not want a hotel thrown in; they want to make their own reservations. There are those who would be happy to go at a less convenient time of day, or during mid-week, and travel in a group, and have all the difficulties regarding passports, foreign currency, tips and so forth taken care of. They would like to be accommodated in a hotel not of their choosing, but probably a very good hotel. There are also those who are quite happy to travel as a group in the middle of the night, because that is the most economical way for them to travel; and they are interested only in getting to their destination as cheaply as possible. The requirements of all these passengers are different. I am sure that the noble Baroness did not, for a second, mean to imply that one class of traveller should be subsidised and another class penalised, or that one class of traveller should travel at the expense of another class. The requirements of all of them must be considered.

We should also look at the different classes of air operators. A big State company that runs a regular scheduled airline for 365 days of the year may provide 10 services or more a day, and they operate, load or no load. It is in a very different category regarding equipment, finance and everything else from companies which can pick their time and fly chartered or special flights, with possibly a 90 per cent. load, and which if they do not get that load do not fly. I should like to quote from one of the papers from the Consumer Council sent to me by the noble Baroness, as it makes a very important point: Bear in mind the travelling public have an interest in the continuing viability of both forms of air transport. that is to say, the charter airline and the regular scheduled airline. That is really the nub of the matter—continued viability; that is what we are talking about. If a State airline goes on reducing fares to the point when it is not meeting its costs and has to go to the Treasury and ask for a subsidy, it means that the general public are required to subsidise the air-travelling public. A private airline which did the same would go bankrupt. There is a limit below which one cannot go, and these points require careful examination.

We have heard about special weekend fares, middle-of-the-night fares, weekend fares, off-peak fares, special promotion fares, and so forth. Those are mostly engaged by the regular operator as fill-up traffic—the noble Baroness is quite right—and without them the operator's total revenues would not reach the level they do. Operators fill up accommodation that is not sold, and in that way increase their revenue. Without that revenue, they will not be able to reduce fares: indeed, they will probably increase them, which is something nobody wants. This aspect needs to be looked at carefully.

It has also been suggested that the Government should license more airlines. I wonder. In the United States, where the airline business is in far from a happy state, they have a unique territory—it is unlike that of any other country in the world. For example, an airline can fly from New York to Honolulu-6,000 miles—and not cross a single frontier or engage in a single cent's worth of foreign exchange; it does not need to have any rights or to come to agreements with foreign operators. Even so, airline operators are in trouble. I am told the indication is that they will have fewer airlines and that there will be mergers, because the fact is that at the moment there are too few passengers chasing too many seats. With the exception of the two British State operators, who have made quite considerable figures in the black, I do not know of a single operator in Europe who is making a profit at the moment.

I want to come now to the question of IATA. There has been a suggestion that IATA is a wicked cartel organised by the airlines to keep up the fares and discriminate against the public. This needs to be looked at carefully. In the international business of transport, whatever form that transport takes, you must have some organisation whereby you can deal with your foreign opposite numbers and come to some sort of agreement; otherwise there is chaos. The Post Office have it—I think it is called the Postal Union; the shipping people have it; and the airlines have it, in IATA. Like everything else, IATA is certainly not perfect, but it is the only organisation that we have. And if we did not have it, there would be utter chaos: cut rates; people all over the world would be charging anything they like; and there would be a lowering of standards which eventually would result in accidents.

It has been said that the A.R.B. takes care of regulations to prevent accidents. It does, in this country; and the C.A.B. does the same in America. But these are not international bodies. If we got a situation where all operators charged what they liked, and cut rates all over the place, we should have a lot of naughty boys who were not keeping up the standards; and we might even get in the air that awful thing known as the flag of convenience, which I am sure nobody wants. Therefore I think that IATA needs to be looked at. It could be that in Europe by itself the improvement of IATA, or entry into the Common Market, would put us in a much better position to stablise it in Europe. But that is not the whole world.

Another thing I would point out about IATA is that without agreement on fares passengers will never be able to file a through-fare. I am sure that no noble Lord wishing to go to Beirut via Paris, Rome and Athens, would like to find that he could buy a ticket only from London to Paris, and that he would have to buy another ticket to Rome, and another to Athens—all at different rates of exchange. Passengers want a through rate. That is possible only so long as fares are more or less stabilised. And they are stabilised, twice a year, by IATA.

It must also be remembered that you have to take care price-wise with many filings. An operator cannot just go flying into France and doing what he likes; he has to pay attention to what the French want. So, whatever he agrees in IATA has to be agreed to by his opposite number. The only time Governments are brought in is when there is disagreement. I noticed that the noble Baroness said that Governments ought to be brought in for questioning when fares are settled. But I suggest that if we mix the business of rights—the right to fly to a foreign country, which is the business of Government to Government—and the question of fares and rates—which is the business of airlines—we shall get into a serious muddle.

Of course there are anomalies in the present position. I can think of a very good one. Not so long ago, for various reasons, B.E.A. filed a very cheap fare to Malta. It was quickly found that it was cheaper to take this fare, to go from London to Malta and then double back from Malta to Rome, than to buy a ticket direct from London to Rome. You may say that that undercuts the regular service. But it does not really, because it takes much longer; and, of course, inter-lines and transit lines in Malta are not very convenient. But there is a case for trying it. If you choose to run around the manuals of fares and rates you can find all sorts of anomalies.

I think that, by and large, as the noble Baroness said, IATA wants looking at; but what is important is that the consumers should make their views known through international operators in IATA when they are fixing these fares and rates. If the Consumer Council had been continued I would have suggested that a way of doing this would be to make close liaison with the commercial directors of B.O.A.C. and B.E.A., at any rate as a start, as those gentlemen and those staffs probably know more about the vexed question of international fares than anybody else in this country. If the consumer interests could get close to them, they could get their views expressed through IATA. They might not get international agreement, but they could get their views expressed. I do not know what is going to happen now that there is no Consumer Council, but perhaps somebody else could take it up. As a second long-stop, the same representations might be made to the Air Transport Licensing Board or, if that is taken up by the new Civil Aviation Authority, then to them. That, I think, is as far as I can go to-night.

7.27 p.m.

LORD DONALDSON OF KINGSBRIDGE

My Lords, I am glad that my noble friend has raised this difficult point, and I am also glad that the noble Earl has given a little boost to my dying Consumer Council. He made it clear that we should be having a much more constructive discussion to-day if we had not already been murdered. But I will not go into that; I said my piece sometime ago. The noble Lord opposite knows what I think about him and his doings, and I will say no more.

The noble Baroness has dealt in great detail with this subject, but I want to talk in a slightly more general sense. I am not an expert on air fares, though I regard myself as somewhat of an expert on consumer complaints. The thing which consumers on the whole have disliked most, among many other things they have disliked, is the nonsense about affinity rules. I think the Government's rather uncertain commitment to free competition seems to waver rather between several extremes, but certainly it is not at the moment a very clear commitment. I think they should move towards more active criticism of what is going on here. I do not think they should allow restrictions in restraint of trade of the most blatant kind to be enforced by IATA. I think we must make better agreements if we are to get away with cutting rates, even with a dirigiste Government; but; if you have a Government which claims to be one that believes in free competition, it is really laughable. We have to pretend that we belong to some ridiculous group wishing to go and investigate ruins somewhere in order to charter an aeroplane at a reduced rate. The whole thing has got completely out of hand. It was bad enough when the previous Government tolerated this situation. I really think that this Government are making it simply ridiculous, and I do not think this can be said too strongly.

My noble friend said that I would say something about the Civil Aeronautics Board. Mr. Secor Browne, its chairman, takes a very liberal line about this, and quite different from anything that has been said here. When he briefed the United States member airlines in IATA in preparation for the recent fares conference in Honolulu, he said that he was in favour of the simplification of the present IATA structure, which he described as "chaotic". He reminded the airlines of the increasing pressures on them from Congress, and from the consumer protection interests, and warned them not to try to cover their loses on promotional fares by increasing ordinary fares—a point which has been made by every speaker. He said that it may be a very hot summer for IATA.

Earlier, the C.A.B. put forward proposals for relaxing the rules governing charter flights, with the aim of encouraging the major airlines to offer more charter facilities. In particular, they have proposed the abolition of the affinity rules. This is a very much more forthright position than the British position, either under the late Government, or now. The late Government were moving towards proper behaviour here, and I hope that this Government will do the same. The last Government said, in the November, 1969, White Paper, that they would take a more active role in regard to IATA pricing policies. May we assume that the present Government will stand by that pledge? A more active role does not, I should like to point out, mean doing nothing. Do the Government approve (and I hope they do not) of the package fares agreement at the Honolulu Conference? The worst feature of this package was that it tried to rule out various progressive schemes, one of which was the B.O.A.C. "Earlybird" scheme. I felt very strongly about that, because I went to Bermuda on that scheme last year. The only rule is that you have to book three months ahead, and you cannot cancel the booking. I went very cheaply and had a very agreeable visit.

I do not want to be too consumer-minded about this. There is another side to this problem, I know. Over-production—and I know this from agriculture—with very keen competition, can lead to bankruptcy. Although why this Government should mind, I question; it seems to me to be their direct policy that over-production should lead to bankruptcy. I do not want to make too much of a Party point of this. In an industry where safety is such an important factor, it is obviously reasonable to have some artificial restraints to prevent the pressures growing so fierce that the safety margin is eroded. From the consumer's point of view, however, the present restrictions are not acceptable, and I think that the present Government will have to soil their fingers a little and interfere. I know that they do not like interfering with anything which is going on, but this time they really will have to do so.

I should not speak for the Consumer Council, because one speaks in this House as an individual, but to-night, as it is my last opportunity to do so, I will speak for the Consumer Council, with the permission of my Front Bench, who have often complained about it before. We want to see this concept of fare competition accepted all round, and used to enable the airlines to increase competition in the same market for cheap air travel and, at the same time, we are determined to see these affinity rules relaxed, and restrictions on competition reduced so that proper competition can emerge. For example, we should like to see higher fares charged for better service, and lower fares charged for services which are not in that category. Higher fares could well be charged for modern aircraft flying between main centres on coordinated timetables—higher still, perhaps, for supersonic flights. Meanwhile, at the other end, lower fares should be charged on trunk routes, using older planes and less accessible airports. The point about competition is that if it is properly done it works. If it is made a complete muddle—as it is now—it does not work, and the time comes when somebody has to do something about it.

In our evidence to the Edwards Committee, we suggested that IATA's inflexible attitude to scheduled air fares restricted demand, and prevented full exploitation of the increased productivity of the big jets. That is a very important point. It also inhibits competition and the quality of service provided. You are not allowed to give two eggs in a meal to passengers if the other airlines give only one, and so on. This is not acceptable at all. We thought that some experiments could well be made to encourage competition in scheduled flights on a limited number of international routes, subject to certain conditions, the main one being that the airlines are reasonably evenly balanced, otherwise you run straight away into State support, which we do not want.

My Lords, I do not want to say any more, because the detail has been admirably put by the noble Baroness. My noble friend Lord Beswick must be very glad that this Question has come at this time, and not eight months ago, because some of the questions she asked were formidable, and I look forward with fascination to the answers we shall get. From the point of view of the Consumer Council, we want to see more competition. We believe that competition is healthy. We do not believe that competition need lead to danger, if there is proper supervision centrally. If it does lead to danger, it is not the fault of the competitors, it is the fault of the Government. With that thought, I wait to hear what the noble Lord will say to the noble Baroness.

7.36 p.m.

LORD BESWICK

My Lords, I have listened with great interest to everything that has been said this evening, including the speech from the Chairman of the Consumer Council. I take this opportunity of saying that I hope he will make many more speeches in a similar capacity. I want, too, to congratulate my noble friend Lady Burton for bringing this subject forward in the way that she has done. I only wish that I was capable of offering congratulations in as charming a manner as that displayed by the noble Earl, Lord Kinnoull. But what he said, I mean.

Undoubtedly the noble Baroness has touched upon a very sensitive area in air transport economics. She has asked some cogent questions and, like my noble friend Lord Donaldson, I look forward with interest to the answers that we are expecting. I think also we should be grateful to the noble Earl, Lord Amherst, for putting for us very clearly the fact that there is another aspect to this point of view. It is not quite so uncomplicated as some may care to think. It is not all black and white, and we have to bear in mind some of the other implications of the problem. In particular, I was pleased to hear the tribute which the noble Earl, Lord Amherst, paid to the clearing house facilities of IATA. Without any doubt, that is a great service to the air transport industry.

My noble friend referred to discriminatory fares, and certainly this is a term which arouses certain emotions. If we refer to them as "promotional" or "creative" fares, they do not sound quite so offensive. It is a fact, as the noble Earl, Lord Kinnoull, said, that these fares have undoubtedly assisted the expansion of the industry and, in consequence, have made possible a better service to travellers generally, including that category of traveller in which my noble friend places herself; and, if I may say so, I should like to put myself as a fellow traveller of hers in that connection. Nothing that I say here ought to be taken as an endeavour to lessen the impact of what she has said. She has put a very powerful case, and it deserves a careful reply. I listened to what my noble friend Lord Donaldson said about the affinity group. Here is a matter that ought to be looked at with a degree of urgency. The situation has become absolutely farcical, and to me there was some doubt about the economics of the matter right from the beginning.

THE EARL OF KINNOULL

My Lords, may I ask the noble Lord how far the previous Government got in looking at this problem?

LORD BESWICK

Let us not deal with this in a Party spirit. If we did not do enough, then I criticise the previous Government. I am not interested in looking at it in a Party way. I was going on to say that the Civil Aeronautics Board in the United States have tackled the problem, and to me this emphasises the fact that in this country we need a similar body, equally authoritative and equally active as the C.A.B. in the United States. I wanted to see that brought forward in the lifetime of the last Parliament. We were not able to see the necessary legislation on the Statute Book. The last time I had the pleasure of dealing with this matter and the noble Lord opposite answered me. I asked him when we could expect legislation. I tried to help him and his Department by saying that the legislation ought to have a degree of priority.

My own view is that all the details and all the problems that have been brought forward by my noble friend Lady Burton of Coventry ought really to be considered by a professional organisation such as the C.A.B. It is much better to discuss them there, in detail, than here. So the sooner we have the Civil Aeronautics Authority established in this country, the better. I was dismayed when the noble Lord was unable to give me any indication of when the legislation is coming forward, and I hope, my Lords, that he can give us a rather better reply this evening.

7.41 p.m.

LORD DRUMALBYN

My Lords, I am sure we are all extremely grateful to the noble Baroness, Lady Burton of Coventry, for introducing this subject, which is of immense importance to a great many people in this country and in other countries. We have had a very varied debate, and a very good tempered debate. I have been interested that it was from the Liberal Benches that the Establishment position was put forward: and I think the noble Earl, Lord Amherst, put it forward very well indeed. It is well that we should keep our feet on the ground in considering these matters, and pre-eminently he did that.

May I deal with the question of the noble Lord, Lord Beswick? It is, as he knows, quite unusual to give a specific date when legislation is going to be brought forward. He also knows that legislation is not particularly easy in the course of this year owing to certain Bills before another place. It may be difficult to get the legislation which he wants through this year, but we are still hopeful that it may be possible to do it. I cannot say more than that, but hope that that will be some comfort to him.

The interesting thing about the noble Baroness's Question is that there is a slight change of emphasis at a given point between different classes of travellers and the consumer interest. The consumer interest is notoriously difficult to define. Some people may try to sort it out from time to time, but can never be sure they have got it right. In actual fact, the number of consumers involved and the width of their interest in the question of air travel is exceedingly great, and it would be difficult to say exactly where the consumer interest lies.

However, may I suggest that what consumers may require of air travel is this. First of all, they are accustomed to, and seem to want, regular services in accordance with published schedules of times and fares, offering the consumer the maximum flexibility of arrangements, as the noble Earl, Lord Amherst, said, in accordance with individual needs and choice. Secondly, at the other extreme, there are bulk travel arrangements requiring fixed bookings long in advance.

May I say a word there about affinity, because one of the difficulties of bulk travel is the difficulty of deciding who is entitled to bulk travel terms; and all these questions of definition are obviously difficult. Noble Lords were quite right to draw attention to this problem. We have to recognise that the existing rules are unsatisfactory in a number of respects, and we should like to see something done about them, but time and again in replying to this debate I am bound to say that it is necessary for Governments to move in concert with each other in this matter. We are interested in the recent C.A.B. proposed rule-making, which reflects the kind of thinking embodied in B.O.A.C.s "Earlybird" fares, to which the noble Lord, Lord Donaldson of Kingsbridge, referred and which he seems to have found satisfactory. We shall be examining the proposal very carefully. Time and again we shall, of course, be putting forward suggestions which may or may not be accepted in IATA.

The third broad band here of what consumers require of air travel is the inbetween—the excursion arrangements with limited, defined options. Obviously, it has been generally recognised that, however much competition we may like to stimulate, all air travel requires regulation if only for safety reasons, which form an outstanding requirement; and international air travel requires regulation because, as the noble Earl, Lord Amherst, made very clear, agreement between the country of origin and the country of destination is needed. Airlines are there to provide for the needs of the consumer and it is their aim as well as their function to meet the needs of the consumer within the limits imposed by the need for the airlines themselves to continue in business—that is, to make ends meet. I need not go into the details of this, because we have already discussed it at different times, but it is very long-term planning which makes progress in this sphere inevitably slow; we would all accept that.

It is, of course, true that any large enterprise may be so taken up with its own problems of daily administration and even survival, that it may tend to subordinate to its own convenience the interests of those whom it exists to serve. This is true of anything from, let us say, nursery schools to great institutions. The justification is often that the main interest of those whom it serves is economy, and what is best administered is best. But what I sense the noble Baroness really wants is that the Government will always be both watchful and active to see that constant efforts are made to meet the ever-changing and infinitely varying needs of consumers as they arise. There is really no definable consumer interest. There are so many interests of millions of divers users. I hope to be able to convince her that the Government are watchful and active in this respect, and I trust she will not lose patience while I am referring, as I must, to the limitations within which they are bound to work in dealing with international air travel.

It is bound to seem odd that one person should be able to go, say, from London to Barcelona and have a fortnight's holiday on the coast of Spain for less than another pays for the return journey. Possibly it is even more odd that two people travelling on the same aeroplane, of the same age, are paying different fares, quite apart from class. But the fact is that they are really only shopping in different markets. They are buying two quite different sets of services. Unquestionably there is a need (as, again, the noble Earl, Lord Amherst, said) for international scheduled services. Wherever there is such a need fares are necessarily fixed, because in most cases they have to be internationally agreed. That is not to say that there is only one fare applicable between two places. It means that if the traveller wants to keep all his options open, including stopover at intermediate points, date of return and all the rest, he may pay the full fixed fare decided on by the appropriate traffic conference of IATA. Apart from that, there are tourist excursion fares, night excursion fares, reduced return fares fixed for a minimum period or a maximum period, or both, and so on.

The noble Baroness asked me, as she asked my noble friend, about the out-turn of Paris fares. The noble Baroness said, if I understood her correctly, that the total of Paris fares amounts to only 75 per cent. of the normal economy fare. This is the yield of published fares, and she went on to say that if that is so, it must mean that normal fares must be pushed up to compensate. I cannot vouch for that exact figure, but I suppose she means the average net yield per passenger works out at 75 per cent. of the normal economy fare.

BARONESS BURTON OF COVENTRY

My Lords, I thought I had made it perfectly clear. I never mentioned economy. I said that the London-Paris yield to B.E.A. was 75 per cent. of the published fare, and I said that if this was correct it must mean that more than half the passengers, for one reason or another, were carried at less than half fare, and that other fares were pushed up to compensate.

LORD DRUMALBYN

My Lords, I was trying to establish what fares the noble Baroness meant. Of course there are first-class and second-class fares.

BARONESS BURTON OF COVENTRY

My Lords, I beg your pardon. I said the London-Paris yield, which I thought was inclusive.

LORD DRUMALBYN

My Lords, it is of course a little more difficult to establish the exact proportion in that case. I think the answer is that this is not really as alarming a state of affairs as the noble Baroness imagines, for in fixing the fares the airlines calculate their revenues on a net, rather than a gross, basis, and the difference between the normal fare and the average net yield is no doubt accounted for by, first of all, the payment of commission to retail travel agents, the fact that children are travelling at half price, the night excursion fares, and other discounts and reductions of that kind. I do not see that it follows from that fact in any way that any fares are being pushed up in order to accommodate these discounts of one kind or another.

The general purpose of excursion fares and the like is to encourage travel and to meet the needs of would-be travellers. In effect, the noble Baroness asked whether there could not be further experiments with fares to encourage travel; and further experiments are being made. The demand for scheduled services varies with the season, the time of day and the day of the week. As the noble Baroness said, the average passenger load factor throughout the year is around 60 per cent., which means that two out of five seats are unoccupied; but reducing the fare would not necessarily fill enough of them to make the reduction worth while. I think that was the point made by the noble Earl, Lord Amherst. In theory, given the obligation to provide a scheduled service with all the options open, which means a degree of spare capacity, the operator can either make all or part of the seats available for this purpose. If he makes only part of them available he may still be making enough available to meet the demand at that particular season, time of the week or time of the day.

This is the sort of arrangement that is under contemplation at the present time in the T.O.P. fare scheme. If scheduled services on holiday routes cannot compete in the wholesale market they may cease to be viable, and their withdrawal would be detrimental to the interests of individual travellers. The availability of T.O.P. fares is limited to 30 per cent. of the seats on the flight, or 40 seats, whichever is the lower. This will leave ample seats available, on average, for individual bookings at short notice. T.O.P. fares are on a contract basis with a non-returnable deposit payable up to four months in advance, the balance also being payable, I believe, one month in advance.

My Lords, I was also asked about whether these fares had come into operation, or when they would come into operation.

BARONESS BURTON OF COVENTRY

My Lords, I am sorry to keep on being a nuisance—I am not being troublesome: but I am still not quite clear.

LORD DRUMALBYN

My Lords, I have not yet finished on that point.

BARONESS BURTON OF COVENTRY

I know, my Lords, but we are not dealing with the same thing. I asked about the "top-up" fares, of which I gave notice to the noble Lord. What I should like to know is what period of the year these are in operation.

LORD DRUMALBYN

My Lords. I think in fact we are talking about the same thing: "T.O.P." stands for "tour operators". I have forgotten what the "p" stands for, but I think they are loosely called "top-up" fares. I think we are talking about exactly the same thing. On home services I do not know whether the B.E.A. are operating these at the present time, but there were such things, as the noble Baroness herself mentioned, as standby fares and the like. But this has nothing to do with what I am referring to.

The B.E.A. "drive about" holidays are not based on T.O.P. fares, which do not come into operation until October 16. I do not know exactly on what fares they are based, but presumably they must, in order to conform with obligations, be based on existing I.T.X. fares.

If there is anything further I can add to that for the noble Baroness I will certainly write to her, but this is the information I am able to give her at the present time. If I may say so, she shot so many questions at me so fast that I was not able to note nearly all of them, and if I may I will write to her.

BARONESS BURTON OF COVENTRY

My Lords, I did give the noble Lord notice of a good many of my questions.

LORD DRUMALBYN

My Lords, I had two or three paragraphs typed for me of the notice that the noble Baroness gave, and we are trying to answer all the questions that she indicated. But what I saw was a very small summary in comparison with the enormous number of questions that she fired at me in the course of her speech. But I will do my best.

Perhaps I might say this. There has been no reference, apart from the "Early Bird" service, to the B.O.A.C. services to which they referred in their report, when they said this: Special fares were introduced"— this was for 1969–70— which provided an incentive to agents and tour operators to buy seats in bulk, thus giving B.O.A.C. access to the highly competitive bulk travel market. Fares used with biggest effect were the contract bulk inclusive tour and the special group inclusive tour". The noble Lord, Lord Donaldson of Kingsbridge, who has now fled the House, referred to the Honolulu conference. I think I should say that we have not yet approved the North Atlantic fares agreed in Honolulu last autumn, and that will give me an opportunity to say that all IATA agreements have to be approved by the Governments affected, and before approving the Honolulu North Atlantic fares we shall want to see what other countries do, especially the C.A.B. We are sorry that IATA has not wished to persevere with the fares I have just referred to, or to adopt the "Early Bird" concept; but the North Atlantic fares agreed in Honolulu are for one year only, and no doubt the argument will go on. I think I should make it clear also (I do not think the noble Earl, Lord Amherst, mentioned this) that all IATA passenger tariff agreements are concluded by unanimous vote of all member airlines. But, as I said, they are subject to the approval of the airlines concerned and the Governments concerned. So Governments are not without influence in these matters, and I can assure the noble Baroness that the British Government seek to use their influence in an enlightened way from the point of view of the consumer.

The real problem that the noble Baroness has indicated is partly due to the fact that the costs of travel are constantly rising, whereas experiments with charter flights and competition in tour operation often brings lower charges at the opposite end of the scale. But those rising costs must be met somehow or another, and the problem is to be able to maintain the necessary scheduled services in operation while at the same time giving the maximum freedom to the charter operators, consistent with safety and consistent with the survival of the scheduled flights.

It is easy to criticise this from the outside and to take what we used to call in the Services a "worm's eye view". I use that expression with no kind of offence intended, but it is very difficult for the individual consumer to judge the requirements in this sort of sphere. I would say that the Government envisage that the new Civil Aviation Authority will consult representatives about air fares, but it is not practicable for consumer bodies, as the noble Earl, Lord Amherst said, to take part in IATA negotiations. IATA, after all, is a trade association of schedule airlines.

EARL AMHERST

My Lords, if I may mention one point on the subject of inreased costs which may be of interest, the new oil arrangement for the Arabian Gulf, I am told, will increase B.E.A.'s costs this year by £2 million.

LORD DRUMALBYN

My Lords, I am grateful for that information; I myself had not yet obtained it. I think it is important to make this clear. The demand for scheduled services is relatively inelastic. It is growing, although obviously more slowly than for nonscheduled. There is little indication that it is being eroded by charter services and inclusive tours on most routes, or that a reduction in fares on scheduled services would result in a commensurate increase in their use.

LORD BESWICK

My Lords, the noble Lord has just touched on the core of the matter. What it boils down to is this: should not we create extra traffic or promote extra traffic if we experimented with the idea of reducing a little for all rather than a lot for the few? Can the noble Lord say on what he bases his last statement; that there is no indication that a reduction in fares would help scheduled services?

LORD DRUMALBYN

My Lords, I am afraid I cannot give the noble Lord the basis for it. May I write to him about that? People who want to keep all their options open may grumble about the price they have to pay for doing so, but this is part of the package they are buying. It is quite wrong to equate the package that they are buying with the package that somebody is buying when they buy a place on an inclusive tour for a specified time, having to pay the money in advance and having to make up their minds a very long time in advance. The fact is that the number who pay this price continues to grow year by year. I recognise that there is dissatisfaction, although I am well aware that some of those who feel dissatisfied have been active in making their dissatisfaction known to others.

The facts are—and this is the core of it—first, that airlines have to pay their way; secondly, that it is in their interests to encourage the maximum use of the very expensive aircraft they have to provide; thirdly, that in the sphere of international scheduled services there is no alternative to proceeding by way of an international agreement; and fourthly, that Her Majesty's Government are conscious of the interests of the travelling public and are constantly doing all they can to encourage progress, though not necessarily always along the lines the noble Baroness or any other individual or group would prefer.

House adjourned at four minutes past eight o'clock.