HL Deb 29 July 1975 vol 363 cc908-18

3.40 p.m.


My Lords, with permission, I will now repeat a Statement which is being made in another place by my right honourable friend the Secretary of State for Trade.

"With permission, I will make a Statement on future civil aviation policy in the light of the Policy Review which my Department has recently completed.

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

"It is against this background of a much less buoyant outlook for our industry that I have had to consider whether it remains in the national interest to continue with existing policy and especially to seek to have more than one United Kingdom airline serving any international long-haul route. In the present difficult conditions facing all airlines, aviation authorities throughout the world, including the USA, have been seeking to limit the competition faced by their main flag carriers. Thus, for the foreseeable I future there will be hardly any routes on which we could hope to introduce a second British airline on terms which might enable us to increase significantly our share of the revenue. Moreover, British Caledonian's experience of the North Atlantic has clearly shown just how difficult it is for a second United Kingdom airline to compete profitably against established national flag-carriers. I have accordingly decided that in future it should be our general policy not to permit competition between United Kingdom airlines on long-haul scheduled services and therefore not to license more than one United Kingdom airline on any given long-haul route.

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

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

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

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

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

"The United Kingdom's airline industry, like that of other countries, has faced and will continue to face a period of considerable difficulty. So far we have withstood pressures better than most and I believe that we can surmount them in the future. I do not think that frequent or major changes in policy affecting the industry are desirable. So, my aim has been to make only such changes in policy as are necessary if the industry is to deploy its resources to best effect in the very competitive international markets in which it has to operate. These policy changes will need to be incorporated in new policy guidance for the Civil Aviation Authority, for which I shall be seeking the approval of Parliament in due course. I am also considering whether an amendment to the 1971 Civil Aviation Act will be required. I shall set out my proposals in greater detail in a White Paper to be published in the autumn. Meanwhile I am placing in the Vote Office a note about the factual background to the Review."

3.47 p.m.


My Lords, the Statement which the noble Lord has just made is undoubtedly wide-ranging. I understand that it arises from a review which has taken place in the Department of Trade, and as no White Paper is yet to be published I would thank the noble Lord for undertaking to let the House have a note about the factual background to this review. The Statement indicates some of the problems which British Caledonian has been facing and, if the noble Lord will forgive my saying so, the Government's solution appears to be to pin back British Caledonian to their existing services. This raises fundamental questions and worries. May I ask the Government whether they are satisfied that this airline, which they go out of their way in the Statement to say is valuable from a national point of view, is in fact viable; and, if so, and if B.CAL is to be pinned back to existing services, what steps will be taken to see that this airline can remain viable? The noble Lord has given some details and, if he feels that he does not want to give us any more this afternoon, that will be one of many important reasons why a debate will be necessary on this subject.

My Lords, I wonder whether I might ask two other questions which refer to the past. Have the Government issued any designation to British Caledonian to operate, since they came into Office? I am well aware that the Statement is dealing with the future, but I should be interested to know whether the Government have ever done this for B.CAL since they came into Office. If they have not, it is not surprising that this airline is finding it difficult to expand and prosper. My second question on what I feel is an associated problem concerns the British Airways shuttle service which operates from Heathrow. May I ask whether B.CAL's wish to establish a special instant purchase excursion at winter weekends between London and Scotland, and London and Manchester, will be allowed to go ahead? I think this will be extraordinarily important for this airline. My own view, for what it is worth, is that commercial decisions of this sort are the real problem of BCAL, and until we can be sure that they will be decided in this airline's favour we shall all be uncertain as to what will be the future of this most important airline.

Finally, may I say that I appreciate, as the Statement says, that airlines are facing a very difficult time, but nothing will be solved by simply reducing competition, and to this extent I deprecate as strongly as I can the decision of the Government about the Laker Skytrain service. I think it is the very greatest pity. But, again, this is something into which we can go in greater detail later. I am sure the House will want to study the Statement and will hope for the opportunity of debating this important subject as early as possible.

3.50 p.m.


My Lords, I should also like to thank the noble Lord, Lord Beswick, for repeating the Statement from the Secretary of State for Trade. I should like to reiterate part of what the noble Lord, Lord Belstead, said about the shuttle service in regard to British Airways and British Caledonian. What chance have British Caledonian of remaining profitable on their domestic routes, if they are in direct competition with British Airways' shuttle service? Secondly, with regard to the Laker Airways Skytrain which, from all the forecasts that can be made, could be a success on the North Atlantic route, may I ask whether there would be a chance of British Airways running the Skytrain service? Lastly, I believe that British Caledonian have approached the Government about possibly coming in with a minority—and I repeat the word "minority"—State participation. If this idea has any foundation, could not such participation provide some stability and security to British Caledonian and all their employees?

3.52 p.m.


My Lords, I thank the noble Lords opposite for the way in which they have received the Statement. May I say straight away to the noble Lord, Lord Belstead, that I should be very happy to debate with him the policies set out here, together with the implications for the future, and indeed also the circumstances which have led to the present situation. May I say to him that in view of the way in which the previous policy guidelines were compiled, I think that his reception of this Statement is perhaps rather ungenerous. After all, we had a situation in which the Government of the day took away profitable services from British Airways and gave them to British Caledonian, without any compensation whatever to the public Corporation. That was entirely wrong, and indeed was glaring political dogmatism. That is the fact, and because of that I feel this quite generous Statement ought to have been received much more kindly. I say that even though I have a very soft spot for British Caledonian and admire the way they have operated their services and also the service they give on their routes. The noble Lord says that it is Government interference which has caused problems to British Caledonian. That is not so, and I really would delight in debating that proposition with the noble Lord. What has created their problems on the North Atlantic route is the 10 per cent. reduction in overall traffic. It was not a Government decision which caused British Caledonian to give up their operation on that planned route.

The noble Lord asked about the possibility of giving to British Caledonian some hope for viability in the future. I have said there will be discussions to explore the possibility of a limited exchange of routes, which could benefit both airlines. I would have thought that both the noble Earl, Lord Kimberley, and the noble Lord, Lord Belstead, would welcome that rather than adopting the rather critical attitude they have adopted.

I was also asked about the possibility of B.CAL competing with British Airways on domestic services. I am not sure whether the noble Earl was suggesting that there should be some artificial restrictions on British Airways to allow British Caledonian to go ahead on the domestic services; but in view of the great support and praise they have given, rightly, to British Caledonian, I would have thought they would have been happy to have left B.CAL to carve out their own market in the domestic sphere. Of course, in the main, they operate from Gatwick as opposed to Heathrow, and this is a service to the community generally. I have said that it will be the deliberate policy of the Government to encourage the development of Gatwick, so that B.CAL will naturally benefit from any such development.

I was asked about the possibility of British Airways operating the Skytrain service. So far as I know, they have no intention of doing this in the way in which Mr. Laker had intended to do it. I personally am sorry that particular development has not proved possible, but it will be known that the American authorities have not agreed to the licensing of the Laker Skytrain service precisely because they felt the diminished market did not merit this additional competition. May I say, finally, to the noble Lord, Lord Belstead, over the merits of competition, that, in view of the fact that there is no other country in the world apart from the United States of America on the North Atlantic route where there is competition between national carriers, I should have thought he would have learned something from that experience.

3.58 p.m.


My Lords, I hesitate to speak at this moment because I missed the beginning of the Minister's speech; but I should like to correct any impression he may have that we on this side are ungrateful. I do not think that should be so, because I happened at the time to be the Minister responsible for perhaps creating the position which the noble Lord did not altogether like at the time. Whether we were right or wrong, I feel that it was a success and I am very grateful for the fact that the Minister has come away from the position that some, at least, of his colleagues wanted; that is, of destroying British Caledonian at the earliest possible opportunity. I think the shuttle service to Glasgow has been a great success and I hope that British Caledonian will be able to produce something as effective on their other domestic lines. I am very grateful for the Minister, for saying, if I understood him correctly, that the Government are determined to give British Caledonian a really fair chance of being an effective second-force airline.


My Lords, I am very grateful to the noble Lord for his objective and fair-minded statement. Remembering, as I do, that we both helped to inaugurate the North Atlantic services in somewhat inclement weather, I am sorry, as he is, that this service did not prove as profitable as was hoped.


My Lords, like others, I have listened with great interest to this Statement. Since the Edwards Committee reported conditions have altered adversely for the airlines, but I cannot quarrel with the broad decision of the Government to confine competition on the main air routes of the world to an international basis, rather than having, in addition, national competition. I think that what British Caledonian have achieved over the years is greatly to their credit.

I should like to ask for clarification on part of the Statement: do I understand that British Caledonian's area of what I might call operational influence in West Africa will remain with them and not be encroached upon by British Airways, the other main operator? Secondly, I agree with other noble Lords in their regret that the Laker Skytrain cannot go forward. I do not believe that the Skytrain would have taken a large element of the travelling population from the other airlines. Indeed, it might have opened up a different layer of travellers from those travelling on the normal scheduled airlines. Therefore I hope that in the future the Government will not close their minds absolutely to taking another look at this problem. Having said that, broadly speaking, I cannot quarrel at all with the Government's policy.


My Lords—


My Lords, may I just answer the noble Lord, Lord Balfour. I should like to thank him for his approach to this problem. So far as the West African sphere of influence is concerned, I can tell him there is no intention of encroaching upon it, except for a possible Concorde service down there, which could be something for the future. Far from encroaching upon the West African sphere, West African and East African services are open for discussion with the possibility of some exchange with British Airways, although British Airways' contribution to this exchange may be to the Central or Northern part of the South American Continent.


My Lords, may I ask the noble Lord to elaborate on the previous speaker's last point. It appears to me that the Government take the view that there is a certain amount of traffic which is carved up between the national airlines, that it is static and that it falls according to economic circumstances. I should not like to think that the Laker Skytrain venture will be completely ignored because we have to support static national bodies. The only way to build up again real traffic is by new concepts of air travel which could result in more people travelling a great deal more cheaply. I hope that the Government will not be confined to a policy of supporting airlines simply to prevent them from losing money, because this appears to be a very negative development concept.


My Lords, the noble Lord talks about carving up the market, but it is not open to any one country to do that. This is an international business, and it is up to each national carrier to get as much business as possible out of the international market. Any national carrier has to be designated by both ends of the route. The fact is that, when we agreed that the Laker Sky-train should operate, the American authorities would not agree to it, on the basis that there was not sufficient traffic to enable it to operate successfully.

May I suggest to the noble Lord that he is in error if he thinks it is just a matter of preserving something for British Airways. One must remember that it is a question of overall planning in conjunction with the carriers of other countries. If the noble Lord asks whether the Government have closed their mind for all time to the possibility of a Laker Skytrain, the answer is. No, but for the time being the answer is, Yes.


My Lords, my spontaneous and instinctive reaction to the Statement which the noble Lord has just read out is that everybody who has the long-term interests of British civil aviation at heart will welcome this stoppage of internecine competition by the duplication of route licences. The good wind of common sense is blowing over the whole structure.


My Lords, the noble Lord, Lord Beswick, did not make any comment on my belief that British Caledonian had approached the Government to take a minority interest in the company.


My Lords, may I thank the noble Lord, Lord Thomas, for what he has said. With his experience, I am sure that what he has said will carry weight. I understand that the chairman of British Caledonian had put forward this idea as a possibility. Although the idea was considered, and I have no doubt that had it been accepted we should have been shot down as extending public ownership, it was not accepted.


My Lords, may I ask the noble Lord one question with regard to the Laker Skytrain. I appreciate that if you are going to start such a service you must obtain the agreement of both sides. The Statement which the noble Lord read out says: I have accordingly told Laker Airways that in those circumstances the Skytrain cannot operate. Can the noble Lord say for how long this embargo will last? This request has been under consideration for some time. Will the embargo last just for a year, or are Laker Airways entitled to come back in a short while and ask again? Is the noble Lord able to say that at a time of high fares and a slump he supports in principle any such initiative as this which will encourage an extension of the air market and will also encourage to fly people who would not otherwise have been able to fly? Can the Government say that they are in agreement with that principle, even if at present they are having difficulty over obtaining agreement with their American counterparts?


My Lords, what I have said is that although there was readiness by this side to give permission, up to the present time there has been a refusal by the American side. However, since the application was first made there has been a downturn of traffic on the North Atlantic. In those circumstances, we think it would be inadvisable to inject the additional competition of a Skytrain service. However, it would, of course, be possible for Laker Airways to operate a charter service across the North Atlantic.


My Lords, could the noble Lord tell us whether there is any likelihood of an international change in the definition of licences between charter and schedule and a coming-together of the two services under one licence, and whether this has in any way affected his thinking?


My Lords, my understanding is that recently there have been certain changes, but so far as I know there are no discussions taking place at the present time. Wearing another hat, I wonder whether I may suggest that unless there is any great demand for further debate we should now return to the business of the day.