HL Deb 23 July 1979 vol 401 cc1779-93

10.2 p.m.

Lord NORTHFIELD rose to ask Her Majesty's Government what action they propose to take, particularly in the light of the Council of Europe Assembly's study and Resolution No. 694 (1979), " Air Transport Policies ", to reduce air fares to the major cities of Western Europe. The noble Lord said: My Lords, I am glad to be able to put this Question which stands on the Order Paper in my name to the Government, and I am very grateful to the noble Lord on the Government Front Bench for staying rather late to reply to it. I put this Question for three preliminary reasons. First of all, as a good European, I think it is slightly ridiculous that all the fare bargains in air flights are to the United States and other parts of the world, and transport between the great cities of the countries with which we are seeking greater unity is one big expensive racket, to say the least. It hardly helps the spirit of European unity.

My second reason is that I think it is appropriate to ask for a preliminary comment of the Government on Resolution 694 of the Council of Europe Assembly, and on the speeches, and reports and explanatory memorandum of Mr. Bjork, the very energetic Swedish Member of the Assembly who did the preliminary report in June 1978 and now a new report in 1979. I hope the Minister will agree that it is an excellent, balanced, informative report and resolution, and I hope he will be able to give us some preliminary comments by the Government on it, because of course all these resolutions from the Council of Europe Assembly depend on their being adopted by the Ministers for them to become effective.

Thirdly, I suppose I put down this Question because I am an irritated, though I hope not irritable, traveller in aeroplanes. As I said, it is ridiculous that, we pay as much to fly to Scandinavia as to fly to Los Angeles, and there are no walk-on shuttle flights to places as near as Paris, that fares to our nearest neighbours are scandalously high in the general sense, and that only some element of cheap fares is beginning to creep in in Europe. It is annoying to any traveller in Europe that there is a jungle of fare systems. I, like many business and other travellers, am reduced to buying a journal called The Business Traveller which exists simply in order to inform businessmen how to profit from all the cheap fares, all the ways round, the rackets, the evasion, so to speak, of the regular prices, in order to get to a business destination cheaply. Perhaps by taking a weekend trip to a pigeon fancier's fair in Munich one can halve the cost of the flight and have the hotel thrown in free. We are all reduced to those ridiculous stratagems in Europe, because there is nothing comparable to the system which has grown up for Atlantic travel of cheap, freely known, flight fares. So those are my reasons for putting down this Question in the first place.

Why are the fares in Europe so high? Clearly it is because of excessive protectionism of national airlines by the Governments concerned, and I can understand that. I understand that such an infant industry from the late 1940s onwards, like other infant industries in history, needs a period of protection in order to grow. I also understand that it could be quite a long period in the case of the airline industry because of the huge costs of aircraft, the huge costs of operation, and the dangers of large losses by cutthroat competition. So one can understand that there will be a long period of protection for " infant industries", as they are known to the economists.

One can also understand that a good deal of protection is needed for the opening up of new routes by this comparatively new form of transport, especially internally. For example, one thinks of the difficulties that Air Inter had in making its routes profitable inside France when opening up new cities to their internal routes. For all those reasons one understands why there has been a long period of protection.

Surely since 1976 we have been in a quite different period of history. We ought now to be recognising this new era and doing something as regards European fares. Since 1976 several factors have blown fresh winds through the whole system of world air fares. First—and I am glad to note it—we have had the liberalisation policy of the United States' Administration which has led, as much as anything, to the new Bermuda Agreement. We have the new pricing freedom inside the United States and, only a few months ago, the removal of restrictions inside the United States. There are calls from America for greater competition, for multiple designation in flight paths and flight destinations, liberalised charter rules, market place pricing, and, of course, the United States has been pushing its new policy of liberalisation even to the extent of making itself unpopular. This is new and it is having a great effect.

The second thing that has happened is that, as Mr. Bjork's excellent report points out, in 1978, at any rate, as regards international routes, we had a 60 per cent. load factor. That should now, I hope, make it possible to reduce some of this protectionism and allow more liberalisation to take place without fears of great losses and bankruptcies.

The third factor that has occurred since 1976 is what I would call " the Laker explosion "—the penetration of Sir Freddy Laker's walk-on Skytrain system into the American routes, which not only opened up cheap travel but forced the other airlines to adopt their systems of APEX, Super-APEX, budget and stand-by fares, providing a complete range of cheap fares which the traveller can now quite easily choose from when he wants to fly to America.

Finally, we come—if one likes to press it this way—to what we might call " Laker Mark II ", by which now the Laker organisation can offer the earliest possible reservation if it is unable to accept a booking on the day concerned. So this element of advance reservation is allowed in the Skytrain system. This is a great change in the system of international air traffic. All these three factors together—the United States liberalisation, the growth to a 60 per cent. load factor in international flights and the Laker explosion—are having a totally revolutionising effect on air transport. They make IATA more flexible and—miracle, miracle!—no airline has collapsed as a result of the " Lakerism ", although I understand that some airlines are flying the Atlantic at below cost. In any case, the important thing—and it may not be entirely due to Freddy Laker—is that last summer at least there was a 25 per cent. increase in traffic in the air between the United Kingdom and the United States. Therefore, this opens up travel to more people, and does so by offering cheap fares.

When I look at this revolution which has broken into the situation since 1976—this is my next point—I fully realise that conditions in Europe (and I know that the Minister will want to say this, too) put limits on the fare reductions which we can expect compared with what is happening in cross-Atlantic traffic and compared with what is happening to traffic inside the United States itself. There are quite different conditions in Europe which make such dramatic fare reductions much more difficult. We have smaller aircraft; we do not have the mass travel by air that the United States have—80 per cent. of major travel in the United States is now by air and they have the resulting economies of scale from this which we, in Europe, cannot match. We have more creaming-off of traffic in Europe by charter activity, which has now reached 50 per cent. of normal traffic in Europe. Until recently we have had more costly fuel, and more uneconomic routes which still need support from the profitable ones. Above all, perhaps we have the contrast with the United States in geography. The United States have a better ratio of flying time to ground time because of distances in the United States. That leads to better aircraft utilisation, and there is, therefore, less time on the ground—and a better ability to offer reasonably cheap fares.

I realise that all these factors—and I say this to noble Lords quite openly—mean that one must put limits on expectations about reductions in fares in Europe, compared to those across the Atlantic and inside the United States. Overriding all that, making it even more difficult is one of the factors which I mentioned at the beginning—namely, national sovereignty leading to bilateral agreements between countries on point-to-point flying only; that is, London-Paris, but never London-Paris-Frankfurt, which would enable greater economies to be made—all this hideous nationalism which is limiting the commercial growth of really profitable routes taking in several cities across the whole pattern of Western Europe. Therefore, I fully admit that the difficulties are substantial.

In those circumstances, what can we hope for? First, I hope the Minister will say that there is at least some hope of " Lakerism ", if I may coin a phrase, in some form in Europe. I do not expect the Minister to comment on the Laker application to have flights to 35 cities in Western Europe. But I am talking about " Lakerism " which is, in effect, also being pressed upon Governments by the Commission of the European Community.

Their White Paper, which has just been received, suggests in fact that airlines—presumably free airlines such as the Laker airline—should have the right to compete on routes that have been carved up between national airlines if, for any period, they prove that they can offer a better or cheaper service. So in effect we now have the EEC Commission backing some form of Lakerism; that is, the ability to compete on some of these routes where a cheaper walk-on, no frills, whatever it is, simple system of air flights can be offered more cheaply. I hope, therefore, that the Minister will indicate that the Government are behind some liberalisation of this kind in Europe.

Secondly, I hope that we could have an indication that there shall be more freedom for small airlines, and for market prices where no cartel system between Governments is operating; more small airlines that can open up unusual routings, and charging whatever the market will bear. Thirdly, I would hope that we could press British Airways and other national carriers in Europe to develop more shuttle services between the great cities at low rates with no frills. If you like, bringing in Lakerism Mark II that I spoke about earlier on; that is, Lakerism under which there is in effect a Skytrain system, but also you can be offered the next available flight if the one you go for happens to be fully booked already.

We need now to move on from this rigid, monolithic system that we have mainly in Europe to something like Lakerism Mark II. I say all this knowing of course that British Airways and others are just beginning to offer some cheaper fares. That brings me to my final point. I think that the fare system needs to be categorised, simplified, made systematic in the way that the one across the Atlantic is, with its four or five clear categories from which a traveller can choose when he makes his reservation, and can choose to make 21 days in advance, or whatever it is, and get the cheapness that that then brings. I do hope that we can press Governments to agree that the jungle of fares needs simplifying now into something that is comparable to the reasonably understandable system that operates across the Atlantic.

My final words are that I know that the United Kingdom Government cannot do all this alone. This is a matter for agreement with highly nationalistic Governments, each desperately protecting its own airline in Western Europe. But I hope that the British Government will nail their colours to the mast of progressive liberalisation. I am not—and I want to make this absolutely clear—asking for an immediate free-for-all. That would get us nowhere, and indeed would perhaps end with us all complaining about some airlines going bankrupt, some routes being cancelled, et cetera. But if we go for progressive, gentle, steady liberalisation in the way that could be imagined, learning from the lessons of what has happened across the Atlantic, then perhaps we could open up cheaper inter-city traffic inside Europe.

Last of all, I hope that the Government, in broad principle at any rate, will support Resolution 694 of the Council of Europe Assembly when it comes to the Council of Ministers. It is there, in the Council and in ECAT—the European Council, or whatever it is called, for Air Transport—that the battles will have to take place for this liberalisation. I hope that the Government will say broadly, and without undue commitment at this stage to detail, that they are behind these pressures to open up the skies much more liberally now that the days of protectionism are less necessary, and now that we have had the lessons of what can be done across the Atlantic, and we can perhaps apply them in the proper form to traffic inside Europe.

10.20 p.m.

The Earl of SELKIRK

My Lords, I had not intended to speak tonight but I, wish to say what an extremely valuable speech the noble Lord, Lord Northfield, has made and how worthwhile it is for him to have raised this whole question of the really astonishing complexity of air fares. I believe we are still suffering from the international cartel which descended on the world shortly after the end of the last war, in which more or less every Government was involved and interested in keeping fares high. That has been the lot in this international field for a very long time and has prevented people from getting the full cheap benefit of aviation which could have been possible.

As Lord Northfield said, we are moving out of that state of affairs and I hope the Government will—I am fairly confident they will—take a vigorous step to liberalise and allow the free element of competition to come right into this whole sphere. Of course, one reason which has kept the system up is that many people who go by air do so at cost, as an expense, and are not desperately interested in the expenditure. So we have the astonishingly sharp differentiation that exists between scheduled flights on the one hand and specialised flights on the other, producing a quite different price, the latter generally being in respect of tour flights. This is a ridiculous separation with an absurdly wide variation in price which should be got round in one way or another.

The United States has many advantages, not least of which is the fact that one can travel great distances without going through the bother of customs and immigration which in Europe necessarily play a part in the whole issue. I do not want to speak at length because Lord Northfield has covered the subject extremely well. I would only add that it is high time the matter was raised fully and forcefully, and that he has done. I look forward—I must admit, with not too much hope—to some steps forward being taken and I hope that my noble friend who speaks for the Government will be able to say something positive on this matter.

10.23 p.m.

Lord PONSONBY of SHULBREDE

My Lords, I join with the noble Earl, Lord Selkirk, in thanking my noble friend Lord Northfield for raising, despite the lateness of the hour, a matter which is of great importance to many people in this country. It is a matter which has needed to be highlighted, particularly since the arrival of the cheap cross-Atlantic flights last year.

I was interested to hear Lord Northfield say he subscribed to Business Traveller and I hope he will place a copy of that magazine in the Library so that other noble Lords may consult it and see what information of use they can glean from it. It is certainly true that lower fares will benefit many people; particularly they will enable travel to be further encouraged. The figures for arrivals from North America into this country last year, the first year of cheap fares on the North Atlantic routes, show what sort of effect they can have on travel, and my noble friend is right in asking why we cannot have the same sort of impact in Europe. In particular one hopes that, in the terms of the report to which he referred, we may be able to see some form of cutting of fares on the more mature routes.

The noble Lord, Lord Northfield, referred to the report of 10th May of the Parliamentary Assembly of the Council of Europe which pointed out that 80 per cent. of all travel by public transport in the United States is by air. The figure to consider with this is that in Europe only 20 per cent. of all travel by public transport is by air, which points to the very substantial differences in the mode of transport in the United States and Europe. The other interesting fact to emerge from the report is that in Europe 50 per cent. of all flights are made by non-scheduled services, whereas in the United States only 5 per cent. of all flights are made by non-scheduled services. Those factors of themselves show that there is a much greater possibility of fare cutting when there is a higher proportion of scheduled services instead of a whole mass of services being locked up in non-scheduled or charter flights. It is interesting to note that last year and this year the number of charter flights across the North Atlantic has substantially decreased, which is the corollary of the cheaper Laker flights.

We all, I believe, appreciate the role of IATA and of the European Civil Aviation Conference in shaping and co-ordinating air transport policies and procedures, but I am sure there is a need for the liberalisation of some of these policies. The noble Lord, Lord Northfield, referred to the very useful report on air fares published by the EEC on 6th July. This report should, I gather, be seen as a White Paper. It suggests a broader range of tariffs, which would have the effect of providing a low-price ticket which could be purchased, subject to certain conditions, such as advance payment, only partially refunded if not used and not interchangeable. There is a suggestion in the report, in relation to the specific capacity of aircraft, that roughly 50 to 60 per cent. of seats at an economy class tariff should be allocated to passengers paying lower fares, but of course such passengers would be expected to pay more for any extras. In other words, they would have a no-frills service, and one hopes that something on these lines might be worked out.

We are all aware that the present fare structure is very complex, and one is keen to see it simplified. I recall that on a visit to the United States some years ago I discussed these matters with officials of the Embassy in Washington. They were arguing as strongly as they could for the simplification of the structure on the North American routes. Considerable simplification has been carried out there, and one hopes that some of that can spread to the more mature routes in Europe. One is thinking particularly of services to such places as Paris and Geneva, which are very heavily used at present.

The EEC report suggests that a receiving country should not be able to say " No " to a particular new service, except on environmental grounds, and one certainly hopes that the addition of new services could lead to a lowering of fares. One bears in mind, too, that within the British Isles themselves the addition of extra services might also lead to a lowering of certain fares.

When one thinks about the whole question of air fares, I believe it is fairly obvious that the more we are able to fill aircraft, the cheaper will be the services. The fact that recent figures have shown that the percentage occupation of aircraft has risen means that, if we are able to achieve this on a broader field, we shall in fact be able to move towards an era of still cheaper air services. I think the noble Lord, Lord Northfield, has performed a very useful function this evening (although it is now very late) in prodding us into thinking again about whether we can in fact make moves to reduce air fares, particularly on the more heavily-used routes in Europe; and I hope the Government will be able to respond encouragingly to his remarks.

10.31 p.m.

Lord TREFGARNE

My Lords, we are, not for the first time, very much in the debt of the noble Lord, Lord Northfield, for giving us the chance to discuss this important matter tonight. But before embarking on what I hope will be a full and helpful reply, may I mention two necessary pre-conditions to an effective and lasting low-fares policy. First, there must be an economic return to efficient operators. It is no service to the consumer for an airline to offer very low fares and then find itself in difficulty, and having either to increase its fares substantially or go out of business. Secondly, there must be no cutting back of standards of safety. British airlines enjoy a high reputation for safety, and this must be maintained. Subject to these conditions, the Government are anxious, of course, to see fares as low as possible.

It might be helpful to your Lordships if I outline the way in which fares on scheduled services are agreed. The airlines are primarily responsible for recommending what fares should be paid for any journey. They are in the best position to judge the economics of any particular route. Often, recommendations on fares are made through the machinery of the International Air Transport Association (IATA)—much maligned here this evening, but not, I think, wholly justifiably. I emphasise that IATA is an independent association of airlines, not of Governments. Approval of fares, whether agreed between airlines in IATA or by some other means, is done by Governments.

So far as most international air fares are concerned—and this includes Europe—the fares on scheduled services are subject to bilateral understandings which require that changes take place by agreement, and not unilaterally. It is not open to one Government to force the hand of another on fares matters, since either can object to a proposed fare change and effectively prevent it. Most European Governments, as the noble Lord, Lord Northfield, mentioned, are highly protective of their national carriers and would resist any unilateral attempt to reduce fares in such a way as to damage them. We know of none who would welcome anything like an unregulated market at this stage. Nevertheless, the United Kingdom has made significant achievements in securing a better deal for travellers in Europe. A recent report by the Institut du Transport Aerien of Paris said, the United Kingdom … continues to play a pioneering role in Europe in the fares field ", and so it does.

Both the Government and airlines have been successful in effecting fare standstills and, indeed, fare decreases on scheduled services on existing routes, and in introducing new types of fares on new routes in Europe. On routes to Scandinavia, the normal economy fares have been reduced, and on the Italian services the economy fares have been held steady as costs and other fares rise. It is as a result of intervention by the Government that the new low excursion fares to Spain, announced last week, will be introduced in the autumn. These represent a very considerable saving on the normal fares. This process still goes on. The Department of Trade is pursuing with the Civil Aviation Authority a steady policy of identifying those European routes on which fares are out of line with costs, and we hope to achieve real reductions—that is by holding fares steady as costs rise—in fares on other routes. This is not a subject on which opinion is divided on party lines or any other and I should like to pay tribute to what was achieved under the previous Administration. We shall seek to continue the process of urging lower fares where they are out of line with costs. May I mention, in parenthesis, that fares on non-scheduled services to which several noble Lords referred are not regulated by Governments in Europe.

May I touch on one or two specific points made by noble Lords, and, particularly, the noble Lord, Lord Northfield. He referred to information on cheap fares and to the publication which he uses to get the best bargain. Cheap fares are possible only if aircraft are filled. The noble Lord referred to the necessary increase in load factors. This can be done only if the lowest fares are subject to conditions as to their use. Such conditions are confusing to the traveller, but are necessary if they are to lead to the filling of all the aircraft seats.

We think it is for the airlines and the travel trade to make sure that the passengers are made aware of all the options available; and that this information is passed on to the customers. The noble Lord also referred to international shuttle services. He was thinking particularly of Paris and, perhaps, Geneva. We have now an hourly service between London and Paris which is only one step from a pure shuttle service. There are problems apparently in extending the present internal shuttle services on to international routes. There are questions of the necessary international agreements and the real problem of wasting resources in providing the duplicate or back-up services which may operate at low load factors and which are required to provide a true shuttle service.

The noble Lord also referred to services in the USA. Perhaps he will remember, as I do, that when the shuttle was first introduced on the eastern seaboard there about 15 years ago, the back-up aeroplane was a Constellation. I wonder what the noble Lord would think if he turned up to fly to Paris and found himself going in, say, a Viscount. He might not be pleased. I think those are the main points to which the noble Lord referred. There were others which I shall take up if he wants to intervene.

None of the action I have outlined can be said to be in response to the Council of Europe's Resolution No. 694. We were ahead of that resolution, but we welcome it as a stimulus to bring the thinking of our bilateral partners in line with our own. I should caution noble Lords about drawing too close a parallel between civil aviation in Europe and in the United States. I note that Resolution 694 does not recommend that Europe should follow the United States into deregulating civil aviation which is happening there. In any event, as I have already pointed out, this would, in Europe, require the agreement of each of the States concerned.

The market for air travel is different in the United States from that in Europe. Although both have widely spread, large centres of population because the United States is a single political unit, it is likely that businesses and families will become more widely spread and hence provide an incentive for air travel. In general, a European family does not have, say, parents in Paris, cousins in Copenhagen, a nephew in Nice and an aunt in Aberdeen. If the American wishes to visit his relatives or some branch of his business and does not wish to use his car, he has no alternative but to fly: there is generally no other public transport. In Europe, on the other hand, only 20 per cent. of all travel by public transport is by air, compared with 80 per cent. in the USA. I know that we have heard those figures before tonight. However, Europe does enjoy a network of very low-cost charter services catering mainly for holiday traffic. About half the passenger traffic within Europe is carried by such services compared with only 5 per cent. in the USA. The noble Lord, Lord Ponsonby, mentioned just those figures.

When comparisons are made between the high level of fares in Europe and those in the United States, it is often the normal economy fare in Europe which is contrasted with a low fare on a trans-Atlantic or American route and which is subject to many conditions which limit its availability. The holder of the ticket at normal economy fare expects to get a seat at short notice; to be able to cancel his reservation or indeed just not to turn up without any penalty; to be able to use his ticket on another airline; and to stop over at some intermediate point without extra charge. All these elements have a cost, in that they involve the provision of extra capacity in order to cater for the " on-demand " passenger. On the other hand, the passenger in Europe who is prepared to make his reservation in advance with the understanding that some or all the fare he has paid will be forfeit if he does not travel on that particular flight can often do so at a fare which will bear comparison with those available elsewhere.

There are other factors which favour cheaper fares in the United States. Fuel is cheaper and other operating costs are lower because of differences in employment conditions and marketing methods which lead to higher productivity. But it is true that British Airways were not always among the leading world airlines in terms of productivity. There have been significant improvements recently when increased traffic has been carried without an increase in staff, and the Government are glad to know that this policy is continuing.

My Lords, I now turn to the question of the EEC's involvement in civil aviation. A memorandum entitled Contribution of the European Communities to the development of air transport services has just been sent by the Commission to the Council. This will be subject to the normal parliamentary process, including—dare I say it?—scrutiny by the dreaded Committee F. The proposals by the Commission have among their objectives a network of efficient services at prices as low as possible; financial soundness of the airlines and an increase in their productivity, and safeguards for the interests of workers in the industry and the general public. The Government support these objectives. As we said in our Manifesto for Europe, The principles of competition which govern other industries in the Community should be applied to air travel ". I note that the Commission intend to propose to the Council of Ministers measures to apply the Community's rules of competition to air transport. At this stage, the Commission's proposals are only a declaration of intent. When these are converted to specific proposals, we will judge them on their merits, examining them carefully with particular regard to the spread of the Community's powers. Most of the proposals will require the unanimous approval of the Council of Ministers before they are adopted. A programme of this nature is likely to take several years to pass through the Community machinery. But we shall adopt a constructive approach to these negotiations and our intention is that the outcome will be in the best interests of the air transport industry and the consumers.

Finally, I must make some reference to the interests of our airlines. Unlike most countries in Europe, the United Kingdom has a number of independent airlines operating scheduled and charter services in Europe. The Government have noted with satisfaction that the Civil Aviation Authority has pursued a liberal policy towards the licensing of independent airlines to mount scheduled services between provincial points and Europe. We seek to encourage competition between airlines as a means of achieving low fares. It is however important that these fares are consistent with the viability of efficient operators. In this way we can ensure a variety of air services at the lowest possible fares, with the flexibility required to meet the consumers' needs.

Perhaps just at that point I can mention as a caveat the IATA meeting just now in progress in Geneva, which is concerned with agreeing—I am sorry to say—higher fares in Europe, following the recent increases in fuel costs. There is no escaping the fact that increased costs of fuel will have an impact on the level of fares. However, any fares increases agreed by IATA, as I said before, will have to be agreed between Governments, and we will certainly be looking very carefully at any proposals which may emerge.

May I end by saying that the Government will pursue a policy aimed at achieving the lowest fares without departing from the need for securing a viable industry operating to the highest standards and providing the type of service required by the customer. Perhaps the most important way of achieving this result is by promoting effective competition among airlines; but, apart from that, we shall do our best to see to it that the industry operates in the best possible commercial environment, regulated only enough to secure proper standards of safety, compliance with our international obligations, and a generally healthy industry.