AIR FARES IN EUROPE: ECC REPORT (Hansard, 23 July 1980)

§ Lord BOYD-CARPENTER

My Lords, I am greatly indebted to the noble Lord. I moved back from the microphone because I had the impression that I might be blasting the House. As the noble Lord was kind enough to say, I have quite a powerful voice so that if it was unduly amplified it might be extraordinarily disagreeable to noble Lords. But I hope that if, in response to the noble Lord, I "switch up the power" he will equally indicate to me if I have overdone my response to his request.

As I was saying, my Lords, it was for that reason that the sub-committee decided that they would concentrate on the level of air fares; above all on the level of the standard economy air fare in the Community and matters directly related to that. Because of that we were able to produce our report early this summer and it became possible for this House to debate it this afternoon.

We came to two clear-cut conclusions. The first was that the level of air fares, especially the standard economy fare and 393 especially on the medium and longer haul routes in Europe, was too high and we came to the conclusion that, though not the sole cause, a major cause of that was the lack of competition in European civil aviation. Our report really stands or falls by those two conclusions.

I should say that we extended our examination outside the Community. As noble Lords familiar with the problem will know only too well, there are 22 countries which are members of the European Civil Aviation Conference as compared with only nine at present in the Community, and some of the remaining non-Community countries are major aviation powers. Therefore it was quite impossible to confine ourselves entirely to the Community but, since the air lines of non-Community (ECAC) countries overlap with those of Community countries, the sub-committee had various advantages.

We had the advantage of a number of members with great experience of these matters. The noble Lord, Lord Ponsonby of Shulbrede, who is to speak for the Opposition, was of course himself chairman of, I think, the English Tourist Authority and saw a great deal of aviation in that connection. We had a former Permanent Secretary to the Treasury in the noble Lord, Lord Sherfield, and we had the great advantage of the presence of that indomitable champion of the airline traveller, the noble Baroness, Lady Burton of Coventry, among others. We were served by a brilliant young clerk, Mr. Hawkings, who I venture to prophesy will have a great future in the service of this House. We also had the advantage of bringing in a specialist adviser, Mr. Robin Goodison, a distinguished former civil servant from the Department of Trade, the last five years of whose service was as deputy chairman of the Civil Aviation Authority. So we did not lack advice.

We were also fortunate in the supply of evidence. We heard evidence from the Minister responsible for civil aviation at the Department of Trade, Mr. Norman Tebbit, the Civil Aviation Authority, the Air Line Users' Committee; from British Airways, British Caledonian and, in highly entertaining form, from Sir Freddie Laker. We had much evidence from Europe: Herr Hoffmann, a German Member of Parliament who is rapporteur 394 of the Air Transport Committee of the European Parliament; Herr Björck, a Swedish Member of Parliament who has a similar role in the European Assembly; Mr. Le Goy, the Director-General at Brussels responsible for air transport; Mr. Knut Hammarskjold the Director General of IATA, the Trades Union Congress and many other witnesses of great authority. So, my Lords, if we got it wrong it was our fault and not theirs.

I think I can summarise our conclusions very quickly. In our view, the fares are too high and the competition which would reduce them is inhibited because of the system under which air fares are now fixed. Under that system the air lines concerned negotiate them first in IATA— the International Air Traffic Association. Now IATA has a bad reputation as a rather restrictive cartel, but it is only fair to say that I think it has very much grown out of that and modified its approach. Some of your Lordships familiar with it in the past know that it once concentrated its attention on the important question of how many square inches of canapé served before a first class lunch on an airline could be covered with smoked salmon. IATA has grown out of that but it has still something of its restrictive background.

Then, any fare has to be approved by the Government or authorities at each end of the route. This means, of course, that it is extraordinarily difficult to change a fare, particularly to reduce it. We had evidence that in this country the Department of Trade and the Civil Aviation Authority in their respective spheres took advantage of any application made to increase a fare to refuse consent, with the result—because consent at both ends was needed—that the fare increase could not be made, and this has been a useful policy. But it is not open to any individual Government authority to dictate that a current fare should be lower; in default of agreement the current fare remains.

That system has been made very much worse in its operation because of the administrative structure of civil aviation administration in most of our European partners' countries. In several of them—and I recall my own experience when I was involved in these matters—it is very difficult with the naked eye to distinguish 395 between the governmental civil aviation authority and the directorate of the state-owned flag carrying airline.

They are hopelessly intermingled, with the inescapable result that the interests of the national flag carrier obviously loom very large indeed in any governmental decision. And the interests of that flag carrier—particularly because in some cases they are not very competitive commercially— are, of course, restriction: restriction of competition.

This has sometimes produced some really entertaining, though sometimes perhaps tragic, results. We heard during the course of our inquiry—not, I hasten to say, in formal evidence—the happy story of the German boy who asked his father where New York was. The father scratched his head and said, "Well, son, I don't quite know, but judging by the air fare somewhere between Stuttgart and Hanover". It is not wholly beyond reality, if you compare the levels of air fares which have resulted from this system with the air fares in other areas, such as the North Atlantic, where a high measure of competition now reigns.

The obvious comparison that we had to make, in deciding whether the level of fares was right or not, was with routes of similar length in the United States. If one takes that crude comparison there is no doubt at all that the European fares look very high indeed on a seat-mile basis. It is not, however, fair to make a crude comparison. It is in fact cheaper and more economical to operate short-or medium-haul air services inside one huge country than across many national boundaries. There are complications of air traffic control; there are high charges at airports; there are diversions for military reasons—a whole score of considerations which make a flat comparison quite unfair.

Having said that, the disparity is so large that my sub-committee came to the conclusion that the European fares, judged on that criterion with all necessary adjustments, were in fact excessively high. If that be so, and if, as it seemed to us, competition would be the best solvent of the issue, that leads one straight to the question, What do we do about it? We have the highly restrictive European 396 system I have described. There is that cosy protection of vested interests in a good many European countries where the only aviation interest is in fact the national flag carrier. The fact is that there is no law of nature that every country should have a national flag carrier, even though it be a small country with very little air space. But it is not always easy to persuade the country concerned of that.

One of the things that have bedevilled civil aviation, not only in Europe but, for example, in Africa, has been this curious attitude of Governments that possession of a national airline is a kind of virility symbol and that, unless you have a national flag carrier with your national colours painted on the fuselage, somehow you are not a completely effective country. This is a pity, because the economics of specialisation do not suggest to anybody that every country should carry out every economic activity, least of all activities such as civil aviation where long distances and a great deal of space are highly relevant considerations. The problem is how we are to handle this.

If the object of the exercise be the introduction of competition, there are none the less various approaches which can be made, and which I am glad to say are being made. The evidence we had of the efforts of the British Government was very considerable. At the European meeting of the Council of Transport Ministers on the 24th of last month our representative put forward a strong paper urging action in this direction, and although the outcome of that council's deliberations is wrapped in the terrifying language which the European Community organisations always for some occult reason seem to prefer to adopt, the word "competition" does occur at least once, which suggests that the idea may be being insinuated. It is certainly the fact that the European Commission have a draft directive in preparation urging each of the member Governments to set up a consumer organisation for airline travellers, although no one has quite suggested to them how they find a Lady Burton of Coventry or a Lady Trumpington, who in my view are essential to any such system of consumer representation.

There are all these things on the move, but we have to decide as a country what line we are going to take. The sort of 397 natural instinct of my committee was that the whole system was so restrictive that we ought to go all out for breaking it up, and if we were to do so there is a possible weapon to hand. That is the competition clauses of the Treaty of Rome. They are applied at the moment to ground transport but they are not applied to civil aviation. The advice that we had in law is that they do apply. But if they are to apply effectively it is necessary for the Commission and the Council of Ministers to introduce regulations to put them into effective operation.

Our sub-committee looked at the question as to whether we should go for operating those very drastic competition clauses. We came, rather regretfully, to the conclusion that this was not the wisest course; that we ought, on the contrary, to concentrate on a step by step approach. Basically we felt the reality of the matter was that the European states, with their non-competitive national flag carrying airlines, would not willingly, whatever the Treaty of Rome said, take steps that would in a quite short time drive some of these airlines out of business. It did not seem to us to be in the area of reality. Nor would it necessarily be in the interests of air travellers to have, even temporarily, the dislocation which would follow from that. Our sub-committee therefore recommends, as your Lordships will have seen, the step by step approach.

We were very conscious of the dangers of this. With the European system one can so easily become enmeshed in technicalities, in commissions, working parties, inquiries—and awfully little happens as the years pass. We addressed our minds to the question as to how it would be possible to get a step by step approach, involving real and successive steps fairly steadily taking place. The objective is clear—greater competition. I think greater competition means three things. It means competition between the airlines in the quality, character and frequency of their services; that is a matter for the airlines. It means competition in the sense of the admission of new operators on to existing routes. And it means securing acceptance of lower fares offered by existing operators. British airlines have been in the forefront of offering these lower fares: British Airways with their Channel Hopper, British Caledonian with their Mini Prix and Sir Frederick 398 Laker with his low fare services. They have had, on the whole, a very disappointing response from Europe. British Caledonian, it is true, have got the Mini Prix system on, I think, half-a-dozen routes and at the moment they have a proposal forward for a £l5.50 fare to Brussels and Amsterdam, on which, so far as I know, a decision has not yet been announced.

On the whole, the response has been disappointing, so I can only say that we would urge Her Majesty's Government to give British airlines encouragement and support in putting forward these proposals and press, either in the Council of Ministers or direct with the European Governments, that it is really quite unreasonable, when responsible airlines offer reasonably low fares, which passengers would be anxious to take, for them to be refused simply on the old-fashioned grounds that they might affect the vested interest of that country's national flag carrier. That attitude rather recalls for me the remark attributed to a former Prime Minister, Lord Salisbury, when he said—I believe it was in this House—on one occasion, Heaven forbid that I should ever touch a vested interest". That is the approach of some of the European Governments, and it is, let us face it, a somewhat archaic one on which they must be pressed.

But what a committee of this House and what a debate in this House can do, above all, is to actuate what is the most powerful factor of all in this matter—public opinion. All the European countries concerned are democracies, with Parliaments, and in such countries, however slowly, the weight and pressure of public opinion tells. If public opinion, particularly among our friends and neighbours in Europe, can be drawn to the realities of this matter, to the opportunities which are round the corner, then it may become quite difficult for Governments—Governments dependent upon legislatures—to go on resisting. If we are to draw this aspect of the matter to the attention of our friends in Europe, there are two sentences from our report to which I should like to invite your Lordships' attention. They are, respectively, the concluding sentences of paragraphs 64 and 65. The first one says: The level of American air fares shows what it is possible to achieve through competition in air transport. Europe contains a large potential 399 market of air travellers who are at present prevented from travelling by the high level of many fares". The other sentence, at the end of paragraph 65, is even blunter. It says: The interests of consumers appear to be sacrificed to the prestige of flag carrying national airlines and the protected environment in which they operate". I cannot help feeling that, if public opinion in Europe gets these ideas, the effect on the Governments, and therefore on what happens, might be very considerable. Indeed, I venture to suggest that it might be helpful if voters in those countries were to ask of their rulers one very simple but quite unanswerable question: "Why are you denying us opportunities for cheaper travel which many airlines are only too eager to offer? ". I beg to move.

§ Earl AMHERST

My Lords, I should like to be the first to thank the noble Lord, Lord Boyd-Carpenter, for providing this opportunity for us to discuss the vexed question of air fares in Europe. I should also like to offer my congratulations to him and his committee for turning out this excellent, long, detailed and very interesting report. I think all concerned must have been involved ill a great deal of hard work in getting it out.

If I were to try to go into the many details of this report, I should be involved in far too long a speech, so I want to draw the attention of the House to a few salient points and the recommendations. At the risk of repeating what the noble Lord has already said, I think it is safe to say that the position at the present moment is complicated, untidy and restrictive. It gives Governments power to block the filing of new fares aimed at a reduction in prices so as to give European citizens a better chance of travelling between their cities at a price they can afford. As the noble Lord has said, the majority of these fares are far too high. Briefly, the procedure at present in force is that if an airline wants to file a fare, first it has to agree the fare with IATA. Then it has to go through the CAA, and then it has 400 to negotiate with the airline which is operating as a designated operator reciprocal to it on the particular route. If, after that, all is agreed it is still subject to ratification by the Governments concerned. If it is not agreed, the airline which objects can ask for the support of its Government in not ratifying it.

All, or nearly all, the foreign airlines who operate in Europe in reciprocity to the British are national flag carriers owned by their Governments and often heavily subsidised by them, and so all too often such Governments have supported their flag carriers and refused to ratify for financial or prestige reasons. Even when the thing is successful, this procedure involves a lot of time, a lot of patient negotiation and a lot of staff costs. Quite recently, there were two cases in point. British Airways filed a special fare of £20 to Paris. It was quickly turned down by the French, saying their usual "No" in the interests of Air France. I am told that in the interests of KLM the Dutch Government are going to turn down a fare of £15.50 which British Caledonian have filed to Amsterdam.

If I have read the report correctly, the conclusion is that the Government should press on with the policy for lower fares and hope that this will lead to a consensus of opinion, at least among the Nine for a start, with a view to determining a flexible machinery which will permit the forces of competition to come into full play, which, it is calculated, can only result in a general reduction of air fares. But the report does point out that the analogy of the American scene and the Atlantic scene is not a good analogy in that the conditions in Europe are totally different. The report also makes mention of the desirability of reducing the number of special charter promotional fares, et cetera, to a much smaller comprehensive list that can be more readily published and readily understood by the general travelling public, the travel agents, and, indeed, the airline staffs who have to administer them. It is currently said that it takes two or three times as long for a booking clerk to explain a charter or special fare to a customer over the telephone as it does to sell a single ticket for an ordinary airline regular service. To bring about all that it seems to me that it will be necessary to modify or even devise a completely new form of bilateral Bermuda Agreement as 401 far as this impinges on fares and rates. The report also makes it clear that it does not consider that any general agreement can be brought about overnight, so to speak, and that—as the noble Lord has emphasised—it would have to be undertaken slowly, a step at a time and, as a start possibly an approach to the Council of Ministers would be a useful step.

We on these Benches very much support the report and its recommendations. Now that we are in the Common Market it may not be too much out of line if, while reviewing the fares condition in Europe, at the same time we take a hard look at the current fares for air services to and from and within Scotland. I am told on good authority that these are now the highest in the world. For instance, for a short flight of some 20 minutes or so between Aberdeen and Wick, a single fare of £29 and a return fare of £58 is demanded and with probably a security charge in addition. Mention of these high rates has also been made in the evidence given to the Select Committee. On the face of it, these fares seem little short of scandalous.

I hope that when the Minister comes to reply he may be able to tell us what further plans the Government have to implement the conclusions of this report and when they expect to be able to start the ball rolling and with whom. I must make an apology to the House because, due to a previous engagement, I may not he able to be in my place when the Minister conies to reply.