HL Deb 17 June 1980 vol 410 cc998-1007

4.22 p.m.

Lord TREFGARNE

My Lords, with your Lordships' permission, I will repeat a Statement being made by my right honourable friend Mr. Nott on Hong Kong to London air services. The Statement is as follows:

"With permission, Mr Speaker, in view of the widespread interest in the matter, I would like to make an oral statement about the decision I have taken concerning air services between London and Hong Kong.

"Last year three airlines, British Caledonian, Laker and Cathay Pacific, a Hong Kong based airline, applied to the Hong Kong Air Transport Licensing Authority and the Civil Aviation Authority for licences to operate on the London-Hong Kong route in addition to British Airways. At present British Airways provide the only direct service, although there are of course already a large number of services between Hong Kong and other European cities.

"Both authorities heard evidence separately on these applications. In December the Hong Kong Authority licensed British Caledonian and Cathay Pacific, but restricted their frequency of service to four and three flights a week respectively. In March this year, the Civil Aviation Authority announced its decision to license only British Caledonian.

"The two applicants who were unsuccessful before the Civil Aviation Authority submitted appeals to me under the provisions of Regulation 16 of the Civil Aviation Authority Regulations 1972. I also received a number of representations, including one from the Government of Hong Kong, that, under the powers conferred on me by Section 4(3) of the Civil Aviation Act 1971, I should direct the authority to license Cathay Pacific in the interests of the United Kingdom's relations with Hong Kong.

"I have given this matter the most careful consideration, in particular against the criteria set out in Section 3 of the Act, and I found myself in disagreement with the Civil Aviation Authority in a number of ways: in particular I was convinced by Sir Freddie Laker's contention that there is a large untapped market for this route if fares are pitched at the right level.

"In his evidence he described this market as consisting of 'the forgotten men and women at the bottom end of the market'—who might wish to fly if they could afford to do so. I find myself in agreement with this dynamic approach to civil aviation and in my view it should he acknowledged.

"I also felt that the authority had placed too much emphasis on the economics of the proposed additional services in the short term, and too little on the benefits to the development of the United Kingdom civil aviation industry generally of choice of service and competition on a route such as this—in particular competition with other non-British airlines.

"I felt that it was in the interests of airline passengers that they be offered a wider choice of service than exists at present, that it would be unreasonable to expect British airlines, within the meaning of Section 3(1) of the Act, to he granted exclusive rights when Cathay Pacific are based in Hong Kong, command much local loyalty, and can expect to draw traffic from their network of regional services.

"I concluded therefore that the substantial new traffic likely to be generated over a period by a wider variety of services would offer a reasonable prospect that four operators could, over a period, achieve an economic return on this route.

"I have accordingly upheld the Civil Aviation Authority's decision to license British Caledonian but in addition have directed it to reverse its decisions on the other two applications and issue licences in the same terms to Cathay Pacific and Laker, but without prejudice to the former's existing rights between Hong Kong and Bahrain. The authority and the other parties to the appeals are being informed of my decision today.

"As I have reached this decision by the normal appeal criteria, I do not intend to issue a political direction under Section 4—and I have informed the Hong Kong Government accordingly.

"I believe that my decision will be welcomed by airline passengers generally and in Hong Kong where freedom to compete is one of the cornerstones on which the economic success of Hong Kong has been built. I hope therefore that the Government of Hong Kong will lend support to the applications which Laker may now wish to renew to the Hong Kong Air Transport Licensing Authority and to any applications which British Caledonian and Cathay Pacific may wish to make to increase the frequency of their services, should they believe it is in their interests to do so."

My Lords, that concludes the Statement.

Lord BESWICK

My Lords, I am sure the House is grateful to the noble Lord for repeating this Statement, on what is really a controversial decision. May I ask him whether I am not right in saying that quite recently and emphatically Her Majesty's present Government have emphasised that they are going to give greater weight to the decisions of the Civil Aviation Authority, and that that course is in accordance with the non-interventionist policy of Her Majesty's Government? Does not this decision go quite contrary to the declared policy; and may I ask the noble Lord how he reconciles this overturning of a CAA decision with the declared policy of Her Majesty's Government?

Secondly, on what information have the Government based their view that four carriers can make a profit and give a service on this route? There was a case for maintaining the rights of British Airways, and there was a case for extending the operation to a second carrier, but I have not heard it seriously argued anywhere that four carriers could be justified on this one route. May I ask the noble Lord whether, if there is other information that was not available at the hearing by the CAA, he could make that information public, and would it not be better if the whole matter was referred back to the CAA so that they might consider this additional information?

Earl AMHERST

My Lords, I, too, should like to thank the Minister for repeating this Statement, which we on these Benches are not too happy about, in that it seems to challenge the whole basis of validity, value and protection of the CAA licence. Only three months ago, or thereabouts, the CAA, who were set up to issue such licences, which were formerly issued by the Board of Trade, issued a licence for Caledonian Airways to operate this route. At that time presumably it took into full consideration all the arguments that were used by Cathay Pacific, Laker and anybody else interested, balanced the thing up and made the decision to issue the licence. Now, an airline, having got a licence, assumes considerable financial liability in order to find staff and equipment to operate that licence. If, a short three months after that licence is issued, the Minister, apparently on his own account, decides not to cancel that licence but so to modify it as to let in other operators, which renders practically valueless the paper on which the licence is written, have British Caledonian Airways any recompense for the money they have expended on aircraft and additional staff?

I would also ask this question of the noble Lord: in the airline business, is not the share equity of an airline based largely on its assets? The average airline's main asset is its licence to operate. Without that, its whole equipment is virtually valueless. Therefore, if at short notice this licence is going to be modified, altered or challenged, does that not seriously prejudice the equity of the airline in question? May I ask the Minister whether he could not review this situation and inform us of some means by which to establish the validity and protection of these licences?

4.31 p.m.

Lord TREFGARNE

My Lords, I am obliged to noble Lords for what they have said. I am sorry that they were not more receptive to this Statement. This case hinged on the judgment that my right honourable friend made upon the traffic available on this route. My right honourable friend came to the conclusion that the figures advanced by Laker in their original application were more likely to prove justified than the more pessimistic figures which the authority took into account when they made their original decision. I can tell the noble Lord, Lord Beswick, that my right honourable friend had no additional information before him when he considered this appeal. Under the procedure, he is not permitted to do that but only to have regard to the facts as they were put before the authority at the original application. But he is entitled to consider any further clarification of the facts that the original parties to the application put before the authority at that time.

The noble Earl, Lord Amherst, referred to what he thought was the dilution (if that is the correct word) of the effect of the licence originally granted to British Caledonian and asked whether they were to receive any compensation. The original licence was granted only two or three months ago, in March. There is no question of compensation. In any event, as I have said, we believe that there is sufficient business for all four carriers on this route.

Baroness BURTON of COVENTRY

My Lords, as the House knows, the Civil Aviation Bill has gone to ground in the Commons and we are awaiting its Second Reading here. As my noble friend Lord Beswick has said, this Bill gives much more power to the Civil Aviation Authority. I am in favour of more choice for air travellers. May I ask the Minister whether I am correct in understanding the background to this matter when I say that I understand that the service given by British Airways to Hong Kong was not deemed satisfactory and that someone suggested that British Caledonian should apply for a licence? Is the noble Lord aware—and I must put this in the form of a question—that I, personally, think that British Caledonian is a first-class airline and I have always admired its slogan, "We never forget that you have a choice"? It would be useful if more airlines felt the same. Is he also aware that Cathay Pacific is reckoned also to be one of the best airlines in the world? At the time that the decision was reached, I regretted that British Caledonian and Cathay Pacific were not included in the granting of a licence.

May I ask three specific questions? Does it not seem unfortunate that the Civil Aviation Authority and the Government did not get together a little earlier on this matter? I am not talking about the appeal but about the application. Did they, in fact, get together; and is this a change of heart? Secondly, under the new arrangement, is it suggested that British Airways should have the larger share of the operation? Thirdly, if, as I understand it, British Airways did not make full use of the quota that they were given for the service to Hong Kong, could we not have a more equitable arrangement in the future? If that could be done, would it not help British Caledonian to overcome the financial drawbacks that they now fear and which they had no reason to suspect would be theirs under the ruling given by the Civil Aviation Authority?

Lord TREFGARNE

My Lords, there is no question of the Government getting together with the CAA in the first instance when the authority are considering the initial application. That, I think, would be wrong. The Government have a role in this matter only when there is an appeal from the original decision of the authority; and that is what has happened in this case. As for British Airways' share of the market, to which the noble Baroness referred, the future share of the market will depend upon the success of the individual airlines in a very competitive situation.

Lord TAYLOR of GRYFE

My Lords does the noble Lord accept that this is an industry in which regulation is essential and that the Civil Aviation Authority is the appropriate authority to weigh up all aspects of applications for licences? Is there a precedent for the Secretary of State overturning a decision of the Civil Aviation Authority? Does it not undermine the authority of the CAA in viewing future licences or is it now Government policy that there has to be a "free for all" on many other routes? Is that the logic of the decision in this particular case?

Would the noble Lord accept, too, that British Caledonian have entered into substantial commitments in order to service the licence that they were given—including the setting up of a maintenance depot in Scotland in an area of very substantial unemployment in order to increase employment facilities in the maintenance of aeroplanes? In view of all these circumstances, does the noble Lord not accept the suggestion made by the noble Lord, Lord Beswick, that this might be reviewed with the Civil Aviation Authority?

Lord TREFGARNE

My Lords, I think that the commitment to which the noble Lord referred, the British Caledonian engineering base, was made long before this matter became an issue. It would not be fair to say that they entered into that commitment simply for the purpose of operating this route.

Lord MONSON

My Lords, may I congratulate the Government on living up to their free enterprise and free competition philosophy in this instance to the great benefit of the consumers? May I ask the Minister whether the Government will now consider abolishing, or at any rate limiting, the power of the CAA to impose monopoly or semi-monopoly conditions on other routes and allow much freer competition, subject only to safety considerations?

Lord TREFGARNE

No, my Lords; I am afraid that I cannot accept that suggestion. The authority will remain as the body primarily responsible for licensing matters. Only when they come to appeal, as in this case, does the Secretary of State have a role to play.

Lord BESWICK

My Lords, may I ask the noble Lord whether he will make clear the Government's policy in this? Do they intend to give the authority a deciding role in these spheres or not? That, we understood, was the position. May I thank the noble Lord for making it clear that there was no other information available to the Secretary of State when he came to this modification of the CAA's decision. If there was no other information, can he seriously say that the "men in Whitehall knew better than the experienced and professional judgment of the CAA?

The noble Lord in the Statement said that it was hoped that the Government of Hong Kong would lend support to the application which Laker may now wish to renew to the Hong Kong authorities. Have the United Kingdom Government any reason to believe that the Hong Kong authorities will look more favourably at the Laker application?

Lord TREFGARNE

My Lords, I can confirm that our general policy in this matter remains unchanged and that we seek to provide to the CAA the maximum degree of autonomy and authority in these matters and only in very rare and special cases such as this one would the matter come before the Government in the form of my right honourable friend the Secretary of State. The second point the noble Lord raised has escaped me for the moment.

Lord BESWICK

My Lords, I asked about the reference in the Statement to the hope of Her Majesty's Government that the Government of Hong Kong will lend support to the Laker application.

Lord TREFGARNE

My Lords, that is a matter for the Hong Kong licensing authority. We have expressed our view, which I repeated in the Statement. I cannot predict the outcome of any application to that authority.

Lord SEGAL

My Lords, can the noble Lord confirm that the original decision to exclude Cathay Pacific and Laker on this route gave rise to a great deal of indignation locally in Hong Kong? Is it not a well-established precedent that when a new route or an extension of a route is granted, a reciprocal arrangement is made at both ends providing that each should have a share in the new trade thus created? May I join with the noble Baroness, Lady Burton, in welcoming the Government's decision and expressing the hope that the increased traffic which will result from the Government's decision now will be to the advantage of British Airways, of British Caledonian, of Laker and of Cathay Pacific and to the enormously increased benefit of Britain and Hong Kong in the interests of cheaper fares? I believe that the Government decision is one warmly to be welcomed.

Lord TREFGARNE

My Lords, if I may respond to the first point, Hong Kong is a very special case, not only for the factors that I have mentioned, but also because it is considered as part of British territory for air services purposes. That is why the matter came before the Civil Aviation Authority and my right honourable friend.

Lord DRUMALBYN

My Lords, if licences are granted to the three companies that have applied for them, will the companies be free to choose their own routes? Will they be free to negotiate intermediate freedoms with other countries?

Lord TREFGARNE

My Lords, all the airlines are now authorised to operate on the route, as I understand it, except for Laker Airways which still have to make a successful application to the Hong Kong authorities. As for intermediate stops, my right honourable friend has not authorised any addition to the licences in that respect but has however taken note of the existing authority to Cathay Pacific to stop at Bahrain for traffic purposes.

Lord TANLAW

My Lords, did the noble Lord have any discussions with his right honourable friend the Minister of Energy about the implementation of this policy which does not seem consistent with that of the conservation of energy? Will he confirm that this means overloading a route with aircraft and more seats? Cannot better use be made of energy by minimising the number of aircraft and relating the number of seats to those presently available and not to those that are hoped to be available?

Lord TREFGARNE

My Lords, I can assure the noble Lord that with fuel at the price it is, none of the airlines will be operating except in an economic way.

Lord GEDDES

My Lords, may I ask my noble friend whether the Government are aware of the satisfaction that will be caused in Hong Kong as a result of this announcement—albeit somewhat diluted satisfaction? Is he also aware of the extreme importance to the people of Hong Kong of allowing Cathay Pacific on to this route; and, further, the importance of Anglo-Hong Kong relations and Anglo-Sino relations?

Lord TREFGARNE

Yes, no doubt, my Lords; but those were not of course the considerations in my right honourable friend's mind.