§ 9.21 p.m.
§ Lord Bethell
rose to ask Her Majesty's Government whether they will make a statement on the present high level of European air fares and on the need for measures to enforce the competition rules of the Treaty of Rome.
The noble Lord said: My Lords, at this very late hour, I will speak very briefly about the question of European air fares, but I hope that we shall have unanimity in this House on the basic principle that I will put before you that European air fares are too high. I imagine that most of us have from time to time travelled by air in Europe and have experienced this problem at first hand. Perhaps certain figures will illustrate the point that I am about to make. If one flies by British Airways from London to Athens one way, the fare payable will be £273, whereas for £21 less it would be possible to take a flight from London to Los Angeles—a destination four times as far. By the same token, it costs nearly twice as much to fly to Helsinki as it does to Boston, which is three times the distance from London. To take a purely European example, a British Airways flight from London to Gibraltar costs £42 less than a British Airways flight from London to Madrid, even though Gibraltar is 300 miles in a direct line further from London than Madrid.
The whole world of air travel is, as I am sure your Lordships will agree, full of anomalies almost to the point of economic madness. My own view about this is that the reason for the very grave discrepancy in the costs of travel across to and on the other side of the Atlantic and travel within Western Europe is that, whereas over there air travel is dependent upon free competition, in Western Europe it is based very largely on the state monopoly system. I have maintained in the course of a campaign that this state monopoly system—arranging as it does for air fares to be agreed by air carriers and then rubber-stamped by governments—is contrary to the competition articles of the Treaty of Rome, and in particular Articles 85, 86 and 90.
On the basic principle that European air fares are too high, I expect that my noble friend Lord Cockfield will agree with me. Indeed, the Government, in their manifesto for the European elections of 1979, put as one of their priorities the proposition that European air travel should be made cheaper. The Prime Minister and my noble friend the then Foreign Secretary mentioned the high level of European air tariffs in various public utterances in July 1981 as one of the priorities for the British presidency of the Council of Ministers. So, on that point, I do not believe that there will be any argument between us.
At this stage, I should declare an interest, in that for some years I have been engaged in a campaign to bring down the cost of European air travel and, together with some 2,000 individuals, mostly members of the International Air Passenger Association, I formed an organisation known as Freedom of the Skies. We have decided to use the weapon of European litigation, in 449 order to urge member governments of the Community to enforce our interpretation of the competition rules of the Treaty of Rome. It is on this point that, perhaps, my noble friend and I may, over certain nuances, part company, and it is also on this point that I wish, particularly, to hear the reply of my noble friend Lord Cockfield to this Question.
I did, at one stage, some 15 years ago, take comfort from the remarks made by my noble friend's predecessor in the Department of Trade, Mr. John Biffen. At a press conference, Mr. Biffen stated that the present bilateral system of fixing air tariffs was, as he put it—and I have his words before me:outmoded and, in my opinion, contrary to Community law".He went on to say publicly that, in his view, the EEC Commission had been fainthearted in trying to bring more competition into the process of liberalisation. He said:It is clear that some fares are too high. In our view, that is not consistent with the Treaty, and we want some urgent action".He then said:We will not be satisfied until we have brought about changes".He concluded by saying:I believe that we have public opinion firmly behind us in this country and, in fact, in most other Community countries".With the greatest respect to my noble friend, I hope that he will be able to answer certain questions in the light of those remarks by his predecessor.
First, can he tell us whether it is still his view, and the view of his department, that the present system of fixing air tariffs in Europe is contrary to European law? Is that the view of the Department of Trade? If that is still the view of the Department of Trade, as expressed by Mr. Biffen in October 1981, does he believe that the British Government are, in fact, acting in accordance with the Treaty in continuing, 15 months after those words were uttered, to go along with the system that was criticised so harshly by Mr. John Biffen? Indeed, I hope that he will be able to indicate to us, in view of the comments about "urgent action" and the words,We will not be satisfied until we have brought about changes",what exactly has been done in the 15 months, during the British presidency of the Council of Ministers, since this attack—if one likes to put it in that way—was launched by the Secretary of State for Trade.
Of course, I agree that public opinion is solidly behind such urgent action. Our country is an island and if we have to travel to Europe, then, by and large, we have to fly. It is difficult to go by surface transport, and we are discriminated against in a whole range of economic activity if European air tariffs are set at too high a level. So I think that we should not be satisfied with the present situation. I wonder to what extent my noble friend is satisfied and whether he can indicate any possibility of change in the near future, or whether he can point to any improvements that have been achieved since the British presidency, when this cry from the heart was launched about the high level of European air tariffs.
Of course, we are hoping that agreement will be reached in the near future on inter-regional air services. I hope my noble friend will be able to indicate 450 that. But does he agree with me that, even if this is agreed, it will go only one tiny step along the way to the desired state of affairs whereby European air travel would be set at a reasonable level?
As for the Commission's proposed directive of air tariffs, can my noble friend indicate to me any hope at all of the 10 member states being able to reach agreement on this admirable, evolutionary proposal? I have to say to him, in all frankness, that my own information is that Hell will freeze over before the 10 member states voluntarily agree the proposal on air tariffs. I hope I am wrong and that my noble friend will be able to indicate some hope over this, but my own view on that proposal is pessimistic.
The nub of the whole argument is not one of evolution against revolution, as has sometimes been alleged over the Freedom of the Skies campaign. We are not revolutionaries in our campaign. We insist on evolutionary change. We do not want to create chaos. But change we do want. We are not satisfied with the status quo and we shall not rest, as Mr. Biffen said 15 months ago, until there is some change. I wonder whether my noble friend will be able to indicate what evolutionary change there has been and what chance there is of gradual liberalisation in the near future through the consent of the 10 member states and the unanimous decision of the Council of Ministers.
In conclusion, subject to what my noble friend will tell me at the end of this debate I must say that I personally doubt whether the 10 member states will agree to a more liberal régime which could lead to lower air fares. I believe that vested interests are such that the member states on the continent, apart perhaps from the Government of the Netherlands, will not voluntarily bring about any change such as the one which my noble friend and I would like to see. If he quarrels with my method, the method of litigation, can my noble friend please indicate how he plans to break the log jam?
The simple fact is that it seems that eight of the 10 member states of the Community do not want the liberalisation movement which my noble friend and I want, a movement which has been so warmly applauded by the Prime Minister and by other Government Ministers and which is longed for by millions of people in this country who wish to travel to Europe at a reasonable cost: for tourist purposes, to see their friends and relatives and for business purposes. What chance is there of bringing about this liberalisation and of breaking the impasse without taking the matter to the courts and insisting on the rule of law? I hope that my noble friend, to whom I am very grateful for coming to the House at this late hour, will be able to indicate the answer to this question.
§ 9.33 p.m.
§ Viscount Thurso
My Lords, the noble Lord, Lord Bethell, raises an interesting, if complicated, question. He states that air fares are too high. From the point of view of the travelling public, whatever you charge is always too high if you can get a journey for the same distance at a lower fare. The noble Lord also says that the state monopoly system is one of the causes of this problem, and that the bilateral system of fixing air fares is outmoded. What the noble Lord does not indicate to us, or hold out to the Government or to 451 anybody else, is any way by which a level of air fares can be enforced.
It is not realistic to imagine that if two airlines are operating upon, shall we say, the London to Paris route one can deal with the question of Air France charging too much by taking away their licence to operate on the route. One can visualise that their immediate riposte would be to take away the right of British Airways to operate upon the route. In that way one reaches some sort of chaos.
The biggest question and the biggest problem which faces us is that if we are seeking to achieve a level of air fares within Europe or anywhere else, how is that level to be imposed on the airlines involved? What legislation is there, and what regulations and sanctions are there, to enforce any level of air fares upon any airline company? At the moment it seems that this is left entirely for the companies to agree among themselves, and as long as it suits them to operate the agreed figure then they operate it. The moment it does not suit them to operate it, they do not operate it, and there is very little that we can do about it. The first question we must ask the Government is: what measures do they propose taking to bring agreement within the EEC and Europe on a method of ensuring reasonable air fares and of enforcing reasonable levels of air fares within Europe?
This raises the question of what one does about all the myriad airlines which fly in and out of Europe from outside Europe, where one has very little control over the level of fares which are charged to and from their countries, and so forth. At present, we have to leave that aspect out of the question because, obviously, the first thing to do is to put our own house in order. But it will be interesting to know what measures, if any, the Government contemplate, and which are contemplated within the EEC, to control the level of air fares to a reasonable point.
On the other hand, it is a kind of tightrope because, if one lives in a remote area, how does one deal with the problem of providing services where these are difficult and expensive to provide? One cannot adjust the cost per mile or per kilometre; one has to think of a service to the community. This brings into the question all sorts of subsidies, and so on. I come from a part of the world where probably the first internal airline in Britain started. Sir Alan Cobham's flying circus came up to Wick in the 1920s and, it having given its display, an old fish curer from Orkney sidled up to one of the pilots and said, "Here's a fiver to take me to Orkney". So the pilot flipped his passenger over to Orkney, where another old fish curer said to him, "Here's a fiver to take me to Wick". It was immediately apparent that here was a possibility for an airline. Indeed, I can remember two airlines operating out of Caithness in the 1930s—Scottish Airways and Allied Airways. One was run by the late Captain Fresson and the other by the late Mr. Gandar Dower. Both airlines operated successfully until the war. They both restarted after the war and were eventually incorporated, first into British European Airways and finally into British Airways.
The wheel has now turned full circle, and the airlines which fly out of Wick have gone back to being 452 small airlines using small aircraft. British Airways has moved out, and Loganair and Air Ecosse have moved in and are providing a regular, satisfactory service at a price that people are prepared to pay. There is a lesson here that price is not the only criterion; service is as important. There has to be a balance between price and service, and there has to be some sort of machinery to monitor both.
Therefore, I end by asking the noble Lord, Lord Cockfield, whether indeed he can give us any idea how the Government hope to reconcile these two problems which face any airline operating in Europe: how to keep its remoter branches going while keeping the element of competition and while keeping the cost of the air fare down to the travelling public, whether they be travelling on a busy route like London to Paris or on a very remote route like Inverness to Wick.
§ 9.41 p.m.
§ Lord Harris of High Cross
My Lords, it is some consolation for taking part in this debate to follow the noble Viscount, Lord Thurso, whose father I recall, as Archie Sinclair, was a schoolboy hero of mine in the Air Flying Corps. But I must confess that I parade at this hour with the greatest possible reluctance. Not having served time in the other place, it has always seemed to me rather dubious that the serious business of Government should be conducted after dark, let alone when sensible citizens are thinking of their beds or at least of their nightcaps.
I wanted to come here particularly to support the noble Lord, Lord Bethell, in pressing this Question, if only to express my admiration for his courage and persistence in campaigning against those common enemies, the twin evils, of economic nationalism and monopoly. I should say candidly, as I think he knows, that I have never supported British membership of the EEC, and unless we can dismantle the common agricultural policy I would personally even now contemplate withdrawing. But this Question goes far wider. I hope I do not have to emphasise that I do not imply any hostility towards Europe. Indeed, I have a modest interest to declare in that I have a married daughter living and working in Lyon and bringing up my two Anglo-French grandchildren. It is a minor part of my complaint that the inflated air fares make family reunions less frequent than we would all wish.
My Lords, the argument that higher European fares are due to higher European costs simply will not wash. Of course it is true that shorter hauls cost more per mile than long non-stop runs, not least because the overhead costs of taking off and landing and wear and tear on engines has to be spread over a shorter run. But that could not account for differences as wide as we have heard from the noble Lord, Lord Bethell, between European and transatlantic charges. Furthermore, the conclusive argument, for my money, is that short hauls within the United States of America have, since deregulation, my Lord Thurso, come down to levels that are commonly between one-third and even one-quarter of comparable flights within Europe.
My Lords, as an humble economist, I would not set out to try and teach the noble Lord, Lord Cockfield, anything in this subject, but for the dubious benefit of any others who may be awake, I would like to say that 453 I believe the explanation of high costs is almost always to be found in regulation and never for long in open competition. If we look back over the post-war years it is difficult to doubt that the phenomenal increase we have seen in air travel would have produced much lower fares under a competitive régime than we have witnessed under universal regulation. The reason has been touched upon, that the International Air Transport Association has throughout this period acted as a private cartel of airlines explicitly to keep prices up, and in this vulgar conspiracy IATA has been generally buttressed by national Governments.
It is clearly the intention of all such market rigging to ensure comfortable profits for the less efficient operator, but as so often the outcome is very different. There are many reasons why prices that are fixed too high raise costs rather than maintain profits. For example, unless new entrants can be kept out and existing operators prevented from expanding, the prospect of fat profits will attract additional capacity, much of which will be under-employed, thereby raising costs. Again, if the cartel can stop airlines engaging in price competition, it is less easy to stop non-price competition through the proliferation of so-called free services, which are simply an expensive substitute for lower fares. Finally, so long as prospects of comfortable profits last there is cash available for all kinds of featherbedding within the airline companies, and I observe that trade unions are never slow to take advantage of any scope for overmanning or other ways of inflating labour costs.
So, for these and other reasons, it is less true to attribute high fares to high costs than to say that European costs have been inflated because prices were fixed too high in the first place. At the end of the day, even with higher fares, profits may turn out to be lower than they would have been under competition. The remedy is not to raise prices still higher, which would in any case further shrink the market of passengers who pay their own fare.
454 I was not surprised to read in the literature which the noble Lord, Lord Bethell, kindly supplied, that European labour and operating expenses are a good deal higher than they are in America. My abbreviated analysis suggests that the best way to bring down costs is to allow free competition in air fares, and since Governments are often drawn into price fixing to protect their own inefficient state airlines, it would help if European airlines were denationalised, as I am glad to see is planned for British Airways. They would be subjected to a competitive market and would be regulated only by safety requirements on the long-established principle of the Plimsoll line for shipping.
It seems to be a particular paradox and a scandal that the EEC, which was supposed to bring people closer together, has raised the barrier still higher between me and my French grandchildren. The noble Lord, Lord Bethell, argues that this manifestation of economic nationalism in air transport is in breach of Articles 85 and 86 of the Treaty of Rome. As he said, he was upheld in that explicit view by Mr. John Biffen, who was Lord Cockfield's predecessor as Secretary of State for Trade.
I join the noble Lord, Lord Bethell, in asking the Minister whether he will undertake to bring whatever pressure is possible against European Governments which are unquestionably acting in defiance of the competitive spirit, if not the legal letter, of the Treaty of Rome. I have a suggestion. He might be strengthened in his resolution by a leading article in The Times of 13th May 1981, which I assure him neither the noble Lord, Lord Bethell, nor I have written. It concluded by suggesting that the British Government approve low fare applications by British operators, and if resisted by European Governments they should threaten to renegotiate the air service agreements with the offending Governments and,There should be an implicit warning that landing at Heathrow and Gatwick could be denied their flag airlines if no sensible reductions were forthcoming".
§ 9.49 p.m.
§ Baroness Burton of Coventry
My Lords, I should like to offer congratulations to the noble Lord, Lord Bethell, for raising this matter tonight and for his speech, but principally for the fight that he has carried on for so long on this very thorny problem of European air fares. I hope that he will have a reply tonight from the Secretary of State agreeing the need for measures to enforce the competition rules of the Treaty of Rome.
This is no new problem. When we discussed air fares in Europe about two and a half years ago on a report of the European Community's Committee, of which I was privileged to be a member, I recall saying that as long ago as 1971 I had stated what seemed to me a very obvious fact; namely, that air fares in Europe were far too high. On that occasion, some 12 years ago, I think that the House agreed, but not those people in authority, either on the ground or in the air. We all know that one has to be right at the right time. I hope that the noble Lord, Lord Bethell, is going to be right today.
Moving to more recent times, how did we get on in July 1980? Quite definitely we made progress. If I may summarise the reply given by the noble Lord, Lord Trefgarne, for the Government, it was to the effect that they were not satisfied with the then current position and that the air traveller, in their opinion, was entitled to a better deal. Concerning the Treaty of Rome, the noble Lord, Lord Trefgarne, stated that progress by agreement under Article 84.2 was the aim of Her Majesty's Government. The noble Lord, Lord Bethell, has mentioned other articles and I would not be competent to comment on those, but I hope that Article 84.2, as it was mentioned by the noble Lord, Lord Trefgarne, may perhaps be added to them.
Significantly—at least, I hope it was significant—the noble Lord, Lord Trefgarne, went on to say that if sufficient progress were not made, it would then be necessary to consider what other steps might have to be taken in order to make reasonable progress. So having reached that stage in July 1980, where are we today? I would like to ask: do the Government consider that insufficient progress has been made and, if so, what do they suggest might be done? It is no secret that efforts by the Government to make progress have not met with success where other countries are concerned. I am quite sure that the public believes—what I think most of us accept to be a fact—that vested interests, within both the member states and the national airlines, are still proving obstacles to reform. I should have thought that surely there must be more scope for more competition and lower scheduled fares in Europe without going to the extremes of the United States' domestic deregulation.
This country has led the campaign to liberalise Europe's air fares. Only last month Mr. Iain Sproat, the Trade Minister responsible for aviation, launched a further attempt in Brussels. Doubtless the Secretary of State will tell us tonight, but I gather that Mr. Sproat failed in those efforts. So if Mr. Sproat did fail, I would like to know if I am correct in assuming that the problem of easing scheduled air fare regulations within the Common Market countries will now go back to the Community's ambassadors in Brussels.
456 The Financial Times of 16th December last said:Even efforts by the European Commission to bring European air transport under the aegis of the Treaty of Rome, so that the rules governing competition can be implemented, have been vigorously resisted by Governments which fear the end of their right to total control over their airspace and what can fly through it".In view of this entrenched opposition, which I certainly accept—and I should have thought everyone in the House accepted—what other action do the Government propose? I know, in common with everyone else, that leaders of the EEC at their summit meeting in Copenhagen agreed on measures to open up the internal market and to remove unnecessary barriers to competition. All I can say is that up to now this agreement does not seem to have reached the airline industry.
British Airways and British Caledonian have played their part. The Government want competition on European air fares. The Civil Aviation Authority agrees, as did the all-party Select Committee of this House which reported in 1980. Then why the lack of progress? The obvious reason is fare-fixing between national airlines, protected by their Governments. Perhaps the Minister should give us some more details when he comes to reply, and doubtless he will correct me if I am wrong. But I understand that when Mr. Sproat went recently to Brussels he tried to get EEC member countries to ease their control over the introduction of new international scheduled services between provincial cities.
I gather that the United Kingdom had wanted the right of refusal by a receiving country of a new service to be done away with so that if, for example, the United Kingdom gave approval for a new service between one of our cities and one in the EEC, then the latter country could not refuse it because United Kingdom approval had already been granted. If that is correct, presumably Mr. Sproat offered the same in reverse. If he could have got that agreement, it would have been a small dent in the protectionism which has existed in Europe since the 1940s. As a result of that protectionism airlines require national Government permission to operate through national territory. A system of bilateral restrictive agreements between Governments on behalf of their airlines normally allows for only one carrier from each country to fly a particular route, and in nearly all cases this is the flag-carrying airline.
I hope that the Minister can give us encouragement tonight. In our report to the House in 1980 we gave various examples and reasons for the cost of air fares in Europe, and there is, indeed, ample evidence that fares are too high. It seems to me that what Mr. Sproat was trying to establish was that the rules of free competition in the Common Market should apply, for the first time, to European air services. I look forward with much interest to the reply that we shall receive tonight from the Secretary of State, and I very much hope that the noble Lord, Lord Bethell, will be satisfied with what he receives.
§ 9.57 p.m.
§ Lord Ponsonby of Shulbrede
My Lords, first I join with other noble Lords, including the noble Lord, Lord Harris of High Cross, and the noble Baroness, 457 Lady Burton of Coventry, in paying tribute to the noble Lord, Lord Bethell, for the fight which he has put up, over a considerable period of time, to get the level of air fares in Europe reduced. When he started his remarks this evening he quoted examples of the ludicrous way in which some air fares are fixed. My mind immediately went back to the question which was put to Sir Freddie Laker on 6th February 1980 when he appeared before your Lordships' Select Committee on European Air Fares. He started his remarks by saying:If I may [I will] start off by telling you the story of the German boy that said to his Dad—he lived in Berlin—'Daddy, where is New York?' and Daddy said 'I do not know but by the air fare it is somewhere between Frankfurt and Hamburg'.".That story has been repeated many times since in different forms.
The last few years have witnessed a dramatic change in the level of transatlantic air fares, and this has brought very great benefit to the travel and tourist industry. Because that has happened there has been even greater disappointment at the fact that a similar cutting of fares has not taken place in Europe. Many reasons have been given for that.
It has been suggested that the European landing and navigation charges are five to 10 times higher than those in the United States; that fuel is about 50 per cent. more expensive; that there are higher taxes; that labour costs are twice as high; that night flying restrictions mean that aircraft in Europe have a working day 24 per cent. shorter than that in America; that military and political restrictions make routes on average 15 per cent. longer than they should be; and that operating aircraft over Europe's short distances has an effect on efficiency. Of course, as has been mentioned, one of the biggest obstacles to the cutting of air fares has been the question of national sovereignty in Europe, which has had the effect that every nation insists on its own flag-carrying aircraft flying a particular route.
Those may be some of the reasons. Again it is perhaps instructive to go to the report of the Select Committee. On 5th march 1980 Mr. Norman Tebbit appeared before the Select Committee. He was at that time Under-Secretary at the Department of Trade. In answer to a question about what would be the effect of more competition in Europe, he said:If airlines were not able to cover their less than satisfactory returns on the Atlantic they would be under pressure either to become more efficient on the Atlantic, and certainly Sir Freddie Laker maintains that he is making satisfactory profits although many others maintain that they are not—there would be that pressure on the Atlantic if we were to put new pressures into Europe".The implication of those remarks—and, in a sense, this has been the implication of some of the speeches made in the debate this evening—is that there is not all that much fat to go around in the air transport industry as a whole. The question one has to ask is as to whether in fact the answer to cheaper European air fares is solely more competition. Certainly the noble Lord, Lord Bethell, when he appeared before the Select Committee on 20th February 1980, thought that that was the case.
However, one has to examine the whole spectrum of European air fares, and see that, in certain instances, 458 of course there are cheap fares in Europe if you wish to fly in a particular way for a particular purpose. I am thinking here of the fares which people can obtain to holiday destinations such as those in Greece, Spain, Italy and Portugal. If one is able to operate one's businesses in those areas one is not faced by the same high air fares.
Indeed, the Observer of 25th July last commented that about 45 per cent. of passengers travel on inclusive tours at well below scheduled prices. Another 20 per cent. are business travellers whose employers sign their cheques, and therefore they are not so much concerned about the cost of air fares. In a sense, the people who really are hurt are those who do not wish to take advantage of package tours, or who wish to travel individually, whether they be travelling for holidays or for business. They have to meet their fares out of their own pockets. They are the people who suffer considerably from the high level of air fares in Europe.
Now what can be done? The noble Lord, Lord Bethell, has proposed his answer. The answer to his frustration is to take the matter to the courts. One has to be realistic in the whole question of the level of air fares in Europe. One has to think that the national airlines will not always be in a position to continue losing money. I think that one of the effects of cheaper air fares in Europe—one has to be pragmatic about this—would be a greater rationalisation of the airline networks of individual airlines. If one could accept a situation where there was a rationalisation of structure—where there were fewer routes, where there were routes which would probably mean more changes and where one might not be able to get a direct flight to every single Continental city of any size, but where one went into a hub airport in a particular area and then took a smaller plane out—one could achieve some considerable reduction in fares. But if one has to maintain services from every major European city to every other major European city and those services can operate successfully only if they succeed in obtaining a high level of traffic, that is not a satisfactory situation for the airlines themselves in the long run.
Indeed, I remember last year travelling from Paris to Manchester and the 'plane being about 10 per cent. full. That obviously was not a particularly economic route to operate. No doubt it would have been much more economical for the airline if I had travelled from Paris to London and then used some other means of transportation from London to Manchester. One has to have cognisance of the fact that the airlines will be able to bring their level of fares down only if they are able to organise their business in a way which will make that practicable from their point of view.
I join with other noble Lords in saying that I am not at all happy about the present high level of tariffs. I do not believe that competition is the only answer to this particular problem. I believe that there should be a measure of reorganisation, a measure of rationalisation and a measure of greater usage. I also believe that if the air fares come down, one will have a greater usage, which will be of benefit to the airlines themselves. I join with other noble Lords in expressing great interest in hearing what the Secretary of State has to say.
§ 10.8 p.m.
§ Lord Cockfield
My Lords, for some years now my noble friend Lord Bethell has pursued a vigorous crusade on the subject of air fares in Europe. This evening he has clearly gained a number of doughty recruits. He has done an added service in keeping the noble Lord, Lord Harris of High Cross, from his bed, thus allowing us the benefit of his wisdom in economic affairs. As the noble Baroness, Lady Burton says, this is no new problem. I think all of us are convinced that certainly some, and possibly many, scheduled air fares in Europe are too high when considered against costs. It may well be that the costs are too high as well.
We do not, of course, set out to tell airlines what their passengers want. That is a matter of commercial judgment for the airlines, and the price that they charge—that is, the fare—can only be assessed in relation to what is provided for it. That is a most important consideration and one that is often overlooked. The air passenger market is not homogeneous. There is a wide spectrum of user requirements. All airlines are not necessarily able to meet all elements of demand on all routes at all times. Airlines must act in a commercial manner—and that means profitably—and it is for them to judge what can be provided at any given time in relation to their knowledge of what the markets they are serving want. This ranges from high quality services provided on demand at the shortest notice to the most limited and simple provisions of transport from one place to another without any trimmings or, for example, with advance booking and without the possibility of changing those bookings without financial penalty.
The many United Kingdom travellers who fly on holidays to Europe on inclusive tours already enjoy some of the lowest fares which could be expected, thanks to the nature and efficiency of such operations, and the noble Lord, Lord Ponsonby, referred to that. The policy of the Government is that the prices charged for these varying products should reflect the cost of providing them efficiently, while permitting the airlines to respond to competition and earn a sensible and fair commercial profit. We do not believe it is right for the prices of one product to be set at a level which results in an artificially high, or low, price being charged for another product. On this basis, we believe that the price of the normal on-demand fares on some routes in Europe are too high, and we want to see them come down. To this extent, I find myself on the same side as my noble friend, and on the same side as most noble Lords who have spoken this evening.
Within the powers available to us, we have for some years taken action to see that fares come down where the circumstances so justify. In this respect the Civil Aviation Authority act as the advisers of the department where appropriate bilateral arrangements allow action to be taken. We also want a regulatory system which is sufficiently flexible to permit airlines to exercise their commercial judgment on the products they can profitably provide and the prices to be charged. But we are not saying that the airlines can be turned lose to do whatever they like. Because of the international system which limits the number of airlines which can operate on any given route, the 460 airlines are bound to some extent to operate within a system of limited competition. These limitations in competition mean that Governments have a role to play in the protection of consumer interests in the air transport field, as in other commercial fields.
The Government are, therefore, seeking agreement to modify the regulatory system so that when an airline has proposed a product and a fare to its own Government, and that Government have satisfied themselves that it is properly related to that airline's costs, then the airline should be able to implement the product and the fare, and it should not be blocked by other Governments acting on behalf of their own airlines which may, because of their structure and costs, or their policies, be interested only in serving a different sector of the market at different prices.
The approach that we propose is such a normal, commercial market approach that it may seem extraordinary that we have had to negotiate in Brussels for over four years without having achieved agreement on it. But while the Commission itself takes the same view as we do, as indeed do the Dutch, unfortunately most other Governments and airlines in Europe do not.
It would not be right to place emphasis entirely on lower air fares. There are undoubtedly some fares which are too high in relation to the costs of what is provided. But the real objective is for freedom for airlines to provide a range of products to meet the consumers' choice at a price that they are prepared to pay. I would not want, and I am not prepared, to tell passengers what they ought to want, or are permitted to buy. The way to success and profitability for airlines is to respond to market forces. If the regulatory system were to permit airlines to respond more closely to market demand, I am convinced that they would do so; and that is what Her Majesty's Government are trying to achieve.
The pace of negotiation in the European Community is always slow. We have already faced many disappointments; most recently the failure to secure agreement to the very modest measure designed to liberalise the process of authorising new interregional air services in Europe. But we are determined to persist. Our lack of progress so far is due, at least in part, to the problems or difficulties of reconciling the views and objectives of 10 member states and adapting them to the rules of the treaty. But we must continue to exert pressure, and that we shall unquestionably do.
That brings me to the second part of my noble friend's Question, on measures to enforce the competition rules of the Treaty of Rome. Before they can be enforced, it has to be determined that they do in fact apply. There has been no decision of the European Court of Justice in relation to air transport which says conclusively that they do apply. There are certain indications that they may do. The Commission thinks that they do, and under Articles 89 and 90 of the Treaty the Commission has a duty to enforce them. That is what my noble friend has been trying to persuade the Commission to do. The Commission has said that it is in the process of acting. and that is why the European Court has so far ruled that there is no ground for complaint.
461 If the rules do apply, certain consequences follow for member states in relation to their obligations under those articles. But air transport in the Community is a matter involving 10 Governments, and many of those Governments disagree with the Commission and say that the competition rules do not apply to air transport because of the provisions of the transport chapter of the treaty. Until this matter is resolved either by Council action or by the European Court, it would not be helpful to the air transport industry, nor to its passengers, for Her Majesty's Government to act unilaterally.
Should the Government at the other end of our airlines' routes take a different view, there would be a chaotic situation which would not help anybody. That is the point put so forcefully by the noble Viscount, Lord Thurso. Air transport is an international industry, and operates only with international consensus. As a Government we could not take action which would disturb that consensus until there is something better to put in its place.
To some extent, the solution to this problem is in the hands of member states' Governments. For over a year now the Council of Ministers has had before it a Commission proposal for a regulation to implement the application of the competition rules to air transport. We and the Dutch have supported the proposal in principle, but virtually no progress has been made because other member states are seeking to preserve the present system.
I regret that the air fares directive proposed under Article 84.2 of the treaty is in the same situation. As this has been raised specifically both by my noble friend Lord Bethell and by the noble Baroness, Lady Burton, perhaps I might deal with this in rather more detail. The directive has not yet been discussed substantively by Ministers in the European Community Council, but negotiations on the text are continuing in the Community at official level. The next opportunity to consider it at ministerial level, if progress is made towards agreement during the German presidency, would be at the June Council of Transport Ministers. I must admit that so far those member states who disagree with our general approach show little inclination to accept the very reasonable reform envisaged in this particular directive. Nevertheless, we will continue to press on this particular front.
The regional air services directive on which Community Ministers have three times failed to agree is in much the same situation. The Government are giving all support to the Commission and are doing, and will continue to do, all that they can to achieve agreement on a more liberal regulatory régime. What we want to see is a more liberal system which will generate more competition between airlines by providing them, subject to regard for the reasonable interest of users, with opportunities for freer exercise of their commercial judgment.
We are convinced that this would be to the advantage of the airlines themselves and, certainly, of their passengers. But if one lives in a community of 10 the position, unfortunately, is that one has to get the 462 agreement of one's fellow members to whatever action is proposed. This is where, ultimately, the difficulty lies. Our objectives are much the same as those of my noble friend Lord Bethel and of other noble Lords who have spoken. But our chosen route perhaps differs. We as a Government have a responsibility for our airlines as well as for our passengers, and this means that we may have to hasten more slowly than my noble friend would want.
The position of the airlines was touched upon by the noble Lord, Lord Ponsonby of Shulbrede, and their interests must be taken into account in these matters. This is, I must admit, a frustrating situation. It is perhaps even more frustrating for Government than it is for noble Lords who have spoken in this debate, because it is Government who are cast in the role of defending a situation which we ourselves would be only too anxious to see changed for the better. This is a field in which we need to make progress and I assure noble Lords on both sides of the House that we are directing our efforts to achieve just that.
House adjourned at twenty-four minutes past ten o'clock.