Airline Competition Policy

HL Deb 30 October 1984 vol 456 cc478-506

5.16 p.m.

Baroness Burton of Coventry rose to ask Her Majesty's Government whether they will make a further statement on the White Paper Airline Competition Policy (Cmnd. 9366) prior to any debate in Parliament.

The noble Baroness said: My Lords, in rising to ask the Question which stands in my name on the Order Paper today, perhaps I may remind the House that just before we rose for the Summer Recess we were indebted to the noble Earl, Lord Kinnoull, for initiating a debate on the report of the Civil Aviation Authority which had been requested by the Government. Unfortunately, the noble Earl, Lord Kinnoull, is abroad on Parliamentary business. We all regret his absence today.

Since that debate, we have had the response of the Government to the report of the Civil Aviation Authority. Some of the decisions and judgments many people find puzzling. I have tried to word my question accordingly. Before there is any general debate in Parliament I, for one, should like to raise several points which I find, shall we say, peculiar. Following our discussion tonight, it may be that we shall better be able to discuss in full parliamentary debate the issues and judgments inevitably called into question. I am most grateful to those who are to take part in the debate. It is quite obvious to anybody who knows anything about aviation that we are very fortunate in the speakers we are to hear tonight. They have a depth of experience which certainly could not be exceeded in another place.

The reasons why I have raised the matter as soon as possible are these. I was unhappy and disturbed by the White Paper on Airline Competition Policy published by the Government in reply to the report of the Civil Aviation Authority. To begin with, I was most concerned about the antagonism which surfaced in the period preceding the Government's decision, even allowing for the importance of the issues involved. This antagonism of course was not the fault of the Government: but for those of us, in this House and outside, who were deeply interested but not wishing to take sides with one airline against another and who saw the problem as greater than the attitude of any individual airline, it was a most disagreeable factor.

What has worried me throughout and what, I suggest, has worried many people has been the question of the airline industry itself. My major concern is that the Government have failed to grasp this opportunity to deal with the obvious imbalance in the United Kingdom aviation market. A restructuring could have brought in a new era for the industry lasting into the next century, and it seems unlikely that such an opportunity will recur for many years to come.

A second reason for concern is that the many complex questions and problems affecting the airline industry should not be dealt with piecemeal, on an ad hoc basis, but considered as a whole. This would have been possible by a general restructuring.

Take, for instance, the following examples—all of which are pending. There is the inspector's report on the Stansted/Heathrow issue for a third London Airport: the report of the Select Committee on transport dealing with the organisation, financing and control of airports in the United Kingdom; the consultation document on air transport movements at Heathrow Airport. To these must be added, I suppose, privatisation of the British Airports Authority and its airports.

My third major concern arises from my belief that the Government have erred in the weight they have given to Treasury opinion. I want to ask whether it really is for the good of the industry, the airlines and the passengers that all such considerations should be submerged under Treasury demands for the privatisation of British Airways in the spring of next year. Would it not have been better for all concerned—and perhaps even of long-term benefit to the Treasury itself—if these matters had been considered and dealt with as a whole, deferring any privatisation date for British Airways until this had been done?

The response of the Government in the White Paper is to state in their first two paragraphs, paragraphs 14 and 15, that: Uncertainties affecting the privatisation of British Airways must be resolved. The Government has decided that there will be no forced reduction in British Airways' size relative to the rest of the industry".

But is this the right decision? However fair and scrupulous British Airways may be in its dealings, there can be no doubt that its high share of the airline market—namely, 65 per cent. of total United Kingdom airline output and 81 per cent. of output on scheduled services—presents a considerable imbalance.

In paragraph 15 the Government state: The independents have grown despite British Airways and should continue to be able to grow, given fair competition, provided sufficient opportunities are available to them and provided they have the resources to take advantage of these opportunities".

This same paragraph admits the imbalance in its last sentence, when it states: If these conditions can be met, the independents will be able to grow so as to reduce further the imbalance in the industry".

These are, of course, impeccable statements, or even judgments, but the imbalance is hereby admitted. There remains the crucial question: have we got these essential sufficient opportunities?

I, for one, have always recognised and agreed that British Airways must remain our dominant and major airline. But I confess that I find myself disturbed by the comments of Mr. Neil Forster, chairman of Air UK, that this White Paper had entirely confirmed a privatised British Airways in its overwhelmingly powerful position in the United Kingdom aviation scene. I am afraid that I accept that point of view.

If we are correct in this feeling, it means that we are to be faced with the prospect of the transition of a near public monopoly into a private monopoly. I myself regard any privatisation of British Airways in a purely pragmatic sense—in other words, what is best for all concerned, but not the transition of one type of monopoly into another.

At least I was heartened that the Government commit themselves to the principle of dual designation of many routes, but these rights (if that be the correct word) have to be negotiated with foreign governments, and that is a very different story. In the past foreign governments have been most uncooperative in granting rights to a second British airline. The noble Lord the Minister will correct me if I am wrong, but I believe I am correct in saying that BCal has licences to fly in competition with British Airways to Vienna, Milan and Helsinki but cannot do so because the countries concerned refuse to accept the dual designation principle.

There are other examples, as the Government know. Is it not true that the West German Government have blocked similar rights to Cologne, Hamburg, Hanover and Stuttgart, even though the Civil Aviation Authority has granted BCal the United Kingdom licences? Let us not run away with the idea that dual designation is an immediate panacea.

The House knows my views on Gatwick. Paragraph 17 of the White Paper mentions the development of Gatwick as a major centre of international operations. Certainly there is the space at Gatwick for this. For myself, I do not believe that Gatwick can be developed to its full potential without a second runway. I was glad to note that I was supported in this belief by the Civil Aviation Authority, when one of its senior figures stated in September that Gatwick must choose between a second runway or failing to reach its projected growth target. Of course, support from the Civil Aviation Authority may not count for much with the Government today, but many of us believe that the authority is both experienced and well informed, and that its professional opinions are less prejudiced than many others.

What seems to me to be so utterly wrong (and it is why I keep on about this) is that decisions of this nature—a second runway—are taken not on the merits of the matter, but on the underground politics concerning Stansted and political considerations of voters around Gatwick, rather than on the future of the airport itself. It is so much wasted breath to talk about developing Gatwick as a hub-and-spoke airport of the future and to deny what is obviously necessary. Also, it is dishonest.

I have in my hands a copy of Airport News (the journal of the British Airports Authority) for 22nd October. The banner headline across the top of the front page reads, "Don't stifle success". The opening paragraph states: Any move to stifle the development of London's airports could jeopardise the successful privatisation of British Airways and put at risk the future of independent carriers like British Caledonian, BAA chairman Norman Payne told a meeting of Conservative MPs during their conference at Brighton".

Mr. Payne went on to say: Heathrow is already close to the ceiling of 275,000 movements due to be imposed by the Government next year and the Government has recently confirmed that Gatwick will remain a single runway airport, so there will be a capacity problem ahead".

I would ask your Lordships to note those words: Gatwick will remain a single runway airport, so there will be a capacity problem ahead".

Arising from this refusal to look at the future of Gatwick and this inability to develop its full potential is the question of what is to be the future position of European charters. This is a highly efficient sector of British air transport to which I paid tribute in our debate of 30th July. We were then discussing the report of the Civil Aviation Authority which, in its paragraph 12, spoke of the substantial demand for charter seats which was being satisfied from Gatwick. Furthermore, it went on to say that to rule that charters should increasingly be operated from some other airport was, to substitute the planner's judgment for the proper working of the market place".

It strengthened this point in paragraph 18 when it stated: The aim of Gatwick must be the development of a strong and sustainable network of scheduled services such as the Government and this Authority has striven to build and sustain over many years. If the price of developing the scheduled service network at Gatwick was progressively to squeeze charters out, this would be to render a major disservice to a substantial category of public demand".

Under present proposals in the White Paper, this is what I believe will happen. I think that the charters will indeed be squeezed out.

I wonder how many people read the letter in The Times on 31st August from Mr. Davison, the Chairman and Chief Executive of Britannia Airways, saying that in this year, 1984, some 8 million holiday makers would benefit from the low costs and high standards offered by charter flights. I think that I would be prepared to accept the point made by Mr. Davison that this social revolution by which ordinary people have benefited over the past 20 years would not have occurred under a one-airline policy, or even under a two-airline policy. The charter business believes it happened because of intense competition in the private sector in a truly competitive market place.

Moving on to the problem of the regional airports, exemplified by Birmingham and Manchester, it must be obvious to all that this is difficult to solve on an ad hoc basis. Surely, and obviously, so much must depend on the decision relating to London's third airport. Are we to see Birmingham and Manchester emerge as more than what has been called tertiary international airports? In other words, might we have not a third London airport but one in the North? This is a further illustration of the Government's error in not embarking on major reconstruction embracing the many problems involved.

The point should be made that the proposals from the Civil Aviation Authority had Manchester very much in mind. In a letter to The Times on 28th August, Mr. Ray Colegate of the CAA stated that Manchester was an excellently run airport and a major hub which should be developed. The proposals of the CAA were intended to give the smaller operators the opportunity to develop their own European services at major provincial airports in competition with London. I think that few well-informed people would disagree with the fact that many of these routes are too thin to accommodate three airlines; that is, two British and one foreign.

As ever, tributes are paid to the consumer by the Government. The consumer is always in favour until he either wants something or attempts to remedy what he sees as an injustice to the consumer. Nobody knows that better than I do. So, in the White Paper a refusal to deal with the admitted imbalance in the airline industry is said to be of benefit to the consumer.

Concerning the role suggested for the Office of Fair Trading, we shall have to wait for the Government to lay the necessary statutory instruments before Parliament. Although I have the strongest admiration for the Office of Fair Trading and for its Director-General, Sir Gordon Borrie, I do not think that this is the way to deal with these problems. To begin with, cases can take a long time, inquiries can take longer still, while predatory pricing is most difficult to define. How does one distinguish between a predatory price and a tough business one? That would keep the lawyers occupied for years.

I have found all this tonight difficult. Probably others have, too. There has been a great deal of personal antagonism, as I said at the beginning of my speech, and it is not easy to avoid taking sides. We all know the old maxim that he who stands in the middle of the road gets run down. Well, on this aspect I shall just have to be run down. But making no commendations seems unappreciative—as though one did not realise all the effort put in by the industry. I do, indeed, appreciate the superhuman effort made by British Airways in pulling itself round; the superhuman effort made by British Caledonian which, over the last eight years, lost money in only one year; the superhuman effort made by the charter sector which accounts for 33 per cent. of all passenger miles flown by the independent airlines and British Airways put together.

Obviously, it is not possible to deal with all the points in the White Paper. Most of us still need time to reflect on what is suggested, and the outcome. But during the past waiting period, as we know from our own debates, different accountants, different airlines, different media all had different answers and interpretations to what were apparently the same facts and figures.

I submit that it is not for us to take sides—anyway, there are a great many sides. This is not just about British Airways and British Caledonian, but about all the airlines and all the passengers. Indeed, it is about the airline industry itself. My regret is that the Secretary of State, Mr. Nicholas Ridley, was unable to muster sufficient support for what I believe should have been done and what he himself wanted to do; namely, to restructure the airline industry in the United Kingdom.

5.38 p.m.

Lord Boyd-Carpenter

My Lords, the House and, I think, the civil aviation industry are both indebted, not for the first time, to the noble Baroness for raising this matter on an Unstarred Question this evening. Indeed, I hope I may be allowed to say, from some experience going back over a number of years of the work of the noble Baroness, that I know of no person who has done more for the airline traveller than the noble Baroness, going on from her indefatigable work years ago as a member of the Airline Users Committee, which I very well remember.

I hope that my noble friends on the Front Bench will not feel that this brief debate tonight is all that this House should contribute to discussion of this matter. I very much hope that in the new Session we shall have a full-scale debate on the very serious issues of policy which are raised both by the Civil Aviation Authority's report and by the Government's own equally interesting White Paper. I hope they will treat tonight's debate as what I used to call hors d'oeuvre but what now in most restaurants are referred to as starters.

There is a very big issue here, but the difference which exists between the Civil Aviation Authority and the Government seems to be one of emphasis and degree rather than of principle. As I understand it, both bodies accept the need for more competition in the British civil aviation industry. In parenthesis, those of your Lordships who use the shuttle services to Scotland will have already experienced one very substantial result of competition—the admirable breakfast now served on both airlines. In the days when only one airline operated the shuttle there was no breakfast at all. That is in every sense a very substantial argument in favour of competition, and of benefit to the airline traveller.

But, of course, the question of competition revolves around: competition between who? If one competitor is too big and too powerful, we can talk about competition until we have talked our heads off, but there will not be any, because one will dominate the market. What I think the Civil Aviation Authority was seeking to do, and what in more modest degree the Government, I think, were seeking to do, was to alter somewhat the balance between the two biggest British airlines so that competition should not be just a formula—not just a phrase—but a reality.

If one has to judge between the views of the Government and the department concerned—and in parenthesis may I say how glad I am that that department is once again the Department of Transport and not, as it was unfortunately for some years, the Department of Trade—and the views of the Civil Aviation Authority, your Lordships will not perhaps be wholly surprised if my bias is in favour of the Civil Aviation Authority, where I had the honour to serve for its original five formative years.

But that is not sheer prejudice. Your Lordships will be aware that in the CAA there are concentrated most of the really experienced public experts on this industry, headed by a very distinguished and able chairman, with a fine industrial record, and with its economic division headed by Mr. Ray Colegate, to whom the noble Baroness referred and whose services to the British civil aviation industry over the years have been quite extraordinarily valuable and seem to me to merit considerable recognition. Comparisons, I know, are odious, but we have there far more expertise and knowledge on this difficult and highly complicated subject than in the department, or indeed anywhere else. Therefore if your Lordships are to be called upon to exercise a judgment between the decisions of the Government and the decisions of the CAA, I think that most people would be inclined to let their views go in favour of what is the more authoritative and the more expert body.

I appreciate that the Government have been in a difficulty over this—a difficulty of timing. The fact that this report, for which they called, should come forward in the period when they are proceeding, in my view very properly, with the privatisation of British Airways obviously creates a difficulty. If the Government were to proceed drastically to reduce the scale of British Airways' operations, they must necessarily prejudice in some degree the success of the privatisation operation and therefore the benefit which the British taxpayer can expect to obtain from it. I think that there is an inherent difficulty of timing here.

Therefore it is perhaps a very difficult exercise of judgment to decide how much more it is necessary to transfer to British Caledonian and to the rest of the independent sector from British Airways in order to make sure that there are strong enough competitors with British Airways for a reality of competition to be created, not merely on the shuttle but on international routes. This is the serious issue that lies behind this whole matter. It is obviously impossible to deal with it seriously and fully on an Unstarred Question, and that is the major reason why I have already appealed to my noble friends to see to it that this matter is fully debated early in the new Session, which is, after all, a period when your Lordships' House is more likely to have time available than our experience last summer suggests it is later in the Session.

That is the major issue, but there is one immediate question that I should like to direct to my noble friend. It deals directly with competition policy. British Airways, British Caledonian and the two major American airlines recently sought to make a substantial reduction—a reduction of about £40—on transatlantic fares, and they have been forbidden by the Government so to do. It seems difficult to reconcile that with the Government's general policy in favour of competition and the market. I know that there is a fear that the ridiculous excesses of the American anti-trust legal system might be incensed by this; and that an equally ridiculous proceeding to that being instituted by the liquidator in the United States concerning Laker Airways might complicate the matter. But if we are really to allow reasonable commercial enterprise, of benefit to the consumer, to be restricted by those fears, it is difficult to see how one is pursuing a competitive and effective airline policy at all.

I should be particularly grateful to my noble friend if he would answer the question as to whether the suggestion made in the press that the 100,000 or so passengers who have already booked their passages across the North Atlantic on the four airlines concerned at the reduced price are to be surcharged on arrival at the airport on the instructions of the Government. If that were so, I think it would be a most inappropriate action and not least, of course, would cause great congestion, discomfort and hardship at the airport. I hope that at the outcome of this debate we may have an effective denial from my noble friend of that statement.

The only other matter that I want to raise relates to the airport facilities available. We cannot have competition, whether on internal or external routes, among British Airways, British Caledonian and the other airlines if insufficient facilities are available at the major airports which everyone wants to use. On this again I should like to press my noble friend about the proposed 275,000 movements a year restriction planned to be imposed on the operation of Heathrow. I know that this is argued on the grounds of aircraft noise and the nuisance to those who live near; but if people already live near an airport, with 275,000 movements a year—which, if my mathematics are right, which is highly unlikely, amounts to something like 750 movements a day—I cannot believe that it will make very much difference to their life if those movements go up to 350,000 or 400,000 a year. The noise, such as it is, is continuous.

There is, of course, a further fact, of which my noble friend is well aware, that because of international agreement on acceptable noise levels of aircraft from, I think, 1986 the noisier aircraft will be excluded from Heathrow, as indeed from all the other major international airports of the world. It would therefore seem, if the individual aircraft are to be quieter, and if the numbers are already to be at 275,000, that it really is a pity to cripple Britain's major airport, and the airport with more international movements than any other airport in the world, by a purely arbitrary, and it seems to me misconceived, restriction.

I was glad to hear the noble Baroness press a point which my noble friend knows that I have pressed on him so frequently as to try even his monumental patience; but it is nonsense to have mutilated the original plan for Gatwick by excluding the second runway. I have a bias here to declare. I was the Minister of Transport and Civil Aviation who, as long ago as 1954, approved and started the Gatwick project. Like that of all airports planned to be a large airport, the plan allowed for two full-scale runways. A most unfortunate undertaking was given by the then chairman of the British Airports Authority to confine it to only one. Indeed, my noble friend will recall rebuking me in his usual charming way when I said that that undertaking was given to a pressure group.

He pointed out that it was given to the West Sussex County Council—who for the purposes of civil aviation policy are no more than a rather insignificant pressure group. My noble friend has made it clear that the Government have never accepted that they are bound by that foolish and uncalled-for undertaking.

My noble friend knows, because he answered the Question about it a few months ago, that, in the light of the planned capacity of Gatwick of 25 million movements a year, there is no other airport in the world which has anything like that number of movements and has only one runway. If therefore Gatwick is to be developed as a second hub airport—and indeed, I cannot see how effective airline competition can be developed in any other way—particularly with some restriction at Heathrow, then I hope the Government are going to be brave and point out to all concerned, including the West Sussex County Council, that the development of Gatwick Airport in a time of general depression and in employment has put wealth, full employment and great activity into the Gatwick area and that it would be a great mistake to cripple its further development.

In parenthesis, your Lordships may be interested to know, in these days of unemployment, that last year I was invited to open a housing development at Gatwick for the reason that there were more jobs available in the Gatwick area than there was accommodation for the workers to live. That is a healthy and cheering aspect of things to see in this day and age. It really would be a pity to spoil the concept because of an undertaking of this sort which does not bind the Government and which must cripple—as indeed the Civil Aviation Report indicates—the development of Gatwick.

Finally, relating to Stanstead, I should say this. I think the Stansted inquiry merits the description once given by a learned judge of certain proceedings which went beyond time and encroached upon eternity. It is 20 years since the Government of which I was a member approved the Stanstead project. We have gone from public inquiry to public inquiry, to the benefit of nobody except, if I may say so, members of my own profession who have been employed professionally almost continually over that period to take part in the inquiry. If the public system is not to be wholly discredited, it is necessary to bring the Stanstead decision to an early and effective end.

Those are simply short preliminary points on a subject which, as I have said, I hope your Lordships will have the opportunity of debating in full in the new session. However, I should like again to thank the noble Baroness for giving this opportunity at least to provide what I hope to my noble friend on the Front Bench are not unpalatable hors-d'oeuvres.

5.53 p.m.

Lord Beswick

My Lords, I should like to agree with the noble Lord, Lord Boyd-Carpenter, on two points. First, I agree with him when he says that it is quite absurd to have a one-runway limitation on a major London Airport. I accept everything that he says about that and will try to underline it. I have only one reservation. That is when he said that in his position as Minister of Transport in 1954 he agreed the two-runway principle at Gatwick. Looking back, I thought that when I was at the Ministry of Civil Aviation in 12950–51 we agreed that we should have a two-runway airport there.

Lord Boyd-Carpenter

My Lords, would the noble Lord allow me? I think it is the fact that the wisdom which he left behind, in that respect at any rate, remained in the Ministry when we came to the moment of decision of 1954, and I am sure we were very indebted to him.

Lord Beswick

My Lords, then my desire to agree with the noble Lord is enhanced.

The other point on which I agree with the noble Lord is when he offered his very generous words of praise to the noble Baroness, Lady Burton. The noble Baroness opened the discussion. She posed her Question in a typically informed, fair and balanced manner. I agree with the greater part, if not all, of what she has said. Certainly I agree with her that the Government's policy on civil air transport appears to revolve around, and to have to fit in with, the determination to sell off British Airways, rather than the sale (if so required) of that airline having to fit into an overall policy which includes a determination of the future of not only airlines but airports.

However, I am not going to go over the ground which the noble Baroness covered so well. I want to intervene very briefly. I intend to take a little further the question that I put forward yesterday. I then asked if British Airways was still asking that the Government should use taxpayers' money to write off all or part of British Airways' dollar loans. The answer that I was given by the noble Lord who now sits on the Front Bench was an absolute model of courtesy. However, it fell short of complete clarity. The first reply was that no recent proposals had been made. I suppose I was expected to understand from that that the possibility of payment had now been dropped. But then on further questioning it seemed that it was still a matter for decision. I want the Minister to tell me what are the principles involved in this consideration. On what criteria will a decision eventually be made?

I try to follow these matters, I hope without undue prejudice. But I find it difficult or impossible to justify any payment of my money or the money of other taxpayers as an inducement to the City to buy British Airways shares. Listening to Ministers so far, I hear them emphasise the merits of competition. While I have said on other occasions that deregulation and the open skies policy can be carried too far, and while I accept the merits of a breakfast on the Scottish shuttle, there are questions of air safety which should also come into these issues. While I accept also that there is some merit in competition, it does not necessarily improve the service, the reliability, the safety of the development of that air service.

However, the Government have stated that putting British Airways in the private sector will mean fair competition. The Minister, the noble Lord, Lord Trefgarne, said last week that British Airways will be placed, on the same footing as private sector airlines". But will this be true if the privately owned British Airways are operating aircraft which have been paid for by the taxpayer? Is that fair competition? I have looked at this matter from the viewpoint of the present management of British Airways. I read very carefully what they have to say. It seems that they too applaud competition within the private sector. I read in last week's British Airways News that the new chief executive of British Airways was saying—and again I quote: Leaving the comfortable confines of Government and going into the hard world of commercial reality was probably the best thing that could ever happen to British Airways". Those are very brave words. There are some who would agree with them. But I find it impossible to reconcile that apparently robust spirit with a plea that I and other taxpayers should pay for their aircraft before they try to compete in the hard commercial world about which they speak. Would the Minister not agree that there can be no question of any gifts to British Airways disguised as capital reconstruction if those words of the British Airways chief executive are to be taken seriously?

There is another factor involved in this. British Airways have sought, in their very expensive propaganda, to put over the idea that they are offering to help with finance any small airline that wishes to compete against them on the continental routes. But apart from the most practical questions of licences and traffic rights which would be involved in such competition, if this is a genuine offer, may I ask the noble Lord. Lord Trefgarne, who is to answer: whose money are British Airways going to use? Is it their own? Or, again, is it a matter of using taxpayers' money? I look forward to hearing what the Minister has to say in his customary straightforward replies to those questions.

There are just two other points on which I should like some information. As I have said, I believe that de-regulation can be overdone in this business of air transport. But service to the passenger can be improved, and national resources can be more fully utilised by sensible encouragement of competition. That brings me to the future of Prestwick airport. I understand that the future of Prestwick has been considered doubtful. There is an argument—I have heard it over the years—for closing down Prestwick. But there is also a very good argument for maintaining it as an international airport and also as a manufacturing focus.

I am glad to think that there is a lot of activity now going on around Prestwick—making aeroplanes—with which I was at one time associated. But my understanding is that a new service out of Prestwick could tip the balance into profitability. There is apparently an operator, the Highland Express, prepared to operate a transatlantic service from Prestwick. Can the Minister tell me if a licence for such a service would meet with Government approval and be within the policy of competition that they have announced? I hope that he will say that all unnecessary delays in coming to a decision about that will be eliminated.

Similarly, I would have thought that the application of the People's Express airline to operate from Stansted would be in keeping with this need to develop the services out of that airport. Can the Minister tell me what is happening to that application? The airports authority, the Government, or, indeed. Britain as a whole, are going to have problems with the forthcoming saturation of Heathrow and Gatwick. Those problems would be set back, if not eliminated, if we could have a proper runway system at Gatwick—two parallel runways at that airport. But if we cannot have that, any encouragement of services at Stansted or Prestwick would, I think, fit into a rational air transport policy. I hope that the Minister will be able to tell me that he will accede to my request that unnecessary delays are cut out.

6.3 p.m.

Lord Polwarth

My Lords, it is rather intimidating to attempt to follow the three previous speakers: a former Minister with responsibility in this field, not to mention an erstwhile aviator himself; a former chairman of the Civil Aviation Authority; and, of course, that doughtiest of champions of the travelling public, the noble Baroness, Lady Burton, to whom we are deeply indebted for raising this subject once again. I hope that your Lordships will not take it amiss if, by and large, I support practically all that they have said. I have no doubt that before the debate is over there will be an opportunity for some contrary views.

When we last debated this subject on 30th July, much of this ground was covered at great length. But the Government were inhibited in their reply because they were clearly in a dilemma, knowing that they had a tiger by the tail and not knowing quite in what direction to get rid of it. Since then, we have had the White Paper which we are talking about. I must say that it seems to me that it is a smack in the face for the Civil Aviation Authority and nearly an insult to the Minister who commissioned it and who, I am sure, must have fought hard to get it accepted. It is sad, I think, that when such an experienced body as the Civil Aviation Authority came up with a new pattern of unblemished pedigree in direct descent from the Edwards report of 1969, the Government chose finally merely to throw a few morsels to the independents rather than to seize a great opportunity to increase competition in the interests of the traveller.

Admittedly, there have been some switches. British Caledonian have been given a swap of some currently profitable routes in place of some currently unprofitable ones. This will, indeed, help their profits to the tune of some £18 million a year. We have this remarkable arrangement by which British Airways are supposed to shell out £450,000 to anyone wanting to open up a route from a provincial airport, whether or not in competition with them. It raises some most intriguing possibilities. The noble Lord, Lord Beswick, has referred to this. We shall watch with great interest to see how it evolves. However, these are very small steps towards giving the independents a broad and strong enough base to compete with what remains an immensely powerful organisation, one soon to be freed of some of the restraints inherent in Government ownership.

It is this question of the breadth of base and the strength of base that is much more important than any question of direct competition on individual routes. David has fought Goliath, and this time divine intervention in the form of the Government has not been on David's side. The battle has gone to the strong, at any rate so far, thanks undoubtedly to the Treasury's determination to get its spoils and (one must pay him tribute) to the heavyweight in-fighting of the noble Lord, Lord King, backed, we are told, by threats of resignation. I do not blame him. I think that he would not have been doing his job if he had not done precisely that. But if the Government are not susceptible to further argument, we must face the future as it is. We are told that British Airways and British Caledonian have agreed to the route transfers proposed, although one is bound to suspect that it was a case of, "Agree or else".

I hope that the Government and the Civil Aviation Authority will do all in their power to help speed this process of transfer with a view to the new operators being in place, at the latest, in time for the summer schedules next spring. There will be a lot to be done: new links and loyalties to be forged in the respective territories, and staff to be transferred and looked after. I hope that our official representatives in those countries will give every possible help to both airlines in establishing themselves in their new roles. At least I think we can be thankful that the White Paper recognises the need for strengthening the safeguards against anti-competitive and predatory behaviour, although I tend to agree with one of the previous speakers that it is very difficult to define when behaviour does become predatory and it is very difficult to act speedily to deal with it. I am sure that the noble Lord, Lord King, would never dream of knowingly or intentionally indulging in such a thing. But size and strength cannot be other than they are. A predator, particularly a large and strong one, can easily create considerable havoc before it can be stopped. I hope, therefore, that those invested with the powers—the CAA and these other bodies which are to have a say in it—will be constantly watchful and will not hesitate to act effectively and speedily.

One word about airports. Already, we have had the subject of Gatwick raised. I make no apology for raising it myself. Heathrow, with all its facilities, remains British Airways' main preserve, with its monopoly of British overseas flights to and from it. Gatwick, by and large, will remain the home, and will become increasingly, we hope, the home and centre, of the independents. If they are to flourish and grow, as the Government say in the White Paper that they hope they will, then Gatwick must have facilities comparable with those at Heathrow. It has a number of advantages already—a terminal layout which is much less of a mess than Heathrow and much easier for the traveller to manoeuvre through, although I make a strong plea for travellators to the remoter gates. Sometimes I feel as if I am walking all the way to Edinburgh. The new train service to Victoria is a splendid piece of work—a great deal faster, more comfortable and more convenient than the Underground to Heathrow.

But its one great deficiency, as other noble Lords have said, is this lack of a second runway. I will not go into the details; other noble Lords have done that well and I strongly support them in the view that no truly major international airport can exist and develop on the basis of a single runway. No undertaking can be given for ever, and I am glad that the Government have not accepted that that is binding. I hope they will again look very seriously at this possibility.

In conclusion, I would simply say we must never forget that it is the traveller who must come first—the traveller and the shipper of goods by air. I was going to say that I speak only as the man on the Clapham omnibus, but I think it would be more correct to say the man on the Edinburgh Shuttle and the North Atlantic run. I do a very considerable mileage and go through a great many airports in the course of a year. It is for those of us who travel, and all the others for whom air travel is now becoming a possibility, although it was not in the past, that we must seek to ensure a prosperous and competitive air transport industry; and so I join my noble friend Lord Boyd-Carpenter in hoping that we have not had the last word but will have a further opportunity really to thresh out this extremely important subject.

6.12 p.m.

Lord Graham of Edmonton

My Lords, the phrase "airline competition policy" is reasonably precise, and the report from the Civil Aviation Authority dealt substantially with a range of matters understood to be contained within that phrase. But, as has been demonstrated by previous speakers—notably by the noble Baroness, Lady Burton, who time after time serves the best interests not only of this House but of millions of other people who are the travelling public—it is not just a question of privatising or not, of route allocations, of market penetration, of predatory or monopolistic pricing. It is, in its effect, very much about the welfare of passengers—the consumers of airline services. Of all the groups or categories of air passengers carried by our airlines in both the domestic and international spheres, all of whom are entitled to protection and value for money, none stand in greater need of protection than those whose sole use of an aircraft is for their annual package holiday.

Of course, there are issues at stake within the covers of the report of the CAA, and the response by the Government, affecting substantial financial empires. I would not cavil at the Government's response. My contribution to the debate centres on appendix 4, at page 38 of the CAA Report—Competition policy in the United Kingdom—and in particular that section dealing with anti-competitive practices. I take this with the response by the Government to the references on page 10, paragraphs 28 and 29, to, "Safeguards against anti-competitive behaviour", which were referred to by the noble Lord, Lord Polwarth.

A key office in these matters is that of the Office of Fair Trading. A crucially important officer is the Director-General of Fair Trading. On page 39 the CAA Report spells out the enlarged powers given to the director under the competition Act 1980. It underlines that it is within his powers to initiate reviews of—and I quote: the carrying on of commercial activities in the United Kingdom, in relation to the supply of goods and services". The Office of Fair Trading has the main initiating role within both the judicial system—in this case by taking cartel agreements to the court for judgment—and the discretionary system, in this case by taking monopoly and anti-competitive practice problems to the Monopolies and Mergers Commission, and advising Ministers on whether particular mergers should go to the MMC. In this context, I note with particular interest a reference made in respect of holiday companies. I await with interest the outcome of that.

Further down on page 39 we are told that among areas of special concern to the Office of Fair Trading is that of potential monopoly situations. We are told that particular attention is paid to the economic performance of larger firms—I stress "larger"—together with information on price levels and movements, profits and market behaviour; I stress the words "market behaviour".

I noted with appreciation the definition, on page 40, of anti-competitive practices: An anti-competitive practice is the pursuit of a course of conduct in the course of business which has, or is intended to have, or is likely to have, the effect of restricting, distorting or preventing competition in connection with the production, supply or acquisition of goods, or the supply of services in the United Kingdom or any part of it". I am a firm believer in keeping as low as possible the cost to the consumer of travel and package holidays, consistent with business integrity and fair dealing. I trust that the Government are mindful of the need to see that anti-competitive practices, wherever they can be discerned and proved, are tackled with the utmost vigour. When all else fails, the last line of defence for the consumer must be a vigilant government and their regulatory agencies.

The package holiday business does not lack watchdogs set up by either the industry or governmental decisions. By chance, I listened to the chairman of the Association of British Travel Agents on the radio on Saturday morning. He impressed me with his views and with his authority as well as the good sense of what he said. He was commenting on the appalling and dreadful plight of many thousands of users of British aircraft companies. I recall his saying that the holiday package was a unique concept in that so many distinctive and separate businesses were elements within the package. Yet to the public, it is the travel agent who is seen as the front man—the body through whom they buy their holiday.

He told us that last year 10 travel companies had gone bust, and that already this year there were 13 who had gone the same way. I was particularly alert when I thought I heard him say that the CAA should be more concerned to ensure that the holiday business is better organised. I ask noble Lords to bear in mind that this was said in the context of the distress caused to innocent working people who invest a fair amount of their savings to enjoy their holiday.

I ask the Minister the straight question: are the Government satisfied that the self-regulating machinery within the travel business is adequate to deal with the current disasters, and perhaps with others? Reputable and experienced travel operators can look after not only themselves but also their customers. They will take care to look at the choice by the main holiday companies of all the elements in the package—the contractors, the airlines, the hotels. But if the main spokesman for the travel agents—the chairman of ABTA—tells us that the CAA should ensure that the holiday business is better organised, what are the Government going to do about that?

So while I recognise the complex nature of the major issues within the covers of both the CAA report and the Government's response, and while I appreciate that the Government seem to have made proposals with which all parties can live, I return to my main concern—that is, concern for the consumer. I echo the unease expressed by the noble Baroness, Lady Burton, in an excellent speech that, as good as the Office of Fair Trading is—and I endorse her appreciation of the work of the Director General Sir Gordon Borrie—it is essential that it has the resources and the back-up to produce its reports in far quicker time than it is able at present. The noble Baroness, Lady Burton, drew our attention to both time and the time that inquiries take. Surely these can be speeded up with more adequate financial support from the Government.

I also share the view of the noble Baroness that consumers are very often found to be in favour until they start to make demands and become nuisances by, for example, wanting protection from bad businesses and shady businessmen involved in the air-carrying business Caveat emptor may have been good enough as the basis for consumer protection once; it is not any more. We want stronger Government action, and we want it now.

6.21 p.m.

Lord Bruce-Gardyne

My Lords, let me begin by apologising to the noble Baroness, Lady Burton, for not having heard the beginning of her remarks. I had been watching closely for the commencement of the debate, but nevertheless I am afraid that I managed to miss the beginning thereof and I apologise to the noble Baroness and to the House. I should also like to join with all those who have complimented the noble Baroness on raising this subject tonight and on her own great personal record in the promotion of the interests of the travelling consumer.

It would be fair to say that the White Paper that we are discussing tonight has received what I might describe as mixed notices from both sides of the House. My noble friend Lord Polwarth described it as a smack in the face to the Civil Aviation Authority. I confess that I am less clear than some noble Lords that as regards this matter the Government faced a very wide choice of options. On the one hand, they were confronted by the threat, the possibility, of the resignation of the board of British Airways, at a rather crucial moment in the history of that institution, if they were to follow the recommendations of the Civil Aviation Authority. On the other hand, if they did not achieve some measure of satisfaction for the major independent airline, British Caledonian, there was the possibility of British Caledonian continuing to apply for routes which the Civil Aviation Authority in some cases would have recommended that it should have had and there would have been the prospect of continuous litigation, which equally would have interfered with the flotation of British Airways.

Therefore, it seems to me that my right honourable friends were caught in a rather narrow straitjacket. Under all the circumstances I suspect that my right honourable friend the Secretary of State for Transport extracted rather more crumbs from Lord King's table than perhaps my noble friend Lord King had originally intended to offer. However, I am not so sure, as my noble friend Lord Polwarth said, whether a great opportunity was thereby missed.

I venture to suggest that if one analyses the CAA report, one finds that, while the rhetoric of competition is strongly present, in practice what the CAA was really talking about was a shuffling of the pack rather than the introduction of new cards. We were talking about the transfer of a monopoly service on one route from British Airways to a monopoly service to be provided by British Caledonian. In the international arena there was no actual enhancement offered in the CAA report as regards the broadening of competition to the end consumer, and, of course, that was for reasons which nobody knows better than my noble friend Lord Boyd-Carpenter. The problem that arises is that so many of the international routes, particularly those to Western Europe, are governed by pooling arrangements between governments which are not within the power of the CAA or the British Government to abrogate unilaterally and yet which, of course, are a complete denial of the whole concept of competition.

Therefore, under those circumstances personally I do not feel convinced that there was a great opportunity lost. However, I wonder whether there might not have been something to be said for being prepared to witness some delay in the privatisation of British Airways to enable more progress to be made in the opening up in particular of the European routes to the forces of competition by dual designation, recognising that that could not come about except by international negotiation and that it would take time. I am delighted to see that my right honourable friend the Secretary of State for Transport has now embarked upon that task and has made headway with it. However, it is bound to take time before a major breakthrough is achieved because of the need for international agreement thereon. I am inclined to feel that there might have been something to be said for delaying the privatisation of British Airways until it could come to the market in a genuinely competitive environment.

That leads me to perhaps the one real anxiety I have about the White Paper; namely, I should have thought that there was something to be said for requiring British Airways to separate its air tours operation for separate flotation in order to make sure that within the arena of package tour operations—and as the noble Lord, Lord Graham, has pointed out, it is highly competitive; indeed, one might almost say that it is a cut-price market—there could not be a legitimate claim by other operators that British Airways was indulging in cross-subsidisation.

The key to this seems to me to be a separate flotation for British Air Tours. It was my impression that that was a proposition upon which British Airways might have looked with, if not favour, at least some indulgence. Perhaps the reason such a proposition was not included in the White Paper was the fear that it might have diminished the "take" for the Treasury from the proceeds of privatisation. In that context—particularly if one considers the nature of the sources of finance for privatisation and bears in mind the importance of the institutions which might otherwise be buying Government gilts—the significance of the contribution which privatisation actually makes to reducing the public sector borrowing requirement seems to be, frankly, a somewhat secondary consideration. I venture to wonder whether the Treasury would not be well advised to be somewhat less impatient to obtain the proceeds of privatisation than it has displayed itself to be as regards the last few cases and perhaps in the case of British Aerospace.

I do not wish to delay your Lordships because I want to make only a brief intervention. I rather doubt whether a major opportunity has been missed in this instance. It is so much more important that we should press ahead with the unscrambling of the pooling arrangements and establish dual designation routes which alone can offer the airline customer a real choice.

Before I sit down I want to reiterate the points so ably made by my noble friend Lord Boyd-Carpenter. It would be very helpful at this juncture if my noble friend, in replying to the debate, could say something about the present battle that has apparently arisen between the Department of Transport and the American authorities. Like my noble friend Lord Boyd-Carpenter, I must say that the prospect of Her Majesty's Government being engaged in the business of surcharging passengers on the transatlantic routes is not one that should have a great appeal to your Lordships' House.

6.30 p.m.

Lord Underhill

My Lords, it is with some trepidation that I speak from the Front Bench on behalf of the Opposition in the light of the experienced and well-informed persons who have taken part in this debate. However, I too should like to thank the noble Baroness, Lady Burton, for giving us the opportunity not only to have a preliminary canter around the Government White Paper but also because this is the third opportunity which we have had in recent months to discuss the policy of civil aviation.

At the end of June we discussed the matter on the CAA's interim assessment before they issued their report. At the end of July we were discussing it on the CAA report in the absence of any policy direction from the Government. On that occasion I reiterated what the noble Baroness said—that it was a pity that we were not discussing the matter in the light of all the other reports, many of which are still awaited. Now we have the opportunity to discuss the matter as a preliminary canter with the Government White Paper on the CAA report. I, along with other noble Lords, wish to avoid going over the same arguments that we used on the previous occasions, but some points must be made.

Paragraph 3 of the Government White Paper points out that historically most sectors of air transport have been heavily regulated and protected by the state, and that that is still the position in many countries. It emphasises that the Government have to take account of that in bilateral relations. This was a point that some of us made in the previous debates, and one reason why some of us put forward the point that Britain's national flag carrier must not be weakened in any way because of this international situation.

Paragraph 5 of the White Paper states: The Edwards Committee report of 1969 set the pattern for Britain's airline industry over the last decade. It points out that the committee supported the development of a competitive multi-airline industry, but it is significant that there was one glaring omission, and a glaring omission to which I referred on the CAA report. I drew attention to the fact that not only did the Edwards Committee say what the Government have said but they also made clear that aviation policy must include a public sector; that there was no case whatever for denationalisation of BOAC and BEA, which were the then predecessors of British Airways. Edwards said that those publicly-owned airlines should be confirmed as the major operators. It is strange that the CAA made no reference to that. It is strange that, although the Government give an historical account, they leave out that important historical point.

The Labour Party policy remains as it was when the Edwards report was produced. There must be a strong public sector airline as the national flag carrier, and it is essential in Britain's interests that we should maintain that in order to keep our position in world aviation, and also that we accept the desirability of a smaller second force. So far as the opposition is concerned, we wish to retain BA as our pre-eminent airline but also to encourage the development of BCal as our second force.

We stand by the Edwards report. Everyone has given praise to the recent development of British Airways I would remind you—within the public sector. Without diverting too much, it is strange how the Government seem to look at various industries. There is BL, saved by the public sector; Rolls-Royce, which had to be brought into the public sector; British Telecom, one of the most successful industries in the world, and yet the Government are getting rid of it; Cable and Wireless, which was very successful. Transport Docks was one of the highly profitable industries, and the Government decided to get rid of it; the National Bus Company, which everybody admits is an efficient undertaking, and the Government now wish to dispose of under their buses White Paper. We have praise lavished on British Airways, and yet the Goverment wish to take it out of the public sector.

However by and large we welcome the decisions in the White Paper in so far as they affect British Airways. I should like to feel that those decisions were solely in the interests of civil aviation policy. However the CAA was not asked to review civil aviation policy, it was asked to review the implications of privatisation for competition and development of the British airline industry. It had to take the threatened privatisation into account.

Paragraph 14 of the Government's White Paper refers to the uncertainty of the industry about the outcome of that review. It says that, Uncertainties affecting the privatisation of British Airways must be resolved. When we move to paragraph 24 we find that the White Paper observes that even the limited exchange of routes which has been agreed between BA and BCal will mean that the Exchequer will recieve less on privatisation of BA than would otherwise have been the case. It is clear that the Government were concerned that any major transfer of routes would seriously affect the future flotation of British Airways.

The noble Lord, Lord Bruce-Gardyne, referred to the conflicting aims of the Secretary of State. The Times leader of 8th October said that the Secretary of State was, caught between conflicting demands for greater long-term competition and for speedy privatisation of British Airways at a good price". Some of us have stressed throughout this controversy that it has little to do with competition. We have to take into consideration the effect of bilateral agreements; that there are few opportunities for multiple designation; that there is the important question of international agreements between governments; and that there is little opportunity for head-to-head competition. What the argument has been about has been the compulsory transfer of routes between what would be two private airlines. That has little to do with real competition as such.

We had the massive advertising campaign. We have heard talk of advertising campaigns of other public bodies, and we have had a massive advertising campaign. On 7th October the Sunday Times Business News in its Comment Column, referring to the CAA review, said: No one expected it to degenerate into the grubby horse trading of the past few weeks. I agree with the noble Baroness that we have no desire to support a private monopoly, but we have to face the situation as it is and we must support the Government view that the CAA proposals could be disruptive of British Airways if carried out, and that there must be no weakening of Britain's national airline. I shall not go into all the arguments, but for all the international reasons it is important that there should be no weakening.

Therefore, we welcome the decision for no enforced reduction of British Airways' size and no compulsory transfer of routes, not in the interests of shareholders of the future privately-owned British Airways, but in Britain's interests as a leading aviation nation and also in the interests of passengers. We welcome also the decision of the Government published in the White Paper in favour of the continuation of British Airways' scheduled international services from Gatwick. That we believe is in the interests of our flag carrier as such, and also in the interests of the future development of Gatwick.

We have argued, especially in the last debate, that British Airways should retain its scheduled European services from Manchester and Birmingham Airports. I am pleased that the Government have decided to reject the CAA recommendation that those services should be given up by British Airways and transferred to independents. We welcome that decision, again in the interests of our national airline and also in the interests of the regional airports of Birmingham and Manchester. The airport authorities of both those airports expressed considerable concern about the CAA proposals and we are pleased that the Government have decided that BA should continue its European services from those airports.

We hope that that will be the final position because not only have those authorities faced that possibility in the CAA report, but they and other airports are being affected by the proposal for the abolition of the metropolitan counties, which will affect the airports under the control of some of the county councils.

I regret that there is nothing in the White Paper dealing with airport policy as such, except the one reference to the limit on flights out of Heathrow. Naturally, we shall await with keen interest the consultation which is taking place on the future of the Scottish lowland airports. We shall await with keen interest, as will every other noble Lord, the final report, when it comes, on Stanstead and the possible fifth terminal at Heathrow. I hope that the Government will be able to state quite categorically that they will not proceed with their threatened privatisation of the British Airports Authority. On the grounds of efficiency, there is no case whatever; it is an efficient public undertaking. On the grounds of meeting its financial targets, there is no argument; it is meeting what the Government require. What can be gained by taking the British Airports Authority out of the public sector? Nothing whatever except following Government political dogma.

We await not only the reports to which I have referred but the results of the consultation paper about the future of the permitted flights from and to Heathrow. I was concerned in the consultation paper to see that the view of the Department of Transport was given as favouring the maximum use of market mechanisms rather than regulatory intervention. Perhaps the Minister will tell me what that means. Does that mean that it will be determined by an increased price for the users of Heathrow? That will obviously have some effect upon the passengers. That is put in the consultation paper as being the view of the department.

I am not sure whether it is an offer, but reference has been made to British Airways giving financial support to the independents who may wish to have flights to the Continent from six of the regional airports. I wonder whether that was an offer or another piece of arm-twisting in this game which has been going on. One thing made quite clear in the White Paper is that, even if that proceeds and the Government go ahead with the comparative deregulation of domestic air services, the CAA will still have to continue to regulate an entry to most of the routes. It makes it quite clear that there can be no complete deregulation of domestic services because of the need to control access to practically all the British airports. That is a view that most of us would accept.

We are also pleased that the Government are not proposing any additional powers for the Civil Aviation Authority. We want it to remain, as I said on the last debate, as a regulatory body; that is its function and one which it does extremely well.

Before I close, I emphasise what other noble Lords have said about paragraphs 28 and 29—the safeguards against anti-competitive behaviour. It is strange that those who want the utmost market competition suddenly get worried when a big fish comes among them. It is strange, also, as we found in the Financial Times of 24th October, that the public interest is likely to be damaged since a privatised concern would exploit its monopoly power more aggressively. That surely is another argument for leaving BA where it is, successfully within the public sector.

As some noble Lords have asked, and I shall ask the Minister again, what is "predatory competition"? When does competition become predatory? What is "unfair competition"? The noble Baroness referred to a communication received from Britannia. I also received a communication. It said at one point that British Airways' use of spare planes on charter flights at week-ends is unfair. But, surely, is that not efficiency? If an undertaking has spare planes because they are not used at that particular time, surely using them on another section of the business is in the interests of passengers, is right and proper and should not be criticised. It is the same as the National Bus Company through its subsidiaries, using spare stage carriage vehicles on express coach services because it can use the interplay. Surely no one will say that that is unfair competition; yet at least one of the airlines is saying that it is.

The Government have endorsed the recommendations of the CAA that BA cannot be kept out of the charter industry. It would have been a travesty for those who have the pressure of market competition if the Government had not supported the CAA in that attitude. Incidentally, I remind noble Lords of what I said during the last debate. After the BAA's own air tours charter section, the other four mainline British charter airlines are not exactly independent. They are all owned by travel operators, which brings in the point that my noble friend Lord Graham raised.

The conclusion, paragraph 36 of the White Paper opens up a considerable argument. The Labour Party does not believe that simple reliance on competition and market forces will achieve a sensible distribution of air transport services. The CAA report was, in effect, an argument for "regulated " competition, not competition. If one reads the White Paper very carefully, despite its claim in a few lines in paragraph 36, it cannot be said that it is arguing for open competition.

I hope that the Government will take a careful look at the whole situation, decide not to proceed with damaging the British Airports Authority, and realise, when they have considered all the arguments that have been put forward, that British Airways might, in the interests of this country and its passengers be left where it is successfully in the public sector.

6.48 p.m.

Lord Trefgarne

My Lords, as I think every noble Lord has rightly and properly said, we are most grateful to the noble Baroness, Lady Burton, for giving us this early opportunity of considering the recent White Paper on airline competition policy. This debate has illustrated the wide interest in the Question and, dare I say, the widely differing views held about it. Ever since the CAA published its report in July, much—some might say too much—of the public discussion has focussed on the sensitive issue of route transfers. The White Paper rejected the idea of transfers and I shall deal with them later. But it is important to remember that the Authority's proposals for transfers where never an end in themselves. They were only the means to an end.

The CAA was concerned in its report to promote a strong and competitive multi-airline industry and the Government warmly endorse that basic strategy. The objectives set out in paragraph 4 of the White Paper make this abundantly clear. The cornerstone of our airline policy, consistent with maintaining high safety standards, is the promotion of competition wherever it makes sense.

The White Paper also sets out three further objectives intended to ensure that competition really happens. A necessary pre-condition for true competition, but not a guarantee of it, is the privatisation of British Airways. We are still on target for privatisation in early 1985. For the first time since the pioneering days of the industry, now nearly half a century ago, all Britain's airlines will be competing on an equal footing and none will be insulated by the state from the rigours of the market place. But privatisation alone is not enough to guarantee competition. That is why the Government have also spelt out in the White Paper their commitment to a sound and competitive multi-airline industry, strong enough to compete wing tip to wing tip with foreign airlines. Finally, but no less important, competition must be fair, and I shall return to this in a moment.

I shall not dwell on the steps which the Government have taken since 1979 to promote competition. The record can speak for itself. Suffice it to say that those who travel regularly between Heathrow and Edinburgh, Glasgow and Belfast, between London and Hong Kong and, most recently, to the Netherlands can all testify to the improved levels of service which liberalisation and competition have brought about. We can expect further liberalisation both at home and abroad. The Government have already welcomed the CAAs proposals to introduce, as a two-year experiment, an area facility allowing airlines to serve any domestic routes except those to Heathrow and Gatwick, which have to be excluded for capacity reasons, and perhaps some life-line routes to remote communities. The authority is also proposing to cease regulating domestic air fares although they will still need to be filed so that the authority can intervene, where necessary, to prevent predatory or monopoly behaviour.

Internationally, most of the opportunities for competition between British airlines lie in the short-haul routes to Europe where traffic is sufficient enough to support a number of carriers. It is our belief that on many European routes it is not enough simply to have one British and one foreign airline. Without a second British carrier on the route, the vital irritant will be missing and it is all too easy for the incumbents to perpetuate a relationship which is cosy for them, if not for the consumer. Wherever we can negotiate suitable arrangements with European countries—or indeed, other countries overseas—we will designate any British airline willing and able to compete on a route.

Our intentions in respect of dual or even multiple designation are quite firm. What we must, of course, secure are adequate opportunities for competition. The best of them lie within the European Community. For that reason, we welcomed the Commission's modest proposals for a common policy earlier this year even though they do not go far enough. We very much hope that the high level group examining the case for liberalisation will recommend significant and rapid progress. Other member states, we believe, are beginning to recognise the advantages of such a liberal policy. Indeed, in the short term, perhaps the best prospects for liberalisation lie in bilateral negotiations with other, like-minded member states. But opportunities for competition are not by themselves sufficient. Airlines must also be strong enough to take full advantage of them.

This brings me to what some have seen, I think mistakenly, as the core of the CAA's recommendations; namely, route transfers.

Lord Beswick

My Lords, I wonder if I may intervene. The noble Lord has spoken a lot about liberalisation. As an airline pilot, he has not once mentioned the need to ensure air safety.

Lord Trefgarne

My Lords, I shall be making a reference at least to that later. But the noble Lord knows, I am sure, the importance that the Government have always attached to that matter, as indeed have all previous governments. Nothing in our policy must be taken as in any way departing from that particular position. Of course, that is a matter for the Civil Aviation Authority and it is a matter that they take with the utmost seriousness.

The motive behind the proposal—and I am returning now to the route transfers proposal—was not simply that routes should be transferred for their own sake. In the authority's view, transfers were necessary to strengthen British Caledonian and other independent airlines so that they might then be able to compete more effectively with British Airways and foreign airlines.

The White Paper accepts both the motivation behind the CAA's proposals and their spirit. It is not some sort of victory for British Airways as the ill-informed have claimed. On our calculations, British Caledonian comes out of the bargain some £18 million a year better off in terms of pre-tax profits. That is more than the airline has ever earned in any year of its entire existence. The route exchange leaves British Caledonian financially stronger and far better placed to take advantage of dual designation opportunities in the future.

But as your Lordships have asked, why an exchange and not a simple transfer; and why £18 million? Why not more? There are several reasons why we decided against transfers and, let me be frank about one of them, transfers needed legislation. Not only would legislation have been contentious; it would have delayed the privatisation of British Airways, one of the foundations of our policy for greater competition. But there were other reasons for rejecting compulsory transfers. They would have been very disruptive to British Airways. Its network would have been dislocated and quite significant numbers of staff affected. Nor would there have been any stimulus to direct competition.

Furthermore, so far as British Caledonian is concerned, in our view the CAA's proposals went further than was necessary to build it up financially. We judged that £18 million is just about right and is sufficient for British Caledonian to take advantage of the opportunities likely to be available soon for new services in competition with British Airways. In a way, it was more difficult for the Government to decide on the CAA's recommendations for the transfer of British Airways' regional routes to Europe. As the White Paper recognises, the CAA advanced some cogent arguments for such transfers. On the other hand, the airports concerned were bitterly opposed to the idea and saw the loss of Britain's largest carrier on European routes as potentially very damaging to their standing as alternatives to the London airports. On balance, we decided against transfers, particularly as they would have added nothing to direct competition. Instead of transfers, British Airways has offered to help the independents develop a limited number of new services from the regions to Europe with financial assistance and other support. The offer applies just as much to independents wanting to introduce services in competition with British Airways on its existing routes as to completely new services. We believe the offer will genuinely lead to new services which the independents would not otherwise be able to introduce because of their development costs.

I said at the beginning that it is essential that competition is fair. The White Paper fully recognises this fact. We considered very carefully whether the CAA's existing powers are adequate to promote competition and to act, if necessary, against anticompetitive or predatory behaviour. We concluded that they are and that the authority can attach suitable conditions to air transport licences and curb such behaviour where it can be demonstrated. The CAA is therefore to remain the principal agent for action against anti-competitive behaviour and should be able to act sufficiently quickly through the licensing system when called upon. At the same time, we plan to extend the Director-General of Fair Trading's role in relation to civil aviation. In addition to his present power to look at domestic services under the Competition Act 1980, he will also be empowered to look at charters under that Act and to refer monopoly questions concerning both domestic and charter services to the Monopolies and Mergers Commission for investigation under the Fair Trading Act 1973.

The Government believe it right that as air transport is liberalised it should in this way be brought more into the mainstream of competition legislation as it applies to industry generally. The position with international scheduled services, however, is complicated by air services agreements, and consequently that is not to be brought within the Director-General's remit. But the Government will retain their present powers to refer monopoly questions concerning such services to the Monopolies and Mergers Commission.

May I turn now to some of the points that have been raised during the course of this evening's debate? The noble Baroness, Lady Burton, in her admirable opening speech, asked about the liberalisation of services to West Germany. We hope to announce before long progress towards more liberal air service arrangements with West Germany. Talks with the Germans are continuing, and we are encouraged by the agreement reached earlier this month on the introduction of new excursion fares for the winter. In many cases, these are 40 per cent. below those previously available.

My noble friend Lord Boyd-Carpenter asked about a number of matters, particularly about the North Atlantic winter fares, and my noble friend Lord Bruce-Gardyne was concerned with that matter, too. The Department of Transport considered it necessary to seek reassurance from the United States Government that the proposed new fares would not be used as the basis for future anti-trust actions, even though we do not accept that such actions would be consistent with Bermuda 2. Since the United States Government did not provide that reassurance, the department, very reluctantly, turned down the filings from United States airlines for lower winter fares. As a result, I am afraid to say, tickets sold on the basis of these lower fares are not valid and passengers must therefore buy new tickets at the higher approved fares before they can travel. My noble friend——

Lord Bruce-Gardyne

My Lords, will my noble friend allow me to intervene before he leaves that point? Surely, as one understands, there are many tens of thousands of supposedly valid tickets which are in issue and in circulation. What happens about them?

Lord Trefgarne

My Lords, the position is—I am speaking from memory on these matters, and my noble friend will forgive me, therefore, if I do not get it quite right—that the tickets were sold, or should have been sold, subject to the condition that the fare had not yet been approved. The fact is, therefore, that those who seek to travel on those tickets will have to surrender them for new tickets and pay the additional element of the fare that is now required.

Lord Boyd-Carpenter

My Lords, will my noble friend allow me to intervene on this point? Is he really saying that a person who turns up at the airport with a ticket bought in good faith at the lower rate will be told that that ticket is valueless unless he puts up another £40?

Lord Trefgarne

My Lords, I am sorry to say that that is the case. My own view—and I am speaking personally here—is that the tickets should really not have been sold when there was some doubt as to whether the fare would be authorised, because that must have been clear to the airlines when they chose to sell the tickets at the lower fare for which they had not received approval. I hope your Lordships will allow me to emphasise that point.

Lord Boyd-Carpenter

My Lords, my noble friend is very good in giving way again. I hope that the Government will give further thought to this point. Accepting that, it may be, the airlines ought not to have sold the tickets, they were sold and they were purchased in good faith. Is it not really very serious indeed to face people, who may not have been able to afford any more, with the alternative of abandoning their tickets and what they have paid or paying more than they may be able to afford? Cannot the Government give further thought to this; and would even the American system cause any trouble if they were allowed to travel on the earlier fare, even if other people are not allowed later on?

Lord Trefgarne

My Lords, I can understand the concern which my noble friend expresses in this matter, and I am bound to say that I share that concern; but I have to say that the position is as I have described it. I very much regret that position, but it was not a position of the Government's making.

Lord Beswick

My Lords, may I follow this point a little further? The noble Lord has made it clear that the fault appears to be that of the airlines. Suppose the airlines said, "We have made a mistake. You will have to pay the proper fare, but we will advance you the difference between the fare you have paid and that which you will have to pay. We will pay that as compensation for our mistake". Would they then be contravening any regulation?

Lord Trefgarne

My Lords, the noble Lord asks me to comment on the legal implications of a hypothetical situation. I hope he will forgive me if I do not do that. But, naturally, anything that can be done to relieve the distress of the would-be-travellers is something which I would welcome, provided that it fell within the ambit of the regulations.

My noble friend Lord Boyd-Carpenter also asked me about airport matters more generally, and some of these points were in the mind of the noble Baroness, Lady Burton and others as well. Your Lordships will wish to know that the inspector's report on the Stansted inquiry is now expected very shortly. I clearly cannot comment on the cases made at the public inquiry. I can also say that my right honourable friend the Secretary of State is currently considering the response to consultations on how to implement the 275,000 ATM limit at Heathrow. I cannot yet say how it will be implemented, but I have to say that imposed it will be when Terminal 4 comes into use next year.

Lord Boyd-Carpenter

My Lords, will my noble friend allow me to intervene? He said that his right honourable friend is considering how to implement the 275,000 limit. Does that mean that he has rejected entirely the proposal to increase it?

Lord Trefgarne

, My Lords, I have to say that the 275,000 ATM limit will be imposed at that level when Terminal 4 comes into use next year. That would be honouring previous undertakings, and not to impose it would certainly reopen the basis of the Stansted and Terminal 5 inquiries. But my right honourable friend has also said that he may be able to review the limit once we have experienced it in operation. With regard to the second runway at Gatwick, I doubt whether I have anything much to add to what I have said in the past on that matter on a large number of occasions. Suffice it to say that the Government's position has not changed.

The noble Lord, Lord Beswick, asked about licences for Highland Express at Prestwick. This is a matter, in the first place, for the Civil Aviation Authority. The Secretary of State would only become involved if there were an appeal. Because of the potential appellate role, I could not comment on the merits of the Highland Express application. My right honourable friend is also still considering an application from People's Express in connection with their service from Stansted.

The noble Lord, Lord Graham, referred to the regulation of the holiday industry. This is a complex business, and is not one directly concerned with airline competition policy. There is an element of regulation via the Civil Aviation Authority; it is not just a self-regulating industry. There is a good deal of complicated stuff available on that. I wonder whether the noble Lord will allow me to write to him on the matter, which I shall be very happy to do. It is certainly something which has most recently given rise to a great deal of thought.

Lord Graham of Edmonton

My Lords, I am most grateful.

Lord Beswick

My Lords, the noble Lord appears to have left the question that I asked, Is he not going to give me any information about the moneys for which British Airways have asked to wipe out their outstanding loans for the American aircraft.

Lord Trefgarne

My Lords, the noble Lord asked a question on that yesterday and received what I consider was a very effectively delivered reply from my noble friend Lord Brabazon. But I think that the noble Lord is in something of a misunderstanding over all this, because in almost every case British Airways have bought their aeroplanes—I think this is the point he was making—on a commercial basis, the main exception to that being, of course, the Concorde purchase which was subsequently written-off, as the noble Lord will know.

Lord Beswick

My Lords, they borrowed money in the United States to buy American aircraft and they are asking the British Government for taxpayers' money to wipe out that loan. I am asking what criteria will be applied in making a decision as to whether or not they should be given this money.

Lord Trefgarne

My Lords, I am not aware of any such request for taxpayers' money to wipe out the loan, as the noble Lord says. We are still thinking about the terms of the British Airways flotation and I really cannot add to what my noble friend had to say on this matter yesterday.

My noble friend Lord Bruce-Gardyne asked about the possibility of a separate privatisation of British Air Tours, which is the main charter arm of British Airways. British Air Tours has only about 15 per cent. of the charter market, and so it is nowhere near even a statutory monopoly. Hiving it off, or even banning British Airways from whole plane charters, would not benefit competition, or the consumer. The solution is to ensure that there are adequate safeguards against anti-competitive behaviour in the charter market. I believe that the steps which we are proposing will achieve that aim.

Competition is the heart and soul of this Government's airline policy. That is why we asked the Civil Aviation Authority in the first place to review the implications of privatising British Airways for competition and the sound development of the industry. Far from rejecting the authority's report, we have warmly endorsed the steps it proposes to take to develop competition.

For the Government's part, the White Paper shows that much of the spirit of the authority's report has been met. Financially, British Caledonian will be a much healthier airline than hitherto and will be better able to compete with British Airways. The other independents now have a major opportunity to grow further in the regions, aided by British Airways, which is offering to help them to develop just about as many new regional services to Europe as it operates itself. We have made sure that the safeguards against anti- competitive behaviour are adequate. Above all, we have reaffirmed in the White Paper the Government's commitment to competition and to getting the best possible deal for those who travel on Britain's airlines.