European Air Transport Policy: ECC Report

HL Deb 25 July 1985 vol 466 cc1394-424

Debate resumed.

5.1 p.m.

Baroness Burton of Coventry

My Lords, perhaps we might return to the question of air transport in Europe. As I shall not have the opportunity later of congratulating the noble Baroness, Lady Hooper, I should like to tell her now how much I and, I am sure, the House are looking forward to her speech. I feel very sorry for her having to wait until the end of a long debate on a Statement, because when one is making a maiden speech and there is a lengthy debate first, the waiting time must seem interminable; but having observed her past experience, I am quite sure that she will have a lot to contribute and I personally wish her very well in her speech.

My Lords, I should like to congratulate the noble Viscount, Lord Rochdale, and his Committee on the report that we are discussing today. It seemed to me that it was a most necessary exercise, and furthermore, which is even more important, that it was conducted at the right moment in time. In spite of the hiccoughs that we get rather too frequently, as a strong supporter of the European Community I would criticise it for the pace at which it moves and for the period, which is often years, during which we have to wait for decisions. I think we would all agree that this is a continual failure of bureaucracy, and one which seems to dominate our lives more and more.

The noble Lord, Lord Trefgarne, will remember telling the House on 11th July in answer to a Question that the Government were pressing the Council of Transport Ministers to return to the matter of increased competition for European air transport at the earliest opportunity; yet the only response that we were able to obtain was for a meeting on 14th November. The Select Committee concluded: It is essential to introduce more competition into the European air transport system"; but if it takes more than four months to arrange a meeting, for which presumably all the preliminary work had been completed by 24th June, something must be done to inject some sense of urgency into the situation. I believe that the noble Lord, Lord Trefgarne, fully shares that point of view.

As your Lordships' House knows, the Select Committee was examining a study known as Memorandum No. 2 by the Commission of the European Communities, which was feeling its way towards a common air transport policy. The Committee decided to look especially at those proposals which could affect the interests of the travelling public. The noble Viscount, Lord Rochdale, has given us a most excellent precis of Memorandum No. 2, and I hope to cover some of the points which he mentioned. If I may say so in advance, I think that the Select Committee was very fortunate in its chairman.

Obviously, we all await with much interest the viewpoint and the response of the Government to this report. I was one of the witnesses to come before the Select Committee, and perhaps I may thank them now for their helpfulness and their understanding during this inevitably nerve-racking experience.

So, how can we best contribute to what the Select Committee has to recommend? I am sure, looking at the list of speakers, that there will be many suggestions, and I hope that we shall all have something useful to offer for the future. I should like to offer four comments, three of which are general and one more detailed. The first of the general comments is that I welcome Memorandum No. 2 as being a distinct advance on Memorandum No. 1, though I wish it could have been more radical. On the other hand, I take the point that too radical a document might well have prevented progress in the Community. The European Community is a collection of independent states, each with jurisdiction over its own air space; each has its state-owned airline—and air policies are designed to protect the vested interests of that airline. If we start from that realistic basis and we believe that the evolutionary process is the right one, it becomes our job, the job of a Select Committee or the job of the Government, to see that this really means progress and that, somehow, everything does not become bogged down in bureaucratic delay.

My second general point leads on from there and is linked with an earlier comment on competition. I noted particularly what the noble Viscount, Lord Rochdale, had to say on competition. What I regret in Memorandum No. 2 is that there is no concrete suggestion for the entry of new airlines into Europe. I feel, as the noble Viscount, Lord Rochdale, felt, that unless something can be done about this we shall not get real competition, which is so necessary to reduce overhead costs.

Two of the main problems to be faced are national governments and bilateral agreements. Relaxation and liberalisation of bilateral agreements so as to provide greater freedom of market access would help considerably. I think we should pay tribute to our own Government for the efforts which are being made to open up air routes in Europe, so bringing about reductions in fares. As we heard in this House on 11th July, useful discussions with the French have now taken place—I nearly said "at last with the French" but I decided that it was perhaps more tactful merely to say that we are glad that at last discussions have started.

My third general point concerns IATA, which I think has a role to play in the future. It seems to me that, if we did not have IATA, we should need to have something else. I suggest that the problems that we are discussing today are related not only to members of the Community but also to non-members of the Community in Europe, and ultimately to airlines world-wide. Also, IATA has played a valuable part in air route structure. The noble Lord, Lord Trefgarne, will recall that the ten routes singled out by IATA as being circuitous or dog-leg routes have all been dealt with, and that we were able to help in this resolution by Questions in this House. The problem affecting IATA is, of course, to ensure that all the member airlines concerned act on what is agreed. I know some of the many problems arising out of this aspect, where discounting of tickets and bucket-shops were being tackled.

I come to my main point, which I should like to discuss in some detail; it is that of costs. This seems to me personally to be one of the most crucial issues of those we are discussing today. As the Select Committee declares in paragraph 123 of its report: The Commission should examine urgently courses of action that might be adopted to reduce infrastructure costs, which form a considerable proportion of airline costs". Enlarging on the quotation from the Select Committee, I believe, first, that all government-imposed charges should be the subject of a searching review, and, secondly, in particular that cost allocation studies must he undertaken to define precisely the costs to be recovered from international operators. I understand that this exercise has already been completed by Australia and Sweden. My view is that if airlines are to be related to costs, such an exercise must be undertaken as a matter of priority with the European Community.

To say that fares should be related to costs is a most obvious remark but there seems to be considerable difficulty in finding out just what these costs are. On May 2nd at Question Time in the House we had quite a lengthy exchange on all this, during which I asked the noble Lord, Lord Trefgarne—I am sorry to keep coming back to him, but I am sure he will not mind—whether it would not be useful to look at the actual airline costs and see how the fares charged compared with them. We did not make much progress and I was left with the impression that not only I but other Members who took part considered that the airlines had a point. Indeed, I discussed this aspect afterwards with airline representatives who said there was a world of difference between consultation and, to quote from col. 339, taking their views "fully into account".

There must he a reduction in costs, particularly of overheads. There are certain points in this which the airlines are not able to control. On the general matter of airline costs, the level of air fares in Europe is frequently criticised, as I think should be so. But sometimes they are not balanced against the same principles as elsewhere. In many cases I would accept that the air fares in Europe are not unreasonable if they are taken in relation to airline costs. Indeed, at paragraph 73 the Select Committee states that: The Commission believe that air fares in Europe are not in most cases unreasonably related to airline costs". I maintain that it is the airline costs at which we have to look.

The Commission in Memorandum No. 2 did not mention how hugely these vary between the various countries, and that is a point well worth looking at. I have a figure that the proportion of costs that airlines could control in Europe, or could help to control in Europe, is some 40 per cent., but they could influence very little of what I call overhead costs, and I take these as being the costs of fuel, the costs of air traffic control and the costs of airport charges. Obviously, airlines can do nothing about these. I think the noble Viscount, Lord Rochdale, mentioned those points, too.

I took the opportunity of bringing one particular matter to the attention of the Select Committee, and I should be most appreciative, and I think the House would be glad of the information, if the noble Lord, Lord Trefgarne, could comment in his reply to the debate and probably in more detail by letter. Memorandum No. 2 does not mention or does not deal with en route charges, yet these have proved to be a source of major concern to airlines in Europe during the last 10 years. According to IATA, one of the principal points of concern to the airlines is the level of meteorological costs—which perhaps I may abbreviate to "met."—allocated to civil aviation and which are recovered through en route charges. I want to ask: is it correct that at present aviation is the only industry which attracts any significant charges in relation to the met. service it uses? As I understand it, the basic organisation for this service is required by the World Meteorological Organisation, which apparently has a principle that such information should be available for the benefit of all mankind free of charge. No charges are levied for services to agriculture, marine user or the general public.

I feel that the airlines are justified in questioning why they should be charged part of the basic organisation when other users do not pay, and why other governments do not follow the example of the United States in only allocating to civil aviation the incremental costs incurred to fulfil specific aviation requirements.

A separate, but interesting, detail on which I should welcome the comments of the Minister is, as I have been subsequently informed, that in the USA there are no en route charges but the cost of the service is recovered from the 8 per cent. sales tax on tickets. I want to know, first of all, whether in the opinion of the Minister, this is a good practice and, secondly, who it benefits most—the consumer or the airline. I think the House would be very glad to hear what the Minister feels about that. I did not give the noble Lord, Lord Trefgarne, notice of this matter, and it may well be that he is not in a position to give the House a considered opinion today. If not, and he has to write to me, can the letter be placed in the Library so that other interested Members can have the benefit of the information?

Our Select Committee on the European Communities stands high in public esteem. As a result of this inquiry into European air transport policy, I want to see a real opportunity for new entrants into Europe; an inquiry into and a reduction in costs; a greater sense of urgency in reaching decisions, and a steady progress toward a common air transport policy in the European Community.

5.17 p.m.

Baroness Hooper

My Lords, this is an occasion which I have anticipated with rather mixed feelings. Nevertheless, it gives me the opportunity to thank your Lordships for the very kind and friendly welcome which has been extended from all sides of the House. In the several weeks since my introduction to your Lordships' House, I have enjoyed being able to follow the debates and procedures, and to appreciate both the expertise of the contributions made and the very amiable manner and style in which your Lordships conduct the business of this House. I therefore feel very strongly the privilege of being able to participate in these proceedings and I thank the noble Baroness, Lady Burton, for her kind and encouraging remarks.

I feel also that this is a particularly appropriate subject for me, as a former Member of the European Parliament, to be participating in a debate on a report of the Select Committee of the European Communities. I am sure the House will be aware that these reports carry great weight with the institutions of the European Community because of the care and thoroughness which, it is recognised, go into their preparation.

I can recall many occasions on which the House of Lords reports have been quoted to clinch an argument in a debate in the European Parliament—and not just by British Members but by Germans, Italians and other nationalities. It has been a great help to those of us who have needed from time to time to prove to our partners that the United Kingdom is indeed communautaire and plays an interested and constructive role in the development of European policies. I have therefore studied this report with great interest and find it extremely clear and comprehensive on what is indeed a most complex subject, and I have indeed followed the debate so far with great interest and have appreciated many of the constructive suggestions made.

I do not claim to be any great expert on the technical aspects of air transport policy but I have had a great deal of practical experience as a consumer, both in travelling many thousands of miles between the places of work of the European Parliament and many other thousands of miles for other purposes. Thus, it was with some amusement and considerable sympathy that I noted the remarks in paragraph 41 of the report in relation to the fairly recent visit by Members of the Select Committee to Strasbourg. That route is a perfect example of all the disadvantages of a monopoly system which offers its victims cramped conditions, poor services and a total lack of choice. That this should be so on any route is bad news. But it is, I think, appalling that the exploitation by a national carrier should be allowed to continue on a route that serves an international institution, indeed, several international institutions, in the heart of our Common Market.

It has been recognised by your Lordships in recommending this particular topic for debate, and has been underlined by my noble friend Lord Rochdale and other speakers this afternoon, that this is a case where political will is needed on a European level to overcome the national politics involved. I hope that I may be permitted to say that I feel that the European Parliament has expressed that will and has demonstrated its intentions by taking the initiative and joining the Commission in its action against the European Council over its failure to comply with the treaty on the question of transport policy in general. Indeed, many individual Members have taken important initiatives in this area, none more bold or daring than those taken by my noble friend Lord Bethell, of which I am sure the House is well aware.

With those who argue that a framework is necessary to develop a new and better policy without destabilising the industry, and who argue that these present proposals provide a modest step in the right direction, I would agree. But let us not lose sight of the fact that the framework does exist already. It exists in the Treaty of Rome. Competition policy is one of the most developed of the European policies. I would like to see our Government adhering strongly to this policy in the field of air transport in particular. I would hope, too, that my noble friend Lord Cockfield will be prepared to tackle this head-on from the Commission as part of his campaign of breaking down the barriers to the internal market. Indeed, it is a matter that he has already included in his White Paper. Incidentally, I was pleased to note that the Irish Commissioner, Mr. Sutherland, told the American Bar Association in London, only last week, that he, too, was determined to see Community competition rules applied to air and sea transport. So the United Kingdom is by no means a voice crying out in the wilderness in this matter.

We have seen full competition policy working successfully to the benefit of both consumers and operators in the air charter industry. While I appeciate that this section of the industry is not affected by these proposals, I should like to make the point that it is subject to the same operating costs as the main carriers. This, of course, is very relevant, as has been expressed in the question of costs and fares. I feel, too, that a glimmer of hope is provided by last year's directive on inter-regional air services—the only positive outcome of the Commission's first proposals on air transport. It is too little, avoiding, as it does, the main operators and the main airports. But I believe that it is not too late for the small operators who use the regional airports, to show a lead. I know for a fact that Liverpool airport which I used frequently in my travels from my constituency has benefited, and that new small operators have taken advantage of the provisions of that directive.

To sum up, I believe that the message is clear. We want a fairer deal for consumers—not only lower fares, but a better service and more choice—while preserving safety standards. In order to achieve this, we want more ccmpetition. I certainly want to see the competition policy of the European Community pursued to the hilt. I want the United Kingdom to take a strong lead. We are an island people. We need this essential freedom that can be given to us by cheap and convenient air travel. I feel sure that the Government already have the message. I hope that my noble friend the Minister will be kind enough to reassure us again that these proposals will receive the Government's full backing as an interim step only, that they will not be a party to any further watering down in Council and that they will continue to put on the pressure until we have a proper European air transport policy. Thank you, my Lords.

5.26 p.m.

Lord Graham of Edmonton

My Lords, it must always be a pleasure and a privilege to be the first to follow a maiden speaker in either House of Parliament. I feel fortunate, after 10 years in both places, to be following anyone making a maiden speech. To follow the maiden speech of the noble Baroness is a real pleasure and privilege. She has demonstrated very quickly that she is well able to present a case logically and clearly and, as those in both Houses will always understand, with conviction. The noble Baroness has demonstrated her expertise and also her knowledge of government and European economic affairs. I can assure the noble Baroness that the House will listen with care and attention to her speeches. We shall hope to hear her often.

Like other Members who have taken part in the debate, I want to pay tribute not only to the value of the report but also—speaking as someone who is not as familiar with the topic as he is—to the excellent, lucid and precise way in which the noble Viscount, Lord Rochdale, chose to steer us through the main body of the report, and even more importantly the raison d'être of the report. We have heard an explanation of why it is proper that time and money should be devoted to this matter and, more significantly, why the managers of your Lordships' House consider that it is proper that we should spend time and indeed money examining the matter. Certainly, the noble Viscount was able to demonstrate to me that there was not only value in commissioning the report and taking time over it, but also that there are some lessons to be learnt. Like the noble Viscount, I shall listen to the Minister with great care.

The Minister will have to deal quickly with the whole basis of the nexus of deregulation. We know that this is a Government who believe passionately in deregulation per se. They are in the business of deregulating whatever they possibly can. The principle of deregulation will certainly be near and dear to the heart of the Government. I echo, however, the words of my noble friend Lord Underhill that deregulation needs to be treated very cautiously. Parts of the report talk in terms of liberalisation. We, from these Benches, can agree that there is a need to examine, and that there is a need also to liberalise, but to do so with caution.

The Government always consider that the best way in which to regulate our affairs is by taking the business of Government out of the government of business. However, when we are talking about air travel and about the airline business, we must remember that we are not merely talking about bricks and mortar or inanimate objects; we are talking about the safety of millions and millions of people.

As regards the reason for the report, I should like to turn quickly to paragraph 26 in which we are given a taste of deregulation in the United States. The report says; virtually all forms of economic regulation of domestic air services were removed. This change of policy reflected the belief that, with minimal exceptions, competitive forces would produce an innovative and more efficient system". In the next paragraph it points out that: on busy routes fares have come down but that on routes where there is less competition the reverse has happened". Therefore, there are swings and roundabouts even though one may be moving in one general direction.

I wish to address most of my remarks to the question of consumer interests. I was very interested to read, among many other comments, those of Ms. Penelope Duckham, the Parliamentary Advisor to the Consumers' Association. I refer your Lordships to page 125 of the evidence where she said: I think it is important to make a slight distinction between the interests of business and the interests of private users, not only because if you pay out of your own pocket you feel more strongly about it, but also because on occasion the interests of business and non-business passengers can conflict. Having said that, we regret there has not been more protest from the business community about the level of fares. To a considerable degree most of the complaints about air fares have tended to come from individuals such as Lord Bethell and individuals who are bound together in organisations like ourselves". The noble Baroness, Lady Hooper, has referred to her experiences on flights to the EEC. I wonder whether the Government are pleased with their actions in respect of the Government of the Netherlands and KLM—indeed, reference was made to that matter by the noble Viscount, Lord Rochdale—and also with their actions in respect of the German authorities and Lufthansa? I wonder whether the Government are proud of the general view that the cost per flight mile between London and Brussels is reckoned to be about the most expensive in the world? I wonder whether the Government will say anything tonight or express their view in some other way, about not merely reducing the costs but reducing the costs to the taxpayer? The people who are carried on that line are overwhelmingly either businessmen or people with connections in the EEC. If some attention were given to ways in which to reduce those costs it would not only be a saving to individuals or to companies, but also a saving to the taxpayers as well.

When we talk about the "consumer voice" and when someone in this House says, "It's Thursday", we think of the noble Baroness, Lady Burton, and we know that she will be here. When we look at the first Question on the Order Paper on a Thursday, we know what it will be about; we know that it will be tabled by the noble Baroness, Lady Burton, and that if it does not deal with air matters it will deal with consumer matters. Today, and every other Thursday, we have had experience of that kind. The noble Baroness is pre-eminent in this field and the committee paid tribute to her. Not only the noble Baroness, Lady Burton, but also others pointed out the conflict which sometimes exists between those who genuinely seek to represent consumers. Some give one view and sometimes others give different views.

I should like to refer the House to the evidence given by Mr. Ashton Hill who is the Consultant to the Air Transport Users Committee. He made what I considered to be derogatory remarks about the value, worth or quality of consumer voices and representation in the air industry. On 12th December, when talking about his experience on the transport committee, he said: But we found that if you did not have your own ability to choose people who were effective in the consumer element of air transport you would have a nonsense because you would have statements made which would be totally unrealistic. If you do not know the bilateral system, or you do not know about freedom of the air and how airlines operate, the thing is quite useless". He was then asked the following question by the chairman: Are you saying the consumer groups do not know enough to be useful? He replied: I was invited to go to the EEC—to Brussels—three or four years ago to speak to the Commission. After the meeting a consumer representative saw me and said, 'I am glad to see you because we do not have the expertise to be able to deal with air transport'". That was the evidence which Mr. Ashton Hill gave to the committee.

We must remember that, among the interests which we are considering today are the Government, businesses, businessmen and shareholders. However, we also have to take very much on board that the consumer is entitled to have his voice heard. I should like to quote the useful evidence given to the committee by Mr. Nils Blythe who comes from the Consumers' Association. He said: I think it is useful that more than one set of views should be advanced on behalf of the consumer simply because there is no single body which can claim to speak for all consumers". Of course, earlier when Ms Penelope Duckham gave evidence, she said that she spoke for 600,000 consumers. They were all members of a consumer association and, therefore, she chose to say that she spoke on behalf of 600,000. I must declare an interest because I speak on behalf of the Co-operative Movement. That movement has almost 10 million members. It would be a rash person who said that he spoke on behalf of as many people. One may have a representational role but one finds disparate views even within such a large body as that.

I strongly welcome the growth of consumer voices, whether they be the old established voices, like, for example, the voice of the Co-operative Movement, or the newly growing voices of the Consumers' Association and others. Their aim ought to be the same; namely, to increase respect for the voice of the consumer.

Let me quickly turn to another matter which has caused me a great deal of interest. I am referring to the question of consolidation. Although I respect very much the parameters of the debate, the issue of consolidation is certainly one which is referred to in this report and it does not relate, for example, to the wider issue of the package tours.

Mr. Ashton Hill said to the committee: the Association of European Airlines introduced a denied boarding compensation regulation for their own Association in 1979, and when we discussed the matter with the Italian Users Committee it was quite clear that their airline was not operating it, although they were members of the Association. This is shades of what the noble Baroness, Lady Burton, said. You can have all sorts of regulations, but it is a question of making sure that they are carried out.

Mr. Hill went on: It is like everything else; you can write down what you believe people should do but in practice it is very different from what happens, and from the user's point of view we see this being conducted by a form of acceptance, because you will not compel airlines to do things; effectively you do it by persuasion. Mr. Hill also drew my attention to an interesting situation. When a businessman, for one reason or another, is denied the proper use of a seat he has booked, then there is compensation. It is not merely a question of another seat, or another flight, but compensation for damage. At one time it was £100 and now it has gone up to £150.

The last thing I am going to do is criticise the principle of consolidation. We could not run the airlines unless we had the opportunity to make these changes. Apparently the businessman can get £150 compensation, but when it comes to the package tour holidaymaker—and we are talking about millions of them—there is a great struggle not only within the holiday industry but inside ABTA where you have the agents, on the one hand, and the tour operators, on the other, taking a different view. What we are seeing is a recognition that the question of consolidation is something which needs to be taken much more seriously.

I have a Travel News for Friday, 16th July. There is the banner headline: Consolidations: Sutherland in call for more compensation". The article says: ABTA president Eric Sutherland has joined the growing campaign to get tour operators to pay out more compensation to holidaymakers whose holidays are consolidated. 'There should be clear scales of compensation for all changes that are made to holidays', he told Travel News this week". I would remind the House that there are clear scales for the businessman who fails to get what he has booked.

The article quotes Mr. Sutherland as going on to say: Guidelines on consolidation must also be made more precise.". The article continues: Sutherland wants all tour operators to adopt a uniform 'fair trading charter' along the lines of those already offered by big operators.". But you can see how the consumer voice may well be muted. If we look to ABTA to protect the consumer, inside ABTA there are two powerful groups. On the one hand there are the agents. But then it says: The shift in stance is likely to please agents angered by the huge number of changed holidays this year. But it is less likely to impress Tour Operators Council chairman Jack Smith who is known to be against major changes to the operators' code of conduct. 'We already have adequate means of disciplining tour operators who act unfairly', Smith said. 'If agents are unhappy with things this year I would advise them to make more use of the existing machinery instead of complaining to outsiders.'". I am conscious of the pressure of time. It is about time that the industry—and we are not talking just about the holiday industry, but of all those elements of the business, including the people we are talking about now—recognised that there needs to be equity in treatment between those who, in the main, have their travelling expenses paid for, either by their business or by the taxpayer, as opposed to those such as the man and wife and two children who may be going on their one holiday a year for eight or fifteen days and who find themselves flying from a different airport from the one they booked, or on a different day, or at a different time of the day, and flying to a different airport, and being put up in a different hotel.

There is a range of variables. This year has been the worst in history for having to cater for cancellations, etc. We have a dreadful situation. I have a note from East Midlands Airport which shows quite horrifically the number of aeroplanes that they had been told would fly in June, and the shortfall; and the number they were told were going to fly out, and the shortfall. I understand the exigencies of business. I am talking about paying due respect to compensating people who are suffering.

The business does not learn. The launch of Thomson Ski Holidays indicates their expectation that the market will grow by 10 per cent., but they have launched a programme 33 per cent. bigger than last year, even though they already boast 40 per cent. of the market. In previous years consolidation in the ski market has been minimal. This appears not to be the forecast for ski bookings. Will this once more turn into a consolidation with late bookings, and the cheaper availability patterns that we have seen this summer? This indicates all the problems.

The report which we have the pleasure and privilege of debating deals with scheduled air flights. I want to remind the House that there are millions of people who do not use scheduled flights but who have perhaps once a year, or once every two or three years, the opportunity of using the aircraft industry and the holiday industry, and their views and interests ought to be respected.

5.47 p.m.

Lord Bethell

My Lords, I should like to join with the noble Lord in congratulating most warmly my noble friend Lady Hooper on her maiden speech this afternoon. The elegance of her demeanour has been surpassed only by the excellence of her speech. I know her as a colleague of five years, and so this is by no means her parliamentary debut, but I am pleasantly surprised by the brilliance with which she presented her case this afternoon. Her skill and knowledge of the law and the problems of the environment have been expressed on many occasions in the European Parliament, and I have listened to them over the last five years with great care. I am delighted that she has joined us in your Lordships' House, and I know that she will be an ornament to it in every possible sense of the word.

I should like also to thank my noble friend Lord Rochdale for his report and for initiating this interesting debate. If I disagree with him on some of the points made in his conclusions I nevertheless have to thank him for giving me what was a fair hearing in the presentation of my case to the committee he chaired. His views and his aims are common to a great extent among your Lordships. Most of us want more competition in the European airline sector, and we believe that this will bring down the cost of air travel. We hope that we are moving towards that goal. On the tactics, though, it could be that there is a difference between us, and this is what I want to try to outline this afternoon.

In paragraph 115 of his report my noble friend suggested that it was likely that the bilaterial agreement between airlines violated the Treaty of Rome. I believe that this was perhaps an overcautious approach to the central problem of this debate: do the competition articles of the treaty apply to the European Community airline sector? With respect to my noble friend, I do not believe that the word "likely" is appropriate any more. The word "certainly" is more apt.

If I understood him correctly, this is what the Government's representative, Professor Francis Jacobs, said when arguing before the European Court of Justice in Luxembourg on 9th July in the case of Nouvelles Frontières against the French Government. I look forward with anticipation to what my noble friend Lord Trefgarne will say on this central point at the end of this debate. Will he say "likely", will he say "probably", will he say "almost certainly" or will he finally grasp the nettle and say that the competition laws do apply? I await what he has to say with bated breath!

The report also mentions in paragraph 127 how the United Kingdom has influenced thinking in Europe. I hope again that my noble friend is correct in this. I hope that the Government are influencing thinking in Europe on this question of competition; but as someone who has a fair amount of contact with political representatives from other member states of the Community I have to say that I am not at all sure that that is so. I know that there has been an important bilateral agreement with the Netherlands. I know that there have been agreements with Germany and with Luxembourg that have provided for cheap fares under a certain amount of restriction, but my understanding is that the central idea of a free competition in Community airline travel is still not accepted by eight of the governments of the Community, and will not be accepted by the two who are shortly to join. It is only ourselves and the Netherlands who are prepared to move towards liberalisation on this issue.

Your Lordships will detect that I used the word "liberalisation". In the last few lines of my noble friend's report the expression "controlled liberalisation is used. I am not quite sure what controlled liberalisation is. It is a little like boiling ice, but I dare say that my noble friend is thinking in terms of cautious liberalisation. I must make it clear that I favour full liberalisation. Whether that amounts to deregulation I should not like to say. "Deregulation" is a bit of a jargon word and this afternoon, as on other occasions, it is always used in the context of "deregulation on the United States model", as if that somehow made it worse. I do not particularly care for the word, "deregulation" but I am very much in favour of "liberalisation"—full liberalization, free competition and a common market in European air travel. I believe that the traveller will benefit tremendously from the lower fares that will result when that comes to pass.

Will the Commissions' proposals help towards that end? It is a matter of tactics. On balance the Government believe that it will. My noble friend and his colleagues believe on balance that it will. My view is that the Commission have tried to achieve a political compromise to reconcile two irreconcilable positions and that in the process, as so often happens, they have fallen between two stools. I fear that they will not be able to extricate themselves from this almost impossible position.

The Commission have accepted a whole range of elements of the status quo. In point 12 of the explanatory memorandum they refer to the present "smoothly functioning system of air travel". I have to ask myself: for whom does this system smoothly function? I suppose it does for the airlines and their executives who have created the cartel, but it does not function very smoothly for the European air traveller. It does not function smoothly for my noble friend and the noble Baroness, Lady Llewelyn-Davies, who had to take that excruciating and very expensive flight to Strasbourg a few months ago. In point No. 37 the memorandum refers to the excellent co-operation which prevails at present among Western European airlines. Yes, that co-operation is excellent; too excellent for my taste. I do not think they should cooperate so much. Indeed the kind of co-operation that they indulge in is illegal I believe, and the 2,000 agreements which the noble Lord, Lord Underhill, referred to, the ECAC agreements, are themselves illegal. I believe that the courts will very soon determine that that is the case.

Lord King of Wartnaby

Illegal, my Lords? That is an interesting word to use. I believe that your Lordships would like to hear—at least I would— my noble friend expand rather more on the word "illegal" because I am not aware of being involved in any illegal act, as the chairman of a nationalised industry, which is British Airways. "Illegal" bothers me.

Lord Bethell

My Lords, I regret to have to inform my noble friend that in the view of a great many authorities my noble friend is engaged in an illegal act.

Lord King of Wartnaby

My Lords, in the view of whom?

Lord Bethell

My Lords, in the view of a great many authorities, my noble friend is engaged in an illegal act.

Lord King of Wartnaby

My Lords, whether it is illegal is decided by the judiciary and the laws and the judges of the land, and for something to be illegal is as a result of the law being tested. This is too casual. The noble Lord may think it is improper. I suggest that he does not suggest that it is illegal. If it is, I find myself in the most impossible position.

Lord Bethell

My Lords, I am afraid that my noble friend is engaged in an illegal activity.

Lord King of Wartnaby

My Lords, does the noble Lord suggest that I submit myself to Bow Street forthwith?

Lord Bethell

My Lords, if my noble friend will permit me, I shall explain why he is engaged in an illegal activity. Perhaps my noble friend would allow me to finish a sentence. The ECAC agreements, to which national airlines are party, create pooling agreements, capacity sharing and the fixing of fares. In view of very many legal authorities—and I believe in the view of the Government, we shall wait to see—and in the view of Mr. Anthony Lester QC, who is advising me on this matter, these agreements are illegal. They are in violation of Article 85(1) of the Treaty of Rome. As my noble friend knows well European law supersedes the law of national governments. Does my noble friend wish to interrupt me again?

Lord King of Wartnaby

My Lords, there will be no further interruption from me, but I suggest that the law is tested as soon as possible.

Lord Bethell

My Lords, that is exactly what I should like to do. Perhaps my noble friend would co-operate with me in a test case.

Lord King of Wartnaby

My Lords, I may not be free to do so!

Lord Bethell

My Lords, I should be delighted if my noble friend would co-operate with me in a test case and then we could settle this matter. Of course I do not suggest that my noble friend is wittingly or unwittingly committing a criminal offence. I do not expect that he will be arrested, but I suggest that he is in violation of Article 85(1) of the Treaty of Rome. As my noble friend Lady Hooper pointed out, I have been trying to demonstrate that fact over the past few years in the ECJ and in the national courts; but, unfortunately, because of the lack of £¼million, I have not yet been able to bring this matter to judical fruition. But if my noble friend would co-operate with me in testing this matter, then perhaps we would get somewhere and could settle the point that is in dispute between us. I very much hope that we can.

Lord King of Wartnaby

My Lords, now that my noble friend has asked me I must consider it!

Lord Bethell

My Lords, if we could do that I think we would find ourselves moving forward tremendously and I hope that my noble friend Lord Trefgarne will also be pleased if such a matter were to be tested before the courts.

The trouble with the memorandum is that the band of flexibility proposed as an interim liberalising measure is so narrow as to be scarcely noticeable. The band of flexibility will be invoked only after long negotiations between the parties which would last for many years and the margin of 15 per cent. is really not enough and the payment that has to be made in exchange for this tiny step forward, if it is a step forward, is the Danegeld of the block exemption. The block exemption was used a few months ago in the question of car prices in the European Community. It was bad enough when it was invoked then. But if it is to be invoked in this matter, I suggest that it will be little short of disastrous. The Department of Transport in its memorandum suggests in paragraph 10 that such a derogation would "go rather far". I suggest that those words, "go rather far", are the understatement of this substantial document.

The idea of exempting the entire European airline system from the competition articles of the treaty, to which I referred in my exchange with my noble friend, would be disgraceful and disastrous. I hope that the Government will not allow it to happen. It would be an abrogation of the treaty's pillars and a violation of their task to guard the treaty, the law which they are there to protect.

How would they be able to complete their own investigation into this matter? That is the one that they initiated in 1981 under Article 89. And how would they be able to pursue the many governments and airlines who have not supplied the information that they asked for under Article 169? They would give up their weapons; and the Government, too, were such a block exemption to be agreed to, would give up their main lever of influence over the eight member states who are presently blocking this matter—all of whom are resolutely determined to maintain the cartel. It would, I suggest, be the sale of the European air traveller's birthright for something like a mess of pottage. And it would be a threat to attempts to get a free internal market in other services, something to which the Government are most properly dedicated.

Air fares have been mentioned. I still do not know why it is that one can fly the Atlantic and back for less than £400 and yet an unrestricted fare to Athens and back is nearly £600. Can anyone explain that? An unrestricted fare to Athens and back costs £600. Why has the service and the fare structure from London to Edinburgh improved so much in the past year or two? We know why. It is because competition was brought in by the Government; because British Midland were enabled to provide a service. Now passengers breakfast, free meals and drinks and a whole range of easy tariffs if they travel at off-peak times.

The £25 one way fare from Maastricht to London (Gatwick) is another example of the bilateral agreement negotiated. How excellent that is! It costs £25 to fly from London to the South of Holland and at far less rigorous restrictions than those imposed upon those who want to take the £49-return ticket on British Airways, KLM or British Caledonian from London to Amsterdam. No wonder there has been a 16 per cent. increase in the United Kingdom-Amsterdam route even on the basis of the £49 restricted fare. If only the much less-restricted Maastricht experiment could be made to apply! The problem is that the Government, having negotiated this agreement, did not forbid the three large airlines for co-operating together and creating an agreement on prices and capacity. This is why the London-Amsterdam route is still dominated by the three carriers that I mentioned, charging more or less the same fares.

I think in that case it would be very incautious indeed if the Government were to think about privatisation of British Airways while this matter still remains to be solved, while this matter remains in doubt. British Airways have already begun talking in terms of the value of their company—and, in many ways, an excellent company it is!—but they have mentioned the excellence of their routes and they have mentioned the position that they have as more or less the only European carrier in British ownership to have access to Heathrow. Why do British Airways enjoy these privileges? Surely it would be more appropriate to allow the private sector to have access to these routes and to have access to Heathrow. I do not believe that it would be right for the moment for British Airways to try to market their stock, claiming assets that they do not legally possess. At the end of my memorandum in the report, I urged the Government to settle this matter in the courts, national or European, either by taking action against another member government or by going to the commission for failure to act under Article 175. I strongly urge them to do this as an alternative to proceeding with a memorandum put forward by the Commission which is likely to do more harm than good.

I should explain now that unless the Government make it clear that they will do so in the very near future, I will, myself, take action against British Airways in respect of their bilateral agreements with KLM; then the matter will be tested and we shall know what the law means.

In the meantime, sadly, those of us who have to fly to Brussels and back have to pay £168 for our return ticket; and the fact that the taxpayer refunds us does not make it any better at all. In the meantime, on our island we are cut off from the continent to which we are linked by so many treaties and ties of friendship and mutual interests. Our fate is tied up in this matter not only over trade, not only over our financial interests but over our freedoms as well. And I believe that the thought of closer unity to Europe, to which most of us aspire, whether we are European federalists or merely wish to be friends with our neighbours, will not come about until we have considerably cheaper air travel; and this means the abolition by every available means of the present cartel monopoly system.

Lord King of Wartnaby

My Lords, may I comment before the noble Lord finishes his speech? The noble Lord refers to assets that the airline which belongs to the state does not legally possess. The noble Lord is very casual, if I may say to, with the law, and I am anxious that he would become more involved and he has promised us that he will. As far as British Airways is concerned, the route network (which is its principal asset) is in the gift of Government—in the gift of Government, my Lords! The routes that British Airways enjoy are routes that they have because the Government allow us to have them. The Government can take them away. The British Airports Authority can decide, with Government and through their agencies, the use of Heathrow.

I really want to make a plea for British Airways since there seems to be some thought on the part of the noble Lord that he is rather against British Airways. British Airways is trying to run its company properly, profitably and efficiently on behalf of the owner; and the owner is the taxpayer. What emerges out of all of this and what changes are made—and I am in sympathy with the noble Lord about liberalisation—is not my problem. All that the airline seeks to have is a right to compete and a right to be there. We do not mind who else is there. My Lords, I did not mean to make a speech. I apologise.

Lord Bethell

My Lords, very briefly, I hope that it will be possible for my noble friend and Ito settle this matter over what is legal and that is not legal. I am advised that the routes which my noble friend's company possesses have been given to him illegally. And I may say I have a fair amount of backing for that statement—

Lord King of Wartnaby

My Lords—

Lord Bethell

May I just finish my sentence? By all means let us argue it out; let us test it. But in the meantime the question remains; does British Airways possess those routes within the framework of European law or not? I believe not.

Lord King of Wartnaby

My Lords, I would want to ask the Government, who own the company. I really do not know.

6.10 p.m.

Lord Rodney

My Lords, with the permission of the House, although I am standing between my two noble friends, I will not get involved in this discussion on the law. May I also commend the noble Baroness, Lady Hooper, on her excellent maiden speech? Her experience in the European Parliament has obviously stood her in very good stead and I am sure that all your Lordships look forward to hearing her on many occasions in the future.

I should like also to congratulate my noble friend Lord Rochdale on his very clear explanation of this report. He was a most admirable chairman of the subcommittee, which had to deal with a subject with high social undertones and at the same time with what one might almost describe as a political "hot potato" in the Community.

As my noble friend explained, the objective of the Commission's Memorandum No. 2 was the liberalisation of the Community's air transport system. This can, for convenience sake, be considered under the headings: freedom of access for airlines into new and existing routes; less governmental involvement and state aid; limiting capacity restrictions and revenue-sharing, and stimulation of innovative and flexible air fares.

As can be seen, this is a very wide subject and I therefore propose to concentrate my remarks primarily on the subject of fares. I have chosen air fares because they are of great concern to members of the travelling public, and we have heard quite a lot about that just recently. I believe they are crucial if any progress is to be made towards greater liberalisation of air transport in Europe.

The background to the setting of air fares has been based on bilateral agreements between national airlines with final approval by the Governments of the countries concerned. The co-ordinating body is the International Air Transport Association, which has a membership of 130 airlines from 85 different countries. IATA, as it is called, serves a very useful purpose in this co-ordinating role, enabling travellers to book multiple tickets on different airlines with the airline of origin. That is a facility which is now largely taken for granted, but which does in fact require detailed co-ordination of the different airlines involved.

In the situation where only two airlines fly a particular route, with bilateral agreement on the fares to be charged and in many cases with agreement also on capacity and even revenue-sharing, one is bound to conclude that conditions favourable to the airlines are maintained artificially. Perhaps I may take up the point made by my noble friend Lord Bethell about flying to Brussels. I happen to know Sabena extremely well, and this is an arch-example of that particular situation. But I do not think one can blame it on Her Majesty's Government. I am sure they would very much like to break out of that situation.

As we know, unless the country of origin and the country at the other end agree, one is stuck. That is one of the reasons for the Commission's recommendations, which are seldom in the best interests of customers and which in fact contravene the terms—here I seem to be getting once again into the legal situation—of the Treaty of Rome, as I understand it.

That, broadly speaking, was the position until quite recently. It almost certainly prompted the Commission to bring forward its proposals. The Commission's Memorandum No. 2 is a document with modest aims but, if adopted, it would be a useful start towards the deregulation of air transport in the European Community. It has the advantage that it stays within the realms of the possible, and I believe that is an extremely important category. With the greatest respect to my noble friend Lord Bethell, I think this is where we part company with him because I am afraid he goes into the realms of the impossible at the present time; and if one wants to succeed anywhere one has to stay within the realms of the possible. That is what I think the Commission's document does. There is no point in tilting at windmills if one has no hope of succeeding.

As I said earlier, air transport arouses fierce political feelings and if the commission's recommendations were too radical they would risk total rejection by the Council of Ministers and we would achieve absolutely nothing. As has already been said, the planned quid pro quo is that with the introduction of these proposals there would be a group exemption for airlines from the terms of the Treaty of Rome for a period of seven years.

As I said, that was the position until quite recently, and although no action has yet been taken towards implementing the Commission's memorandum some modest progress has been made towards introducing some competition into the Community's air transport system. Here I think one must congratulate Her Majesty's Government on leading the way. They have set an example to the rest of Europe by introducing very considerable deregulation into our domestic airlines. As we have heard, in recent months they have concluded an agreement with the Netherlands and, even more recently, with Germany, whereby secondary airlines are given access to some of the routes and the airline in whose country the flight originates can charge a fare of its own choice and not be restrained, as previously, by the so-called requirement of double approval. That means that both the country of origin and the country of destination have to approve the fares.

As we have already heard, the United States is often held up as the shining example of flexible air transport policies because recently it has totally deregulated its system. That means that competition is the ruling factor and market demand dictates decisions on fares, routes and flight frequences. Obviously it is much easier to introduce such liberalisation in one autonomous country, but apart from that it has to be said that nowhere is it suggested that the Community is considering such a drastic step at this time. Politically it is unthinkable and economically it could well cause the demise of one or two national airlines.

Furthermore, it has been said that all the reports coming back from the United States are not 100 per cent. favourable. It is a fact that on the well-used routes fares have dropped quite significantly and the traveller is getting a much improved and cheaper service. But there is some indication that on the less frequented routes the customer does not fare quite so well.

It is fairly evident—we have heard this from a number of speakers—that the majority of the national airlines, and indeed the Governments in the Community, are not over-enthusiastic about adopting the Commission's recommendations. Although IATA paid lip service to increased competition, its evidence to the sub-committee managed to find arguments for caution on almost all the aspects of these recommendations. Having said that, one has to accept that it has produced its own tariff reform action package document, which proposes new procedures to facilitate innovation and more flexibility in pricing. It could be that it has produced this as an alternative, as a result of the Commission's recommendations.

I think that your Lordships will realise that there is formidable resistance to change. But I am confident that further progress will be made. If it is not as a result of the directive from the Council of Ministers then at least there will he an escalation of bilateral agreements between individual countries, such as the one I have mentioned between this country and the Netherlands. This, in turn, may well eventually force the Council of Ministers to issue a meaningful directive.

Having said that, the situation at the present time is not very encouraging. The Council of Ministers referred the Commission's memorandum to a working party, who in turn produced a report which is a much watered-down version of the Commission's proposals. This means that there is a risk that the Council of Ministers may issue a directive which will have little effect on the status quo but which might permit the airlines to get their exemption, thus virtually entrenching their present position for another seven years. I think that this worries many people when they are considering the situation. I apologise if, from my speech, the situation appears obscure, but that is in fact the case.

The objectives of the Commission are clear enough, but the means and the political will to achieve them are far from self-evident. The objectives are greater flexibility and increased competition—factors which have already been proven in all other parts of the world. Comparisons are often invidious but the disparity between European and American fares—comparing, as far as possible, like with like—is so striking that it is impossible not to conclude that European fares are too high. It can be argued that airline costs fall as distances increase; that the dollar exchange rate influences the situation; and that, by and large, European routes are less direct than in the United States, all of which has an adverse effect on cost per mile in Europe.

However, it is significant that where scheduled airlines come into direct competition with the charter business they have managed to trim their fares. On such routes as London to Hong Kong, where competition has been introduced, the service to travellers and the frequency of flights have improved quite considerably, and fares have also come down.

The Commission's specific proposals on fares are complicated. I do not want to delay your Lordships with the details, but briefly they allocate greater flexibility while at the same time striving towards simplification of the many different rates. That is another point which came out quite strongly from certain witnesses before the committee. The replacement of the double approval by the double disapproval requirement would mean freedom to introduce a fare unless both the countries concerned disapproved. This, I think, may be a little way away but it is a very important fact. If this could be introduced it would liberalise the fare situation very considerably indeed.

In conclusion, I confirm the statement of my noble friend Lord Rochdale that the sub-committee, by and large, approved unanimously the Commission's Memorandum No. 2. I recommend the report to your Lordships and I hope that our conclusions will be of some assistance to Her Majesty's Government in their future negotiations.

6.26 p.m.

Lord Mountevans

My Lords, like other noble Lords on all sides of the House, I, too, begin by congratulating the noble Baroness, Lady Hooper, on an excellent maiden speech. It is always difficult to find words when one makes remarks like that. Perhaps I may confine myself to saying that I am envious. I envy her not only the remarks she made about her former constituency, and the little airlines which use Speke Airport, but also her European knowledge, and in particular her statement that deep down she believes there is a will for change: to change the system which we are discussing today and which underlines the report of the Select Committee. I also congratulate the committee itself for its report, and again join many other noble colleagues who have congratulated the noble Viscount, Lord Rochdale, on this quite marvellous précis of the report in his opening remarks.

The noble Baroness, Lady Hooper, referred to a will for change. It seems to me that perhaps today we have considered a little too much the change that might be, and have ignored the change that is already taking place—that is, change that has been developing over the last decade. The charter branch of the airline business, I realise, lies outside the scope of the Select Committee's report, but it is already largely deregulated. Increasingly, it moves the leisure side of demand to those holiday destinations which the market wishes to reach. But it sometimes generates supply which outstrips demand. Then, as we have seen this summer and have discussed in our recent debate on airports policy—and as the noble Lord, Lord Graham, suggested and emphasised in his speech—passengers are forced to change from the airport of their choice to the airport where a viable planeload can be assembled.

As I said, the noble Lord, Lord Graham, raised the topic. I raised it because it seems to me to indicate that even in a deregulated environment the customer does not always get the deal that he wants. Consolidation shows that deregulation is not the entire answer to the problems to which this report and the Select Committee have addressed themselves. En passant, I wonder if I may ask the noble Lord the Minister how Her Majesty's Government view restrictive charter practices; and, in particular, the instance whereby anybody who wishes to start operating charter flights, and is qualified to do so, from Britain to Greece may do so, but if I wish to start operating charter packages originating in Athens I may not do so.

I have suggested that in the last decade deregulation has given us the charter industry we have. In the last decade, likewise, the scheduled service side of the European aviation industry has seen radical changes. Flag carriers are slimmer; they are leaner; and at least in the case of the world's favourite airline and a few others they are very much more profitable. Where services were no longer in line with public demand, even if they were written into bilateral agreements, services were dropped. Where frequency was too great, frequency was thinned out; routes were withdrawn. But this was not entirely simply to meet the needs of the customer—or perhaps one should say to withdraw supply where demand was no longer existing. It seems to me that maximisation of revenue has become of paramount importance to the scheduled airlines, the flag carriers.

Indeed, although the scheduled airlines make considerable efforts to publicise their tourist fares they are ultimately interested—and were I a shareholder I would utterly support them in this—in planeloads filled with full-fare passengers. I have flown on British Airways and other European airline services where I am absolutely certain that the entire planeload was what one might call full-fare passengers. I believe that in the past the noble Lord, Lord Bethell, commented on similar experiences. I deduce that the airlines' interest in maximising returns for their shareholders conflicts with the interest of the passenger to a certain extent; and that the interests of the passengers will not necessarily be more ably satisfied by deregulation, controlled liberalisation, or whatever one cares to call it.

We have talked about the will for change. My colleagues abroad tell me that eventual liberalisation or deregulation could eliminate some of the capacity problems, which they regard as a constraint on their ability to generate tourist business for Britain. But I also believe that the memorandum's attitude is one of making progress slowly, where my colleagues would perhaps wish to see progress made more quickly. Let us, the memorandum says, preserve co-operation while we sort ourselves out. Let us, very simply, by means of a bit of horse-trading, take a seven-year view. Let us, for want of a better expression, be tortoises.

The Select Committee, I believe, feels that more rapid progress could and should be made, although it too has reservations. It says in paragraph 120 that the seven-year timescale is too long, and that the trade-offs involved in the guarantees may be too generous. It seems to me, as a person who is on the fringes of the business, that the tortoise is too slow. It therefore delights me that Her Majesty's Government have adopted the attitude that they have. The precedent setting up the Anglo-Dutch agreement was a breakthrough. In fact, it has changed a lifetime's travelling habits for my particular Anglo-Dutch family, although I feel we should remember that, whatever figures are quoted about a reduction in fares and, more particularly, about a growth in traffic, we should bear in mind that no small amount of that traffic was traffic diverted from the maritime carriers.

I believe that our agreement with Germany is important and that the one with Luxembourg is one which we can use as leverage on other European partners. I understand that talks about talks—if that is the right expression—have started with the Scandinavians, and if Her Majesty's Government can achieve anything there I really feel that they will be due to be congratulated, not least because of local attitudes in Scandinavia towards protectionism and the somewhat fragmented shareholding of Scandinavian Airlines in particular, which I believe involves three different governments, not to mention four-sevenths of the equity held in private hands.

I believe that discussions are also in progress with France, Switzerland and Italy and I wonder if I may ask the noble Lord the Minister whether we may have a progress report on these. It seems to me that Memorandum No. 2 is a cautious way ahead; it is the way of the tortoise. I hope that the Government will remain strongly involved in changing European air transport policy, and in pursuing liberalisation may I urge them to continue behaving like they have.

6.33 p.m.

Lord Sanderson of Bowden

My Lords, may I, as someone who was introduced to this House only a bare 24 hours before the noble Baroness, Lady Hooper, congratulate her on a most excellent maiden speech? As someone who has great knowledge of the law and of European affairs, I am sure that her knowledge will be most useful to your Lordships' House. I hope that during her long and distinguished time in this House she will see the European Community becoming a real common market.

I start from the point that not so long ago (on 5th July) we debated airports policy in the United Kingdom. I make no apology for starting at a point which has not so far been touched on in this debate—that is, on regional policy. There was a great deal of talk from all sides of the House about how we had to encourage regional airports and regional services. If I may pick out one small but very encouraging sign in the Commission's deliberations, it is this: any restrictions waived in services by any Community operators between member states using no more than, say, 25 seats. That is a tentative toe in the water approach.

I suggest—and I shall give the reason why—that 25 seats is rather on the low side. I should be much happier to see—and I hope that my noble friend the Minister will give some attention to this point—50 seats or perhaps slightly more. The reason is that we in Scotland—and I come from Scotland—are very keen to develop jobs in the central belt of Scotland. We are very keen to encourage direct links between Europe and Scotland. I know of one case, in particular, where money is sought to be raised for a new airline's activities, which would mean that airline links with Copenhagen, with Brussels and with Frankfurt are sought.

The aircraft that it would seek to use is the Saab Fairchild 340. It is a pressurised fuel-efficient turbo-prop aircraft, specially developed for low volume and medium-haul routes. At the moment, these routes cannot be operated viably using larger jet aircraft under current cost conditions. There is another advantage of this aircraft and those like them—that is, that there is a tremendous saving in fuel costs, with a cruising fuel consumption of 100 gallons per hour, which is less than half the consumption of older generation turbo-prop aircraft currently being used. These are 35-seater planes and it would be a tragedy if, in its wisdom, the Commission recommended something which could not be of great assistance to those services which are so badly needed to increase the springboard which Scotland and other regional centres have in the European Community.

The importance of airlines is increasing and we are in an age when business has to move faster than ever before. If we are to live in a competitive Europe, we must have the means of communication for our businessmen and others to go directly. Maybe I am offending my noble friend Lord King, but at least we would then be able to go directly from Edinburgh to Frankfurt leaving out Heathrow.

There is one aspect of this subject to which my noble friend the Minister might like to address himself; that is, the regional air services directive. I think that it needs to be examined regarding flights to hub airports because, as I said in my maiden speech in the debate on airports policy, if you wish to go to Paris you really do not want to fly to Lyon. This aspect of the regional air services directive might be looked at with advantage.

May I now turn to the main issue, which must be free and fair competition on scheduled Euro-services leading to competitive fares. I congratulate the noble Viscount, Lord Rochdale, and his committee on a most explicit document which has come before us. But I am worried by some of the evidence which is presented in that document. I am particularly worried by a sinister comment by Mr. Steele at page 134. He said: we thought it would be only too easy to nullify any benefits that the application of competition articles brought by the use of either techniques which were not covered by the competition articles or indeed, via other means which are proper to Governments. That is a sinister statement. The noble Lord, Lord Rodney, said that the working party is continuing, but on the basis of a much watered-down version of the Commission's proposals. My worry is what we shall end up with.

There is a point in what my noble friend Lord Bethell said in his evidence: I believe that the Commission's proposal in Annex IIIC would provide governments with a loophole through which to jump to get out of the competition articles of the treaty. That would be bad news for the United Kingdom with such an important aircraft industry. It would be good news for the regulators: but, above all, it would be extremely bad news for the customers. So I feel that the British Government must insist on freedom for the price leader to set his rates, freedom from restraints by airlines and governments and, as my noble friend Lord Rodney, has said, also insist on a double disapproval regime to encourage competition, because, as the document states so vividly, a rigid system of double approval is not in the interests of the United Kingdom, it is not in the interests of the innovator and it is not in the interest of the customer.

I accept that politics is the art of the possible—oh, yes—but I think that the United Kingdom is entitled to press for a council regulation and have a fallback position if necessary. I am not keen on having to take matters through the European courts. We have had many examples of having to take matters through the European courts. But at the same time we have to remember that we cannot preach against protectionism. We have a case at the moment where we are talking to the United States about steel imports from Europe. We cannot talk to the Japanese about their closed markets if we allow protectionism to be practised so blatantly by Governments in front of our very eyes on the question of European air services.

Customers believe that fares are most important. I do not think that they believe that flags are most important. I am sure your Lordships will realise what I am getting at there. I think it was Disraeli who said: In legislation it is not merely reason and propriety which are to be considered but the temper of the times. The time is ripe that we show that the European Community is a free market, if possible. It is time that we had no more European fudges. There is so much to be gained from free and fair competition that we would be doing a disservice to the European Community if we did not state from these Benches and from the Government in this country a firm determination to see progress made in this particularly vital area.

6.41 p.m.

The Parliamentary Under-Secretary of State for the Armed Forces (Lord Trefgarne)

My Lords, this has been an interesting and valuable debate. I should like to start by adding my congratulations to those of every other noble Lord who has spoken in praising the informed and interesting maiden speech of my noble friend Lady Hooper.

Our debate today has underlined the importance which your Lordships attach to air transport policy in Europe and will help to bring home to others how much is wrong with the present system. The Government warmly welcome the report of the Select Committee, and are in full agreement with almost every aspect of it. There are a number of important points in the report, and others which have been raised during the course of this debate, to which I shall turn in a moment. I should like to start, however, by giving your Lordships a brief outline of developments in the European Community so far as air transport is concerned, since the Select Committee reported.

It will come as no surprise if I say that progress continues to be disappointingly slow. There is still a long way to go before the Community achieves the objectives which we believe are essential. But there is no cause to be gloomy. There are clear signs that the climate of opinion is changing. This is an important achievement. There is now a general recognition among Community members that increased flexibility needs to be introduced. The debate now is about what the increase should be rather than whether there should be an increase. There are still major differences of opinion about the extent of changes, but the recognition that they are essential is a major step forward. We must now make sure that changes are not merely cosmetic but are worth having.

In their report, the Select Committee refer to the guidelines adopted by the Council of Ministers last December. The committee say that if future work in the Community is to be governed by these guidelines, this would be deplorable, as the guidelines greatly water down the Commission's already moderate proposals. The Government agree that the guidelines adopted by the council fall far short of what is necessary, and we were only willing to go along with them as a means of ensuring that further work would be put in hand in the council without delay. The council concluded that a first batch of measures, dealing with the closely-related topics of fares, capacity controls, and application of the competition rules, should be prepared for adoption by December this year.

It is essential that we do not agree to measures which are half-baked or which in effect constitute a sell-out to polices of restriction and protection. But useful work has been undertaken this year on the development of a zonal scheme for air fares, and work is now under way on the details of a directive which would relax restrictions on capacity on routes between Community countries. In other words, the Community is at last facing up to the need for detailed work, and legislation.

We were disappointed that the Italian presidency failed to give air transport the priority it deserved, despite every pressure on them to do so from ourselves and several other member states. As a result I fear that the December deadline may slip. But Luxembourg has now taken over the presidency, and they are followed by the Dutch and then by the United Kingdom. This means that we have 18 months in which high priority will be given to air transport. We have the Commission's proposals; we have a far greater willingness to accept changes to the present system than ever before, and we have the example of some successful liberal bilateral arrangements. I am confident that this combination is, at last, a recipe for real progress.

I should now like to turn to some of the most important issues arising from the Commission's proposals and from the committee's report. First, there is the overall question of the effectiveness and balance of the Commission's package. On this, as the Government's original memorandum said, we have some reservations. The committee have referred to the Commission's proposals as "balanced" and "modest". We do not greatly disagree with that appraisal, except to emphasise the word "modest". The proposals do not go far enough in some important respects. We also endorse the committee's view, expressed elsewhere in the report, that one element of a balanced package is missing, and that is any significant proposal to remove restrictions on market access, which was very much in the mind of the noble Baroness, Lady Burton. This is a serious omission, which we shall work to put right.

Perhaps the inadequacy of the very limited proposals on market access that are in the memorandum is best indicated by the fact that they were largely accepted as they stand by most member states, and included in the council guidelines of last December. Easier access to the market is essential if there is to be significant competition on routes, and as a very first step it is absolutely necessary that other governments should accept the designation of more than one airline from a bilateral partner. We shall be doing everything possible to ensure that the principle of multiple designation is given the full backing of Community legislation.

One part of the question of route access is the opening up of inter-regional routes, and the Government attach high priority to this. I recall only too well the struggle we had to secure agreements in the Community to the regional air services directive. Although the directive was in the end diluted to a serious extent, I believe that as the first significant piece of Community air transport legislation it was a vital first step on the road to a Community policy. There have so far been only six new services under the directive, but fortunately it has to be reviewed next year, and we shall seize the opportunity to press for its scope to be significantly expanded by, for example, including services from regional airports to category 1 airports, and by effectively deregulating services by small aircraft. The scope for such services has been amply demonstrated by our liberal arrangements with the Netherlands and the Federal Republic of Germany.

My noble friend Lord Sanderson was interested in this point, and he referred to the size of aircraft that might be authorised under this arrangement. In fact, the regional air services directive as it presently stands, for all its faults includes provision for aircraft up to 70 seats, which I hope my noble friend will find attractive. But I have to agree that there are some important defects in that agreement to which I have already referred, and I hope we can put them right when the agreement is reviewed next year.

The second issue arising from the report is air fares. A number of noble Lords have referred to the high cost of air travel in Europe, and the Government fully share their views. One of our highest priorities is to ensure that within the Community and the rest of Western Europe airlines are able to offer fares at the levels they consider commercially viable. This should mean not only lower fares but also a great choice of fares for the consumer. Ideally, however, we consider that that can best be achieved by persuading other governments to agree to double disapproval agreements for fares on the lines of the agreements we now have with Luxembourg and the Netherlands.

Where that is not possible, and we must recognise that for some countries it is a very major break with the past, we are very ready to consider other ways of achieving greater flexibility and scope for innovation. I have referred to looking for lowest common denominators to apply where there are not more liberal bilateral agreements. One such way that is being widely discussed is the introduction of zones of flexibility for fares. This would certainly be better if it were carried out using a model agreed at Community level, but it could if necessary be implemented bilaterally.

However, the Government fully agree with the committee's conclusion that double disapproval should be our first priority and that zonal schemes, if introduced, should be kept as simple and as intelligible as possible, and should give airlines scope for genuine commercial flexibility. I am hopeful that the continuing discussions now under way in Brussels will produce an acceptable scheme and thus bring about an end to the old, rigid double approval system.

I do not need to spend long on the question of capacity controls, other than to say that the Government welcome the Commission's proposals and agree with the view of the Select Committee that whatever formula is chosen for ending strict 50/50 capacity sharing on routes, it should not be unduly restrictive.

The longest single section of the Select Committee's report is that dealing with application of the Community's competition rules to air transport. This, as the committee and your Lordships have recognised, is a fundamental issue. It is impossible to justify the continued total exemption of air transport—a major economic sector—from these basic rules of the Community. The Government take the view that the competition rules—Articles 85 to 90 of the treaty—do apply to air transport, and that the council must quickly adopt a regulation laying down the details of application.

The United Kingdom has recently intervened in an important case currently before the European Court of Justice. Our intervention in the recent ECJ tariffs case said in summary that the competition rules do apply; that the council has the duty to adopt a regulation; that in the absence of such a regulation member states themselves have power to enforce the competition rules and should do so; that existing agreements between airlines must be treated as legal under the competition rules until specifically judged otherwise—this being essential in order to avoid practical and economic confusion; that it is unlawful for member states to require co-ordination of fares as a precondition of approval; and—

Lord Bethell

Hear, hear!

Lord Trefgarne

—that the Community must avoid the kind of problems over extra territoriality of competition law which have proved so difficult in the context of the United States. I am glad that my noble friend Lord Bethell found our intervention so helpful, and has indicated his approval again today.

We hope that the outcome of that case will greatly increase pressure for rapid progress, although it remains open as to whether the European Court of Justice will address the broader issues. If the court accepts our arguments, there will be vastly increased pressure on member states to agree to a satisfactory regulation, and this will greatly help progress under the forthcoming presidencies. Our objective of course is to secure a coherent, sensible competition regime through council regulation as soon as possible. We are not enthusiastic about a regime established as a result of ad hoc rulings in the European Court. However, if there is no progress in the council, the legal avenue may eventually be the only road forward.

The Select Committee rightly point out that the Commission's proposals are a package in which exemption of whole categories of inter-airline agreements from the competition rules is to some extent a quid pro quo for the introduction of competition into fare setting and capacity arrangements. The Government, like the Select Committee, well understand that this kind of bargaining device may be useful—but the danger of that kind of device is that one ends up giving away more than one gets in return. We must certainly avoid that.

In the Government's view, there is only a limited case for group exemptions from the competition rules and any such exemptions should be tightly defined, particularly as regards any forms of tariff co-ordination, revenue pooling or capacity sharing. We fully accept the Select Committee's recommendation that there should be no question of automatic renewal of exemptions after seven years.

Above all, the Government will not be prepared to agree to any flexibility over application of the Community's competition rules to air transport until it is clearly part of a package which includes substantial liberalisation and scope for the introduction of real competition into all major aspects of European civil aviation. If that is not forthcoming, then the only way to achieve increased competition will be by firm application of Article 85. That is a fundamental card in our negotiating hand and it is important that we, rather than the Commission, should retain control of it until the framework of a common air transport policy is satisfactorily established.

I will now deal quickly with some of the points that have been raised during the course of this debate. If I am unable to cover all of them then I will of course write to the noble Lords or noble Baronesses concerned. First, the noble Baroness, Lady Burton, asked particularly about airline costs. I certainly agree with her that everything must be done to help airlines bring their costs down. However, it is worth noting that airline costs have not prevented fares from coming down where liberal arrangements haw been entered into. So there is scope for fares to come down nonetheless.

I understand that the Commission is preparing proposals which will allow proper comparison of airport charges within the Community to be made. We welcome this. Indeed, the CAA already regulates fares against costs. The position on route charges is a complex one, as I know the noble Baroness will recognise, and of course includes the arrangements affected by the Euro-Control organisation. There is a good deal more that I could tell the noble Baroness about that aspect and perhaps I may be allowed to write to her, putting a copy of my letter in the Library as is now the practice.

The noble Lords, Lord Graham and Lord Mountevans, asked about the problems of holiday charters. I agree entirely about the importance of safeguarding the holiday traveller, and I welcome the steady improvements in this respect. Until recently, however, there was no protection against consolidation and overbooking of scheduled services, either. The denied boarding compensation scheme is therefore a vital step towards fair treatment for everyone. I look forward to further progress in this area in the future.

Lord Graham of Edmonton

My Lords, would the Minister care to comment on the disparity between the compensation that is available to the overbooked passenger on scheduled flights and that which is apparently on offer, with difficulty, to package holidaymakers?

Lord Trefgarne

My Lords, I agree that the arrangements for charter passengers are more modest than those now in place for scheduled passengers. I suppose it is fair to say that charter passengers are generally paying a good deal lower fare for their flights—however much we may regret that—and doubtless there is a certain element of "you get what you pay for".

The Select Committee drew attention in their report to the Government's success in bilateral negotiations in Europe, and there is more good news to tell. I have referred already to the recent agreement with Luxembourg, which is liberal in all respects and in many ways serves as a model of what we would like to see throughout Europe. In June, when we celebrated the first anniversary of our agreement with the Netherlands by making it more liberal even than before, we were able to analyse for the first time a full year's results. These demonstrate forcefully that liberalisation is not to be feared but welcomed.

In the first year, 10 new services started. There were new, outstandingly low fares, such as the £49 return London to Amsterdam. There are a further 19 licence applications currently being considered. Traffic increased by 16 per cent. compared with the previous year, which was double the growth in most comparable European markets. All this meant that 70,000 additional people travelled, many of whom would not otherwise have done so.

These results speak for themselves. They are good news for the airline industry as well as for the traveller. They show that increasing competition and removing restrictions need not cause anxiety among our European partners. This point will not be lost in the further bilateral negotiations with our aviation partners in Europe, with Scandinavia, Switzerland and France; nor will the success of our bilateral experiments pass unnoticed in the multilateral forum of the European Community. In both areas the Government will continue to pursue their objectives with vigour and all possible speed. The Select Committee has done us all a great service in again underlining the need for change in European air transport. That change is already beginning to take place and we shall not relax our efforts until that change is accomplished.

7.1 p.m.

Viscount Rochdale

My Lords, I know that there is further business to be taken in the House this evening and therefore I shall be quite brief. However, there are one or two points that I really must make. First, I should like to thank all noble Lords who have taken part in this very interesting and informed debate. I personally am immensely grateful to them. They have put forward different points of view; some agree with the committee and some do not, but they are all very valuable. In particular, of course, I should like to add my very sincere congratulations to the noble Baroness, Lady Hooper, for a really excellent maiden speech. I hope we shall hear her very often in the Chamber, and I should like to think that we shall hear her in the Select Committee—and I see the chairman of the Select Committee smiling across the way, so perhaps that remark will go home.

I should like also to thank all those noble Lords who have proferred such excellent and welcome words of congratulation to my committee. It is very pleasing to hear, but I should like to divert a great deal of that congratulation to those most eminent and valuable people, our Clerk and Specialist Adviser. I hope very much that they will somehow become aware of what has been said.

My noble friend the Minister gave us a very encouraging report on what the department was doing and has done since the committee reported, which is excellent news, and it was nice to hear with how much of our report the Government seemed to agree. I understood the Minister to say that progress is being made but that it is disappointingly slow, that discussions are continuing, and—this is more encouraging—that the time is ripe and increasingly recognised by the Community who have to face up to the real problem of the day. I feel that this has been a very worthwhile debate. I thank all those who have taken part, all those who gave us evidence, and I ask your Lordships to accept the Motion.

On Question, Motion agreed to.