British Airways: Proposed Alliance (Hansard, 4 July 1996)

§ The Parliamentary Under-Secretary of State, Department of Transport (Viscount Goschen)
My Lords, the Director-General of Fair Trading is examining the proposed alliance under the mergers 1577 provisions of the Fair Trading Act 1973 and will be assessing whether it promotes the interests of consumers.

§ Lord Berkeley
My Lords, in thanking the noble Viscount for that Answer, perhaps I may declare an interest as a consultant to Eurotunnel. Is the Minister aware that only three months ago British Airways opposed a Lufthansa/United Airlines merger which would have created a combined share of the UK-Europe market of 14 per cent.? Indeed, BA's chief executive was quoted in the Financial Times of 6th March as saying: What Lufthansa wants to do is reduce the level of competition by relaxing the anti-trust laws". Is the Minister aware that the proposed merger between British Airways and American Airlines would create a combined market share of double that figure; namely, 28 per cent. in UK-Europe and 70 per cent. on London/Kennedy routes? Can we assume that British Airways agrees that that will reduce competition? Will the Minister support a referral of the proposed merger to the Monopolies and Mergers Commission?

§ Viscount Goschen
My Lords, the first series of points made by the noble Lord are matters for British Airways. I do not speak for the company. The noble Lord will have to ask the chief executive of British Airways about his views. The noble Lord's second series of remarks are matters which will be taken into consideration in terms of competition by the Director-General of Fair Trading.

§ Baroness O'Cathain
My Lords, in asking my noble friend the Minister a question, perhaps I may also declare an interest. I am a director of British Airways. Will my noble friend make clear to the House that what we are discussing is not a proposed merger; it is a proposed alliance. There is no change of shareholding; it is only a marketing alliance. Can my noble friend the Minister also confirm that some 50 per cent. of the transatlantic traffic emanating from this country is actually transit traffic to and from Europe for which there is a balance of payments advantage to Britain?

§ Viscount Goschen
My Lords, on my noble friend's first point, I understand that the proposed alliance is indeed just that—an alliance. It does not specifically involve a change in the capital basis of the two companies. There is a great deal of traffic between this country and the United States, some of it transit traffic and some of it direct point-to-point traffic. Our airlines do extremely well. It is a market in which there is a great deal of competition. But that competition is restricted by the Bermuda 2 agreement we have with the United States. We believe that it would be in all our interests to progress liberalisation on that issue.

§ Lord Borrie
My Lords, does the Minister agree that, technically, an alliance can be a merger under the Fair Trading Act? Therefore, would it not be desirable for his own department, the Department of Transport, to make 1578 representations both to the Office of Fair Trading and, indeed, to DGIV in the European Community that it is likely to be, at the very least, antagonistic to the public interest of this country?

§ Viscount Goschen
My Lords, those are the very matters the Director-General of Fair Trading is considering. He is doing so under the mergers provisions. I have confirmed the basis upon which the proposed alliance is to be taken forward if that is the case. However, it is for the Director-General of Fair Trading to decide on the competitive benefits or disadvantages.

§ Lord Gisborough
My Lords, is it not a fact that almost all the airlines are creating alliances with other airlines? Indeed, it is nothing unusual; it is just what everyone else is doing.

§ Viscount Goschen
My Lords, it is certainly the case that there has been a global trend towards alliances between airlines. They believe that there are benefits to be achieved by way of code-sharing and in areas such as marketing.

§ Lord Clinton-Davis
My Lords, does the Minister agree that the overriding interest in the matter is that of the travelling public? Does he also agree that we are discussing a very complex issue: first, for the reason that my noble friend Lord Borrie mentioned; and, secondly, for a whole variety of other reasons? It is a very controversial issue. There is opposition to it from a number of smaller airlines in the United Kingdom.
In those circumstances—and, again, for the reasons just cited by my noble friend—is it not right that we should be satisfied that such alliances do not conflict with the competition rules of the European treaties? Surely it is appropriate that not only the Office of Fair Trading and the House of Commons Select Committee, but also the European Commission (operating under Article 89), should investigate such issues and ensure at all times that the public is made privy as far as possible to the evidence which is revealed and which must directly affect their interests above all.

§ Viscount Goschen
My Lords, on the variety of the noble Lord's points, I would certainly accept and agree that the interests of consumers are most important. When negotiating air service agreements with other countries, we take into account the interests of UK consumers, the interests of UK airlines and the interests of the regions, the economy as a whole and UK airports. That is rather different to what is being considered as a commercial arrangement between two companies. I agree that it is highly complex and that it is appropriate for the Office of Fair Trading to investigate the matter. I understand that the Commission has said that it will conduct an investigation into all alliances between Community and US carriers in recent 1579 years. However, I must stress that that is a wider investigation into all the recent alliances that have taken place.

§ Lord Clinton-Davis
My Lords, can the Minister confirm that the Commission proposes to investigate a number of such alliances and not exclusively this one?

§ Viscount Goschen
My Lords, I believe that that is exactly what I said in my response.

§ Lord Pearson of Rannoch
My Lords, as the noble Lord, Lord Clinton-Davis, has introduced the role of the European Commission, does my noble friend the Minister feel like suggesting to the Commission that it might be better employed preventing the massive subsidies which are paid by other countries to their state airlines to the detriment of our own?

§ Viscount Goschen
My Lords, I agree with my noble friend that the issue of state aid is incredibly important when considering the European market in aviation. The Government have made their position very clear indeed with regard to the Air France state aid of some £2.4 billion which was approved. We do not believe that that is appropriate and we are supporting and taking our own legal action in that respect. On the other hand, I understand that the Commission can use the restrictive powers contained in Article 89 of the Treaty.