Civil Aviation Policy

Part of the debate – in the House of Commons at 12:00 am on 26th February 1976.

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Photo of Mr Peter Shore Mr Peter Shore , Tower Hamlets Stepney and Poplar 12:00 am, 26th February 1976

I welcome the opportunity which this debate provides for the House to consider the proposed changes in civil aviation policy. In due course I shall comment on Skytrain in particular, which is the subject of the separate motion in the name of Opposition Members.

I shall also try to take full account, Mr. Speaker, of your very formidable strictures about the length of speeches. However, these are rather comprehensive guidelines which somehow I must try to cover in the time available.

I know that many people in the airline industry and indeed on both sides of this House believe that there have been too many changes in aviation policy in recent years. That is a view which I share. We all know that success in the aviation industry now demands massive investment, long-term planning and sustained attention to the needs of the market over a long period. Frequent changes are therefore to be avoided, and it is my hope that the Policy Guidance that we are debating today will remain substantially unaltered for a considerable period of years ahead.

Nevertheless there were two fundamental reasons why I considered a review of policy in 1974 to be essential. First, the oil crisis at the end of 1973 had radically changed the airline industry's future prospects. For a quarter of a century the industry had enjoyed rapid and virtually uninterrupted growth. Naturally some years were better than others, but the clear trend was for our airlines to carry more and more traffic, for fares to go on declining in real terms and for new routes and services to be introduced every year. All this was brought abruptly to an end by the oil crisis.

The price of aviation fuel rose within a year by about three and a half times and inflation hit other costs and so fares in real terms, far from continuing to decline, had to go up sharply. Passenger traffic carried by British airlines fell by over 10 per cent. in 1974. That is a setback much greater than the industry has faced in the past.

The Civil Aviation Authority's latest figures show that in terms of passenger miles international traffic carried by our airlines was up by only 4 per cent. last year as compared with 1974. In other words, our airlines will need to have a good year in 1976 if they are to get back to the traffic levels first achieved in 1973. Looking ahead to the rest of this decade, there is nothing to suggest that traffic growth will be approaching the rates of 12–15 per cent. to which the industry had become accustomed in the years before 1973.

So our airlines have to face a more difficult and more uncertain prospect at least for some years to come. I am sure I was right to ask what policy changes were needed to reinforce their competitive strength in this period.

My second main reason for deciding to review policy was the growing and widespread concern that double designation of British airlines, especially on long-haul routes, was the wrong basis for aviation policy. Even when the Edwards Committee reported in 1969, it concluded that although markets were rapidly expanding then, scope for double designation was very limited. Apart from the United States, there were even then few other countries prepared to allow unfettered competition by British airlines with their national flag carriers.

Nevertheless, the Policy Guidance approved by Parliament in 1972 presupposed that double designation was in principle desirable and indicated that the Civil Aviation Authority should license more than one British airline to serve the same scheduled route wherever it was satisfied that certain criteria were likely to be met. British Caledonian had already been given licences to serve New York and Los Angeles and in 1973 it was licensed by the CAA to operate to Toronto, Boston and Singapore via Bahrain as well. In addition, of course, the Authority had licensed Laker Airways to operate Skytrain on the London-New York route.

BCAL's unsuccessful attempt to establish itself on the New York and Los Angeles routes in 1973–74 showed just how difficult it was for a second British airline to secure and retain a profitable share of major long-haul markets, in direct competition with other countries' main flag carriers as well as with British Airways. After the oil crisis, it became more difficult than ever for us to introduce a second British airline on to a major route on terms which left any possibility of increasing our share of the earnings from that route.

Even where the other country concerned is still prepared in principle to accept double designation of British airlines, it is almost invariably only on conditions which completely protect the interests of its own national airline. In these circumstances, it really makes no sense at all to insist on dividing up our predetermined share of the market between two British carriers. The effect would only be to increase costs with little or no prospect of increasing revenues.

The effect of double designation on BCAL has already been noted. It was forced to withdraw from New York and Los Angeles in September 1974. But the effect on British Airways of the double designation policy was damaging, too. It found, in a whole series of cases, that it was being expected to face competition from another British airline in circumstances in which it would inevitably lose some of its share of the market without being able to make a commensurate saving in costs. Not only that, but it was left in a state of uncertainty about the future of many other routes, so that it could not plan ahead with the necessary confidence. And when new international routes became available, BA was always left as the second in the queue, since the present Guidance requires the CAA to give preference to BCAL. So it seemed to me that, in important respects, existing policy was neither sensible nor just.

When the review of policy was completed last summer and I came to take decisions, I had four objectives very much in mind. I wanted, first, to strengthen our airline industry and to ensure that its resources and energies were in future turned, not against itself in unnecessary and damaging competition between British airlines but against foreign carriers which constituted the main challenge on international routes.

My second objective was to safeguard the employment the airline industry provides, particularly in a period when unemployment is a growing menace to the well-being of our people.

Thirdly, I wanted to produce an outcome that would be fair not only to the private sector airlines which make their own varied and valuable contribution to the industry but also and demonstrably to British Airways, which, as the national carrier, plays much the largest part in our total civil aviation effort and which was subjected to such arbitrary and discriminatory treatment some four years ago. Finally, my aim was to achieve a settlement sufficiently strong in aviation terms and in its general acceptability that it would last and so give the industry that greater stability which it undoubtedly needs.

As the House knows, I considered a number of policy options, including the nationalisation of BCAL and a merger with BA. But it was clear to me that such a merger must inevitably have been followed by a process of rationalisation that would have cost many of BCAL's workers their jobs. It would also have caused a serious setback to our policy of building up traffic at Gatwick and so to the general airports strategy we have been developing. I bore in mind, too, the views of many of BCAL's own staff who were very anxious that their airline should retain its separate identity, and I also bore in mind the views of many members of the travelling public, in England and Scotland, who have found BCAL to be a well-run and effective airline.

I also considered very carefully, as indeed I was bound to do, the proposals of my own party to reverse the route transfers which the previous Government had imposed in 1972 and thus to return to BA the West African and other routes which were then so peremptorily taken away. This was a perfectly feasible course when it was first proposed and remained so until the oil crisis in late 1973 altered the whole aviation picture. Up to then BCAL would still have been able, in the growth conditions that then pertained, to sustain itself on other dual designation routes and in the charter field. But to return those routes in the conditions of 1975 and 1976 would have been to threaten the very existence of BCAL and to put in jeopardy thousands of jobs at Gatwick and elsewhere. At the very least, if I were to avoid a collapse of BCAL, I would have felt obliged to continue the policy of double designation, to put BCAL at the earliest moment on Toronto and Singapore—even though this would have damaged BA and would have been against the new strategy that I have announced.

So I concluded that the best solution was to end double designation and establish instead separate long-haul spheres of interest for BA and BCAL. The industry's reactions to the statements I made to the House last July and earlier this month suggest that in this way I have had some measure of success in meeting the four objectives I set myself. I did not expect to satisfy everyone completely. But I believe that there is a widespread feeling in the industry that the new Policy Guidance we are debating today will provide a sensible and reasonable framework within which all our airlines can work and develop.

I believe, too, that there has been general acceptance that my decision on BA's and BCAL's spheres of interest was fair and likely to benefit both airlines. BA will gain considerably both from the route exchanges in Africa and from the withdrawal of BCAL's licences on the double designation routes. BA will now be able to make long-term plans for developing the routes to North America and Singapore without the anxiety that at some point in the future BCAL would want to introduce services which would inevitably have cut into BA's share of the market.

For its part, BCAL will in my view have substantial scope for future expansion. In addition to the network it is already operating it will have the route to Venezuela, Colombia and Peru, which should in due course be capable of expansion to include Ecuador. And it will also be the British airline designated to operate the route to Atlanta and Houston when it becomes available for international services. With a sphere of interest that includes West and Central Africa, South America and the Atlanta-Houston route, BCAL will be established in markets that should grow rapidly in line with the development of the local economies.