Air Services (Competition) (Amendment) (EU Exit) Regulations 2019
(5 years, 10 months ago)
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Baroness Sugg
That the draft Regulations laid before the House on 5 December 2018 be approved.
The Parliamentary Under-Secretary of State, Department for Transport (Baroness Sugg) (Con)
My Lords, if it is convenient, I will speak to both the Air Services (Competition) (Amendment) EU Exit Regulations 2019 and the Airports Slot Allocation (Amendment) (EU Exit) Regulations 2019. These instruments will both be made using powers in the European Union (Withdrawal) Act 2018 and will be needed if the UK leaves the European Union without a deal.
The two draft instruments will correct the following retained EU regulations: Regulation 868/2004, which is intended to provide protection for Community air carriers against injury caused by subsidisation and unfair pricing practices relating to air services between EU member states and third countries; and Regulation 95/93, which sets out the process for the fair and transparent allocation of airport slots—the right to use a bundle of facilities at airports for landing or take off of an air service at specific dates and times; for example, runways, stands and terminals where the demand at congested airports exceeds the available infrastructure.
I turn first to the draft air services competition instrument. The EU regulation sets out the process and requirements for imposing redressive measures in the form of tariffs or fines where it has been demonstrated that subsidies or unfair pricing practices by third-country bodies and air carriers, with respect to routes between EU member states and third countries, have caused injury to the EU aviation industry. This EU regulation has never been used and is currently in the process of being replaced. However, the effect of Section 3 of the European Union (Withdrawal) Act 2018 is that any direct EU legislation which is in force and applicable on exit day will automatically become part of the UK’s statute book. Therefore, the instrument that we are considering today simply makes those corrections necessary so that the version of Regulation 868/2004 brought into UK law by the EU withdrawal Act is, in principle, legally operable after exit day.
This instrument makes only technical corrections to the retained Regulation 868/2004, meaning that the substantive requirements for assessing whether there has been subsidisation, unfair pricing practices or injury to industry remain exactly the same. The corrections include ensuring that the scope of the retained EU regulation is correct once the UK has left the EU; for example, substituting references to “Community” with references to the “United Kingdom”. This has the effect that the retained regulation applies where there has been injury to the UK aviation industry. Instead of applying where there are unfair pricing practices by “non-Community” air carriers on certain routes to and from the EU, the retained regulation will apply where “non-United Kingdom” air carriers have engaged in unfair pricing practices on certain routes to or from the UK. Similar changes apply in relation to the subsidisation provisions in the retained EU regulation.
This instrument also transfers functions currently carried out by EU institutions to appropriate bodies in the UK. For example, it transfers the function of carrying out investigations covering subsidisation and/or unfair pricing practices from the European Commission to the Civil Aviation Authority.
Finally, this instrument transfers the function of imposing provisional or definitive redressive measures to the Secretary of State. As the EU regulation sets out that the process for this is through further regulations, this instrument also sets out that any provisional or definitive redressive measures would be imposed by the Secretary of State through regulations.
I turn next to the draft airports slot allocation instrument. The EU regulation applies at congested airports where the availability of adequate infrastructure is insufficient to meet demand. The regulation sets out conditions that must be met for an airport to be “schedules facilitated” on a voluntary basis or subject to “slot co-ordination”. A thorough capacity analysis must first be carried out, which must be done within six months, if air carriers representing more than half of the operations at an airport or the airport authority consider capacity to be insufficient for actual or planned operations, or upon request from the European Commission, in particular if new entrants encounter serious problems in securing slots.
The regulation also specifies that any decision that an airport should be subject to slot co-ordination should be taken following thorough capacity analysis and consultation with users of the airport and that an independent slot co-ordinator should be appointed by the relevant member state. The following airports in the UK are currently subject to slot co-ordination: Birmingham, London City, Gatwick, Heathrow, Luton, Manchester and Stansted; and Bristol Airport is partially co-ordinated for the summer season. Airport Coordination Limited, or ACL, has been appointed as the slot co-ordinator for UK airports, and has been performing this function for some time.
Under the regulation, slots are allocated to air carriers that held the slot in the previous season and have demonstrated use of the slot at least 80% of the time during that season. The remaining unused slots are returned to what is known as the slot pool, alongside any newly available slots; 50% of the slots in the slot pool are available to new entrants. The regulation also makes provision for member states to reserve certain slots for essential domestic services, such as public service obligations, and for slots to be exchanged between carriers or transferred between different routes or types of service.
Finally, the regulation contains provision for reciprocal action, to ensure that Community carriers requesting slots in non-EU countries are treated fairly.
Once again, the draft instrument we are considering makes only minor changes to ensure that the retained EU regulation, Regulation 95/93, continues to function correctly once the UK has left the EU, alongside the domestic Airports Slot Allocation Regulations 2006 which were made to implement the EU regulation. Most of the changes the instrument makes are to ensure that the scope of the retained regulation is correct; for instance, reflecting that the retained regulation will only apply to airports in the United Kingdom after exit day, removing references to “Community law” and EU treaties, and removing or amending references to member states, as these will no longer include the UK after exit day.
Through the 2006 implementing regulations, the UK has fulfilled the requirements for member states to appoint a body or person to carry out functions such as designating an airport as schedules facilitated or co-ordinated, and appointing a schedules facilitator. The UK conferred these functions on the Secretary of State through the 2006 regulations. This instrument corrects the provisions in the EU regulation so they read consistently with the 2006 implementing regulations, reflecting that the UK has already fulfilled its obligation to confer these functions on an appropriate authority. Other roles for EU institutions, such as the European Commission’s role of carrying out investigations, are removed or replaced.
The instrument also makes corrections to some of the definitions contained in the EU regulation; for instance, substituting the definition of a “Community air carrier” with a definition of a “UK air carrier”. For the purposes of allocating slots from the slot pool, the EU regulation defined “new entrant” as including air carriers with few, if any, slots which requested slots for scheduled services between two Community airports where at most two other carriers operate that route. This instrument amends that part of the definition to provide for continuity, so that it captures both air carriers requesting slots for passenger services between two UK airports and carriers requesting slots for services between a UK airport and an airport in an EEA state.
The regulations provide that a proportion of slots can be reserved for PSOs. This SI amends the definition of a PSO in line with the corrections already made to provisions in EU law on PSOs, through the Operation of Air Services (Amendment etc.) (EU Exit) Regulations 2018. This means that, instead of being open to Community air carriers, “qualifying air carriers” will be eligible to operate PSOs in the UK. This will include UK air carriers and carriers from other countries that have cabotage rights in the UK—the right to fly between two points within the UK. As is currently the case, any PSO can be limited to one carrier by the Secretary of State only after a tender process has been followed. This change has no effect on the PSO routes already operating in the UK.
In terms of reciprocity, this instrument amends the provisions in the EU regulation so that, instead of the Commission being able to take action to ensure that Community carriers requesting slots in non-EU countries are treated fairly, the provisions give powers to ensure that UK carriers requesting slots in another country are treated fairly in the allocation of slots at that country’s airports. This instrument therefore sets out that it is the Secretary of State, rather than the European Commission, who may wholly or partially suspend the operation of the retained Regulation 95/93 in relation to air carriers from a non-UK country, with a view to remedying discriminatory behaviour of that country. The EU regulation currently provides for this action to be taken through a regulation and this instrument transfers that function to the Secretary of State, who could carry this out through regulations.
Finally, this instrument makes some minor changes to the 2006 implementing regulations, for instance removing the requirement for co-ordination committees at airports to invite the European Commission to meetings. It also makes a change to Annexe XIII to the EEA agreement, which requires parties to the agreement to inform the European Commission about serious difficulties encountered by UK air carriers in obtaining airport slots in third countries. This provision will not apply to the UK after exit day in the event of no deal, as we will no longer be a party to the EEA agreement, so it will be removed by this instrument as it will be redundant.
As I said during the debate on the previous SI, the best outcome for the UK is to leave the EU with a deal, and delivering a deal negotiated with the EU remains the Government’s top priority. However, as a responsible Government, we must make all reasonable plans to prepare for a no-deal scenario. These instruments ensure that, in the event of a no-deal exit from the EU, the legislative framework for aviation, in particular relating to the allocation of slots at congested airports in the UK, continues to work effectively, and that the aviation industry has clarity about the regulatory framework in which it would operate in a no-deal scenario. I beg to move.
Baroness McIntosh of Pickering (Con)
My Lords, this is designed to be helpful, so I hope that my noble friend will not put me in the “troublemaker” category. I will start with a couple of questions on the airport slots allocation. What will happen to the current grandfather rights, in particular those that might be enjoyed by EU carriers? Will they continue to be enjoyed after exit day? If that is the case, and this regulation comes into effect, what will happen to the grandfather rights currently enjoyed by UK carriers in EU airports?
On the civil aviation competition regulations, paragraph 7.2 of the Explanatory Memorandum states—my noble friend clearly said it in her opening remarks too—that it is not expected that this regulation will come into force. That begs a question. I cannot believe that there have been no unfair pricing practices and no cases of subsidy; if there have, what legislation has been used? There are some very worrying issues about this regulation and the European Commission regulation on connectivity which is going through the EU institutions at the moment.
My noble friend raised the question of cabotage rights in the UK currently enjoyed by EU carriers. Of much greater concern is that the market access proposals in the EU regulation currently before the EU institutions set alarm bells ringing, for me and I am sure for many of the UK carriers, when they were set out in December. It is my clear understanding that cabotage rights and fifth freedom rights will be lost.
I declare my interest; I was one of those in the European Parliament at the time who campaigned for years to get cabotage and fifth freedom rights. When I met my husband, who was at the time working for Delta Airlines, my opening line was, “Why will the US Government not allow cabotage and fourth and fifth freedom rights for European carriers in the US?”, which I think is currently not the case. If UK and EU carriers are going to retain only third and fourth freedom rights, how can that be in the interests of the UK airline sector?
I am sure that my noble friend is more aware than anyone of the importance of the UK airline sector. It turns around £52 billion a year, exports £26 billion, supports almost a million jobs and clearly supports the economy, whether it is Leeds Bradford Airport or any of the London airports. All international airports support their local economies as well. Therefore I would be grateful if my noble friend could say what the impact will be on UK airlines of the loss of cabotage and the loss of fifth freedom rights in the EU, whether or not there is a deal, because I understand that will be the position anyway, whether it is this regulation or another regulation going forward.
I understand that there will also be an impact on capacity. Obviously airlines such as Ryanair are currently going through difficulties. I am not a shareholder in any airlines. I almost lost my shirt on British Airways, so I am currently not investing in any airlines, but it is fair to say that Ryanair has the potential to expand, as do easyJet and a number of other UK carriers. Did the Government therefore have any input into the decision that has been taken—namely, that UK carriers will be allowed to operate in the EU only at the level that is frozen to 2018 levels? Presumably what is before us would be a temporary regulation, so that if there is a deal then these regulations would not come into play. However, I am extremely concerned that in future we will be locked into the 2018 frequency levels, affecting UK travellers who desire to travel within the European Union and UK airlines that desire to expand. Is there anything the Government or this House can do to reverse that?
At the end of March, the summer season schedules will be published. What are those timetables for flights going to look like? Will they be as full as they were last summer? Will they be provisional and will they have to be revisited?
There is some toing and froing according to press reports as well, and the Government face a deadline imposed by the European Commission of seven months to decide on the make-up and composition of an EU airline. As touched on in an earlier debate, this has severe implications for this regulation—no doubt it will for other regulations as well. It has ramifications for Ryanair, which we imagine is based in Dublin but which has a large number of non-EU shareholders, but of more concern is the UK flag carrier, British Airways, which is now under the umbrella of the IAG. Are we going to face the fact that British Airways under the IAG might not be recognised as an EU carrier?
Lord Bruce of Bennachie (LD)
My Lords, I also have some questions. One of them arises from the comment made earlier by the noble Lord, Lord Deben, which suggested that some of this is theoretical or even fanciful rather than real, since replacing “EU” with “UK” sounds like a very simple thing. But it is fundamental to the fact that over the years we have developed a UK aviation industry and an EU aviation industry with open skies and much more flexibility in the choice of airlines operating, which could all be about to come to an abrupt halt.
I have questions in relation to domestic issues as well as international ones if we pass this instrument. For example, on the issue of allocation of slots, clearly at the moment the EU can have some exercise, even on slots operating within the UK and between UK domestic airports. As someone who has flown regularly for over 30 years, using many of the UK’s airports internally and externally, and who has represented an airport, I have been very exercised by slots which come and go, which are offered and then not used and where actual sanctions against the airlines to maintain a service seem to be ineffective.
Let me slightly bore the House with two of my own experiences from the last two weeks. For the first time in the 30-odd years that I have been commuting from Aberdeen to London, I was unable to get a flight that would get me here on time for the sitting of the House, either this week or next week. This was because British Airways decided not to use its full slots, claiming there is not the demand, despite the fact that every flight is overbooked. Indeed, it is telling us two weeks ahead that there are flights which are no longer available, even for wait-listing, because they are overbooked two weeks in advance, yet it has reduced the slots with no sanctions. Does this regulation have any effect on whether or not that could be done? The Minister will tell me it is a matter for the Civil Aviation Authority. It may well be, but I hope the Government will recognise that it is a matter of public interest if people cannot get the flights they would reasonably expect.
On the issue of what will happen to UK airlines seeking to maintain flights to the EU after 29 March, we know that easyJet has already resolved that situation for itself by relocating its headquarters to Vienna. There is a serious possibility that British Airways may have to relocate its headquarters to Barcelona or Madrid, since the EU appears to be saying that it does not recognise the IAG as an EU company because its headquarters are within the UK. I see the Minister shaking her head. I would be interested to know whether she has any updated information as to whether BA can resolve this issue without having to relocate its headquarters out of the UK. It would be somewhat ironic if our flag carrier was headquartered in Madrid or Barcelona.
The other issue relates to when airlines merge. For example, at present we have limited competition between Aberdeen and London, operated by Flybe. Flybe has sold itself for £1 or £1 million—I cannot remember which, but it was a very small amount—although this is being disputed. The question we are left with is what guarantees there would be for those slots if Virgin and its partners took over Flybe. Would it come under UK law? Would there be any EU intervention—or would there have been—and how would it be enforced? So, although the Minister said that the competition regulation has never been applied within the EU, if the UK becomes a third country, could it not then be used by the EU as a discriminatory weapon against us if we are seeking reciprocal rights?
For example, the UK Government may well say that on 29 or 30 March all airlines will be free to continue operating into the UK on exactly the same terms as they do currently. We can do that, but is there any obligation on the EU to reciprocate? If there is not, does this mean that we will be offering free access to all our airports for continental airlines but UK-registered airlines will potentially be denied all access to theirs? Facing this kind of uncertainty is pretty catastrophic 45 days out from Brexit. So of course people are wondering whether they should book flights. I have rashly booked flights to the continent in May and August, mainly because if you do not book them in time they are not available—but they are subject to uncertainties that may or not be resolved.
The Minister needs to answer some basic questions. To what extent will we be in the same situation as we are now? To what extent will the ability to change the rules and regulations unilaterally be open to the UK? If we do it, what will be the implication for our relationship with the EU? Or are we simply saying that we are transferring the law by replacing “the EU” with “the UK” but have absolutely no comment to make on how the EU is going to operate, what sanctions or otherwise it may impose or what redress we may have. I may have read it wrongly, but this reads to me as an entirely unilateral operation by us, with no guarantees that the EU will reciprocate any of it.
Lord Balfe (Con)
My Lords, the Chamber is much emptier now than it was for the earlier SI. I am intrigued that we are replacing the air services competition regulations, which apparently have never been used, with an SI which we hope will never come into force. This is almost comedy stuff. The Explanatory Memorandum states that,
“this instrument makes the corrections needed for it to function as domestic UK law after Exit day”.
What is the position regarding the replacement? If negotiations on it are going on at the moment, presumably the Department for Transport is involved in them. I would be interested to hear where they have got to. Are they on the point of producing the replacement or is it some way down the line? If it is on the point of being replaced, do the Government envisage bringing forward another SI to reflect the new regulation? Or will this be the first instance when we are seriously at variance with Europe: in other words, when it adopts a new regulation but we are still working on an old one? This picks up the point I made earlier this afternoon when I asked about divergence between Community and UK law. It needs to be addressed.
One always learns things in these debates. I was fascinated to learn that my noble friend—and good friend—Lady McIntosh began her romantic life by talking about cabotage. I found something else to talk about when I first met my wife, but we do not need to go into that. Looking at the slot allocation regulations, the question that keeps coming to me is: why should any airline stay based in the United Kingdom at all? What advantages are we going to offer them? I can see the advantage in being in a union of 27 countries where there is a common base and common legislation, but what will be the advantage of being a UK airline? I can see none at all. Britain cannot do without airlines. We are not going to stop them flying here, but at the same time we have nothing to offer them that will be better, in any way, than what they will be getting from the EU. The Commission will no longer have a role in relation to airports.
According to the explanatory statement, article 9 says:
“Instead of any invitation to tender to operate a”,
public service obligation,
“route being open to Community air carriers only, this will be open to all air carriers with traffic rights to operate services within the UK”.
Is not the logical corollary that our rights to bid for public service obligation slots in the rest of Europe will be withdrawn? If we are going to open up and say that non-EU airlines can bid for these slots, surely the natural reaction would be to say that we are changing the whole basis of things. So this is not bringing EU law into UK law; it is bringing it in with one quite fundamental change, by opening it up to all air carriers with traffic rights to operate services within the UK. What is the thinking behind this? Why have we inserted this into a regulation that is supposed to bring EU law into line with our law, while making a big divergence by letting non EU-registered airlines bid for these slots? I would welcome the Minister’s observations on why this has been done.
Baroness Randerson (LD)
My Lords, the services SI is about unfair practices. It allows penalties to be imposed on air carriers guilty of unfair practices against the UK industry. Since these powers have apparently never been used at an EU level, it is probably right, just for once, to say that this is purely technical—although the Minister forbore to say so. However, the concept of an EU-wide approach, which is what we are abandoning here by replacing “EU” with “UK”, would be much more likely to be an effective deterrent against such practices than the UK operating on its own. The noble Lord, Lord Balfe, has just wondered out loud why an airline would base itself in the UK in future. This is another example of how we are opening ourselves up to being in a much more vulnerable position through our future isolation.
In her introduction, the Minister said that these EU regulations were being replaced. Will she clarify whether the Government intend, in due course, to replace this SI with an updated version when the EU has updated its regulation—or are we going to be stuck in a time warp with outdated legislation?
Lord Tunnicliffe (Lab)
My Lords, I shall speak very briefly on these two instruments—there is no way we will oppose them. The first one is on competition. One’s enthusiasm for scrutinising in depth was somewhat killed by the first sentence in paragraph 7.2 of the Explanatory Memorandum, which says:
“The powers in the EU regulation have never been exercised and it is unlikely that they ever will be”.
At that point, I gave up detailed examination. This boils down—if there ever is a dispute in this area—to us having moved from a big gang called the EU to a little gang called ourselves. That is why I am not keen on crashing out of the EU without an agreement, because being part of the EU is, broadly speaking, a good thing when it comes to aviation.
I have some experience of the slots issue. The trouble is that it is 30 years old, so things may have changed, but I doubt it. In a sense, the general public do not realise what an airline is. An airline is, first and foremost and overwhelmingly, a timetable—you attach airplanes, crews and marketing to it, but you start with the timetable. In fact, I chaired one of BA’s internal committees which oversaw the process of developing the timetable, and the slots are a key part of it. They work, frankly, because there is an international consensus between airlines, airports and regulating authorities that the various slot allocation committees at various airlines will be co-ordinated on a worldwide basis to make the system work. This system has been fiddled with, but it has been pretty robust for 50 years. I take comfort from the Explanatory Memorandum, which says, as it should:
“The system relating to slot allocation at UK airports will remain unchanged”,
by this SI. Providing the Minister reaffirms that, it will have my support.
We have heard some comments. These would require policy changes to meet the challenges that the comments are directed at. I remind noble Lords that the one thing you cannot do under Section 8 of the European Union (Withdrawal) Act 2018 is introduce any policy changes. In so far as that is the instruction to government in generating these SIs, I have to support the fact that, as far as I can tell, they have followed that instruction.
Baroness Sugg
My Lords, I thank noble Lords for their consideration of these draft instruments. On the slot allocation system, we are not moving to operate on our own. The current system of slot allocation, including the EU regulations, is based on guidelines produced at an international level by IATA. Those guidelines are not affected by EU exit. The system for slot allocation at UK airports will be the same after exit day as it is today, except that the role of the EU Commission will no longer apply.
The noble Lord is quite right to point out that slot reform in general has been around for some time, but there is an international consensus around this and we are considering it in our consultation strategy, Aviation 2050: The Future of UK Aviation. We set out a number of potential issues with the current process for slot allocation affecting competition in the aviation markets, such as historic grandfather rights and retiming, but there is a long-standing international system, so we will work very closely with the industry, IATA and countries with which the UK has aviation links to discuss that.
My noble friend Lady McIntosh asked whether current grandfather rights will be the same. Again, those will remain the same after exit day. As the noble Lord, Lord Tunnicliffe, pointed out, this does not change any policy on this and those rights that UK carriers have at EU/EEA airports will also not be affected.
On the point about the replacement of the competition regulation, raised by the noble Baroness, Lady Randerson, and my noble friend Lord Balfe, the UK has participated fully in the legislative process regarding the replacement regulation; it is now ready to be put to the European Parliament and the Council of Ministers, and it is intended to serve the same purpose as the current regulation—ensuring fair competition. But the powers, as I said, and as highlighted by my noble friend Lady McIntosh, have never been exercised and it is unlikely that they ever will be. The EU has reviewed the regulation, but the vast majority of our bilateral air services agreements have articles governing fair competition, and these are what we use to ensure that there is a level playing field in the operation of international air services. That is why it has not been used and we do not expect it to be used.
My noble friend Lord Balfe asked, as he did previously, about our future plans. We keep our legislation under ongoing review and will continue to do so after exit day to make sure that it meets our policy objectives and legal obligations. While we would not be under an obligation if we left without a deal, if we chose to implement the replacement regulation it would be through primary legislation. Again, my noble friend is right to point out that, of course, in the event of a no-deal exit the EU’s statute book will continue to move on and we will need to be flexible about ours.
My noble friend Lady McIntosh asked about timetables. Airlines have already published their timetables for flights post March 2019 and tickets are being sold. The noble Lord, Lord Bruce, asked about Aberdeen and the allocation of slots. As I mentioned before, slots are allocated through ACL and the EU: the Government have no role in the allocation of slots and airlines determine how they are allocated on a commercial basis. Of course, if a carrier does not use its slots 80% of the time, they will be returned to the slot pool for allocation. We have the option of PSOs if needed, but the decision about specific slots will be down to the commercial airline.
My noble friend Lady McIntosh asked about the EU regulations. She is right to point out that they were published in December. There has been many a conversation on those, through industry and through member states. We are seeing some proposed changes, particularly on a capacity freeze, as my noble friend pointed out. I agree with her that the aviation sector is incredibly important to this country, which is why we are working hard to ensure that the industry can continue to grow sustainably. She is right that there are issues around ownership and control. We have not seen the headquarters of easyJet move but we have seen easyJet take on a Swiss air operator certificate. There is no immediate issue, as my noble friend pointed out, but, as one might expect, EU carriers are working closely with the Commission on that.
We are seeking continued participation in the European Aviation Safety Agency. That will help us continue trade as well as flights. We have played a significant role in EASA over the years and we very much hope to continue to do so. PSOs will be open to qualifying carriers—those with cabotage rights in the UK—and that has already been fixed in the operation of air services SI. Those carriers with cabotage rights could include those from the EU and other countries, so there will be the same requirements for PSOs going forward.
I hope that I have answered most of the questions. If I have not, I will follow up in writing.
Baroness McIntosh of Pickering
On the question of the damage to UK carriers arising from the loss of cabotage rights and freedom rights, do we have any estimate of what that will be?
Baroness Sugg
We are working very closely with the Commission on that. Obviously, there are implications both ways. We remain committed to working with the Commission on the regulation to avoid that. Of course, there are UK airlines which fly cabotage in the EU, in the same way that there are EU airlines flying cabotage in the UK. That is another example of how it is in our mutual best interests to ensure that we continue the market access we have today. Those discussions are ongoing and as soon as I have an update on them I will be happy to share it with noble Lords.
While we are working to agree a deal with the EU that is supported by Parliament, we need to continue our responsible preparation. Both the UK and EU have set out their intention to put in place arrangements to ensure that planes will continue to fly; none the less, these instruments are essential to ensure that we have a legal framework, particularly in respect of the allocation of airport slots, that continues to work effectively in the UK from exit day. That will help ensure the continued smooth operation of air services, irrespective of the outcome of the negotiations. I beg to move.