Airports (Amendment) Bill [HL]

Earl Attlee Excerpts

Friday 9th November 2012 Lords Chamber

[Earl Attlee]

My Lords, first, I offer sincere congratulations to the noble Lord, Lord Empey, on securing a Second Reading for his Airports (Amendment) Bill, even though I am experiencing a little sense of déjà vu.

The Bill’s aims are commendable in seeking to introduce powers that would allow the Secretary of State for Transport to ring-fence take-off and landing slots at congested London airports to ensure the future protection of regional air services—in particular, to Northern Ireland and Scotland. I fully understand the noble Lord’s point about the special case of Northern Ireland, where there are not alternative means of businesses easily getting to a hub airport. In the case of Scotland we will, in future, look forward to better rail connectivity, which will make a huge difference.

We recognise that airports in Northern Ireland, Scotland, Wales and the English regions make a vital contribution to local economies and that regional connectivity is very important. I also acknowledge the noble Lord’s concern, expressed so well at Second Reading, that the provision of commercial air services is subject to market forces. Ultimately, airlines operate in a competitive, commercial environment and it is for them to determine the routes that they operate. I will say a little more on that later.

It remains possible, therefore, that airlines currently operating services from Northern Ireland and Scotland to Heathrow could, in future, decide to reduce or withdraw them and use the relevant Heathrow slots for alternative services. It has been suggested that some form of intervention is necessary to protect these essential services from commercial market pressures. The noble Lord, Lord Empey, was careful to use the words “in the event of” problems. He did not say that we necessarily have problems now but he is, as I understand it, worried about the future and future-proofing our processes.

At the moment, Northern Ireland and Scotland remain well connected to London by air. In 2011, there were more than 18,000 flights between the two Belfast airports and the five main London airports, around a third of these being between Belfast and Heathrow. I fully understand the importance of hub connectivity. These routes are well used, with nearly 2 million passenger journeys in 2011 between Belfast and London, of which more than 700,000 were between Belfast and Heathrow. Scotland is also well connected with more than 65,000 flights in 2011 between Scottish airports and the five main London airports, carrying over 6 million passengers. Of these, 26,000, which is 39%, were to or from Heathrow, carrying 2.7 million passengers. Many noble Lords will recall our debate on the amendment of the noble Lord, Lord Stephen, to the Civil Aviation Bill, to which the noble Lord, Lord Empey, contributed.

In the light of these high traffic levels, we do not believe that connectivity between London and airports in Northern Ireland and Scotland is under threat. The existing air services to Northern Ireland and Scotland act as important hub feeder services, which are necessary to support long-haul services from Heathrow. As the noble Lord, Lord Empey, correctly states, world slot guidelines are determined by the International Air Transport Association and are reflected in the European regulations which govern the allocation, transfer and exchange of slots at Heathrow and other slot-co-ordinated airports in the UK. In the UK these are managed by Airport Coordination Ltd. The noble Lord, Lord Davies of Oldham, touched on the issue of ownership of slots. As I understand it, the allocation of slots is based largely on historical and continuing usage.

My noble friend Lord Caithness touched on PSOs. If air services to Northern Ireland and Scotland were to become economically unviable, EU law already provides some scope to protect regional air services by allowing member states to establish a public service obligation—a PSO—to protect their services to airports serving a peripheral or development region or on low traffic routes considered vital for a region’s economic and social development. It would be open to the devolved Administrations in Northern Ireland and Scotland to apply to the Secretary of State for Transport to establish a PSO on an air route should they feel that a business and legal case could be made that satisfied the EU regulation. If approved, this would permit ring-fencing of slots at a relevant London airport. There is no other mechanism for the Government to intervene in the allocation of slots at UK airports.

The noble Lord, Lord Berkeley, touched on the Isles of Scilly and Scotland. The same principle of public service obligations, and the restrictions on them, applies to maritime services as for air services.

Noble Lords will therefore appreciate that under European law the potential for ring-fencing slots at Heathrow to protect regional services is to be dealt with by reference to the PSO rules alone, and creating a parallel, more wide-ranging set of rules would be incompatible with EU law. The principal effect of the Bill is therefore contrary to EU regulation because it would override the strict criteria and process by which European Governments could intervene in route operations.

As indicated in the Explanatory Memorandum submitted to Parliament on the European Commission’s Better Airports package, in the context of the proposed recast of the EU slot regulations, the UK Government have highlighted the issue of regional connectivity with the European Commission and the ongoing provision of air services between congested London airports and Scotland and Northern Ireland. However, it has proved challenging to devise a mechanism to protect well trafficked, commercially viable air routes without distorting the aviation market and competition across Europe.

I am aware that the European Parliament’s Transport and Tourism Committee has been considering amendments to the recast EU slot regulation that are aimed at protecting the access of regional air services to congested EU hub airports. However, we would be concerned about any amendments that were too general in nature and which had the potential to seriously impair and distort the slot allocation system, and the secondary trading of slots, to the detriment of consumers. In particular, in the UK, the secondary trading of slots helps to ensure that they are generally put to the use which is most effective from the consumer perspective—in other words, the problem of interfering with normal commercial processes, as identified by the noble Lord, Lord Empey. We will give careful consideration to the conclusions reached and the amendments proposed by the Transport and Tourism Committee following the publication of its formal report on the slot-regulation process. I repeat my praise for the effective efforts of the noble Lord, Lord Empey, not just in this House but in the way that he conducts his operations in Brussels. He certainly shows the way ahead.

I am pleased to say that there has been some progress on this issue. Noble Lords will recall that the sale of BMI to International Airlines Group earlier this year prompted concerns about the future of the air services operated by BMI from London to Northern Ireland, and about competition issues on routes to Scotland, where BMI operated in competition with BA. Competition issues arising from the sale were subject to investigation by the European Commission competition authority, which has jurisdiction to consider whether airline acquisitions and mergers may lead to a substantial impediment to effective competition in a substantial part of the EU. That authority concluded its investigations and granted regulatory approval on 30 March for International Airlines Group’s purchase of BMI from Lufthansa. The authority’s approval was conditional upon IAG releasing 14 daily slot pairs at London Heathrow, of which at least seven pairs must be used by other airlines for services to Edinburgh and/or Aberdeen. The European Commission is in the process of considering the bids that it has received for these slots. IAG completed the acquisition of BMI in April 2012, since which time BA has begun the process of integrating BMI schedules into its own.

In terms of BMI’s regional air services to Northern Ireland and Scotland, BA has continued to operate BMI’s existing services to Belfast, and the slots released for use on services to Aberdeen and Edinburgh will serve to maintain competition with BA on those routes. This provides reassurance that the air services to Northern Ireland and Scotland are both commercially viable and commercially attractive to airlines, and it reinforces our view that connectivity between Northern Ireland and Scotland and London airports is not under threat.

The noble Lord, Lord Davies, talked about wider aviation policy issues—I would have done exactly the same thing. More generally, perhaps I may remind the House that a key part of the Government’s approach to aviation is to seek to create the right conditions for UK airports to flourish, including those in Scotland and Northern Ireland. We have committed to producing a sustainable framework for UK aviation which supports economic growth and addresses aviation’s environmental impacts. We consulted over the summer on a new aviation policy framework which will set out our overall aviation strategy. The consultation closed at the end of October and around 500 responses were received. We intend to publish our policy framework next March.

We believe that maintaining the UK’s status as a leading global aviation hub is fundamental to our long-term international competitiveness. However, we are also mindful of the need to take full account of the social, environmental and other impacts of any expansions in airport capacity. We have therefore decided to establish an independent airports commission to gather evidence and provide analysis of the options. We are delighted that Sir Howard Davies has agreed to chair the commission. He brings a wealth of business and financial expertise that will be of great value to the commission’s work. The noble Lord, Lord Davies, asked me about the timing. The commission needs to be able to take time to give appropriate consideration to all the options for maintaining UK connectivity; a rushed decision which cuts corners and does not consider all the relevant factors will not achieve the desired end state. The airports commission will provide an interim report to the Government no later than the end of 2013 and will then publish a final report by the summer of 2015 for consideration by the Government and opposition parties. Details of the commission’s membership and its terms of reference were announced on 2 November.

My noble friend Lord Caithness slightly chided the noble Lord, Lord Empey, for running this debate yet again. I am at the disposal of your Lordships and I am happy to debate whatever noble Lords would like. My noble friend talked about the possibility of access from regional airports to continental hubs. That is a very important point and I shall come to it in a minute.

My noble friend also touched on the definition of an “adequate service”. He talked about the dangers of interfering in what are properly commercial matters for airlines. I agree with my noble friend. He also pointed out that there has been a decline in domestic air travel since 2007. As a result of the economic downturn there has indeed been a reduction in air traffic and services across the board. Ultimately, it is a matter for airlines to determine the services that they operate and from which airport, based on their own assessment of air routes viability.

My noble friend asked about airport charges. He will know that the CAA does not have legal powers to ensure that an airport’s charging structure supports wider goals such as regional policy. The CAA currently sets price caps at regulated airports and sets the maximum price per passenger that an airport operator can charge. Moreover, the structure of an airport’s charges within the regulated cap is a matter for the airport operator and its stakeholders.

My noble friend suggested the possibility of excess profits. The danger for an airport such as Gatwick is in airlines flying from a regional airport direct to a continental hub, as my noble friend pointed out earlier. However, since Gatwick was taken over, I have been very impressed with the way that that airport has operated, and I suspect that many other noble Lords share the same experience.

My noble friend touched on APD and the impact assessment, and it is probably better if I write to him about that. He also asked whether charges for commercial aircraft should be based on the numbers of passengers carried or the aircraft weight. The CAA currently sets price caps at regulated airports and sets a maximum price per passenger that airport operators can charge. As I said before, the charges within that are a matter for the airport.

My noble friend asked whether there were any other mechanisms to protect access. Any mechanisms to protect regional air services at congested hub airports would have to comply with the overarching European legislation. Also, we do not believe that traffic distribution rules are of assistance, because in practice they may be used to restrict only certain forms of traffic. They cannot be used to compel airlines to operate particular services.

If I have missed any other important points or have anything significant to add, I will of course write in the usual way. While I understand the laudable motivation of the noble Lord, Lord Empey, in proposing his Bill, I must conclude that, on the basis that the Bill would ultimately be incompatible with current EU law, the Government will not be able to support the Bill into legislation.