Committee Reports > List of Committees > Joint > 1980 > Committee on Commercial State-Sponsored Bodies > Report No. 14 - Aer Lingus, Teoranta and Aerlínte Éireann, Teoranta

MIONTUAIRISC NA FIANAISE

(Minutes of Evidence)

Dé Céadaoin, 4 Meitheamh, 1980

Wednesday, 4 June, 1980

AER LINGUS TEORANTA AND AERLÍNTE ÉIREANN TEORANTA

Mr. P. W. Reed, Head of Economic Policy and Licensing Division, British Civil Aviation Authority called and examined.

Chairman.—As you probably know we had a number of meetings with representatives of Aer Lingus and we would like your objective views on some of the matters that arose during our discussions with them. Do you want to make a statement?

Mr. Reed.—I am in the Committee’s hands.

269. Deputy Deasy.—I would like to hear Mr. Reed’s views on the memorandum’ produced by the EEC Commission on air transport policy last year.

Mr. Reed.—We were delighted to see the Memorandum published. When I say “we” at this stage I am talking about the British Government because this is an official British position. We tried to react positively and put forward three specific suggestions within the framework of that document. One is for what one might call a loosening up of regional services; these would be primarily air services between provincial points keeping away from the major hubs of the member states, and if aircraft of below a certain size were operated between these points, we would like to see them being given an opportunity to see what such services can do, with the very minimum of regulatory intervention. That is one initiative. Another one is a case study for a type of parcel or small package service on the lines of the Federal Express system in the USA. We are not really arguing specifically that governments or the Commission should try to bring such an operation into being. We see this particular proposal as being a good way of testing the EEC framework, or the bilateral framework within States, to see what are the barriers to bringing into being supra-national operations of that kind: customs barriers, postal laws, the purely bilateral obstacles one finds in aviation, and so on. A third proposal is that we are suggesting a look at a certain loosening up of the tariffs within the Community but, as yet, this particular idea is not as well developed as the first two.

270. Deputy Deasy.—That is specifically the point I was coming to. Do you agree with the Memorandum in its statement that air fares in Europe generally are too high particularly when compared to similar routes in North America?

Mr. Reed.—Yes. We believe that certain types of fare are higher than can be justified by the cost levels of the major scheduled operators. Perhaps I ought to develop this as I have not given a black and white reply. We believe one of the things that is happening in Europe is that the captive markets, the people using the on-demand facilities, the so-called normal economy fares, are being charged far more than they should be by reference to the cost of carrying them and the funds generated from this part of the market are being used to finance the expansion of some facilities which are not economic. It is not just a question of consumer protection policy. We believe that if we could cut down the amount of available finance which is taken from the captive parts of the market, this would persuade the major scheduled airlines to bring their costs more under control. We firmly believe most of the major airlines have scope for cost reductions and our fares policy is directed towards that end, as well as consumer protection.

271. Deputy Deasy. Would one of the captive routes you are referring to be the London-Dublin run?

Mr. Reed.—Our investigations of this subject seem to show that the level of normal economy fares is most easily justifiable on the shorthaul routes. Certainly the London-Dublin run would fit into that category. I would not like to go beyond that because we shall, as part of our programme of routine studies, be examining the economics of the London-Dublin run—it is one of our so-called key routes—and I will be able to give you a more authoritative reply in, say, one year’s time. At the other end of the spectrum, on the medium and longhaul routes in Europe—if you are talking about UK-Scandinavia, UK-Italy, UK Greece—the level of normal economy fares in particular is significantly too high.

272. Chairman.—With regard to the American so-called ‘open skies’ policy, which is causing a good deal of discussion and controversy, do you think, however relevant it may be in the US, it has relevance to the scene in Europe?

Mr. Reed.—In the political sense we think it is very relevant because there is so much political opposition to ‘open skies’ in Europe. Our European bilateral partners, as members of the Committee will know, take a rather different position. It is the British view that we can improve the present situation. We can place more reliance on competitive forces. It is well known that we would like to see limited, controlled measures: liberalisation of fares and traffic rights. We do not advocate going as far as the Americans have gone. That is a political reply. At the more economic level I would say it is doubtful whether the pure open skies regime would be wholly suitable in Europe. Although I think the people I discussed this with in the Civil Aeronautics Board and elsewhere are wholly sincere in believing in this policy, it is a fact that the policy harmonises very well with the United States international economic interests. With the United States-United Kingdom services there is little doubt that if we had a totally deregulated regime we would not have a situation in which we had a fair or neutral competitive framework. This is because of the way the United States operators can control the feed of traffic into the major hubs behind the gateways. This would not be available to foreign carriers. The only way the foreign bilateral partners of the United States could have a fair crack at this traffic would be to have cabotage rights, which of course is a subject that the American authorities have ruled very firmly out of court. We doubt whether the purely competitive mechanism would work in aviation, as it works in many industries and trades, because we believe perhaps the industry is oligopolistic by nature and eventually would come to be dominated by a few large groups. Perhaps there will always be a role for some sort of Government or regulatory overview to make certain the consumer is not exploited.

273. Deputy Deasy.—Do you feel that the IATA line in a European context has militated against lower fares in Europe?

Mr. Reed.—I think it is undoubtedly true that the way the airlines have been allowed to set fares under this system has militated against the consumer interest. One must agree with that proposition without qualification. On the other hand, it is a matter of record that very few governments or regulatory bodies have ever refused to approve an IATA fares package. This is a matter of record. It is possible that my own Authority and Government are amongst the most interventionist at the moment, and we firmly take the view that we cannot accept, in an uncritical manner, the sort of findings that come out of IATA. We have tried to persuade our airlines to go into IATA conferences so that before the event they can tell the other airlines the sort of thing the British Government will or will not accept, the idea being to get away from any international or commercial disruption caused by disapproving before bilateral treaty deadlines and so on. I do not believe a great deal of progress has been made in achieving this objective. It is the policy of my Government to keep the pressure on.

274. Senator Cooney.—If the pressure does not succeed will the IATA recommendations be accepted?

Mr. Reed.—No. We have rejected quite a number of fares findings. I could give you a little background here, on this point, speaking both on behalf of the Civil Aviation Authority and the United Kingdom Government. We do not want to disapprove findings that the partner government, i.e. a party to that bilateral agreement, has approved, or might approve, without explanation. In addition to all the work that has been going on in the EEC to discuss our fares policy and all the discussions with the European Civil Aviation Conference to discuss these matters and broadcast our views, we have also had a series of discussions on a bilateral basis with a number of governments in Europe. In every case—certainly in the case of the UK-Scandinavian routes and those to Italy and Greece—we have reached a compromise by taking action on the fares from the UK. This action has led to directional imbalances. Yes, we certainly have acted in a radical way.

275. Senator Cooney.—In instances where you have acted against the IATA recommendation in respect of a British airline, what has been the reaction of the foreign airline serving the same route or similar routes?

Mr. Reed.—I cannot claim that the airlines’ reactions to our policies have been wildly enthusiastic. With the probable exception of Sir Freddie Laker I am sure if you had a British airline representative here, he would take a somewhat sceptical view of our policies. There is no question of that. In the early days, say, five years ago, there was a certain amount of reserve on the part of other governments. We tried to explain our policies and to show that we are not acting capriciously. We do not take the view our American friends take, that we have seen the truth, here it is and we have to convert you to our point of view, because we admit we might be wrong. We might be wrong but we have thought deeply about it. This is the way we try to present it and I am glad to say that nearly all Governments that we talked to, even those who do not support our policies, have achieved a high level of understanding.

276. Senator Cooney.—Taking it that Dublin/London is a bilateral arrangement, IATA would not have any input into that, would they?

Mr. Reed.—I would imagine that London/Dublin would form part of the IATA European package.

277. Senator Cooney.—I think the two airlines that have the monopoly on that route, British Airways and Aer Lingus, have similar fares. Is not that so?

Deputy Herbert—Both are members of IATA.

Mr. Reed.—One will find that the way the market mechanism works, on the United States routes, for instance, although there is no IATA involvement, the fare will always end up the same. When an airline develops a new fare, whether it is raising it or reducing it or changing the conditions in a quite radical way, the other airlines match, so they all end up with the same fare eventually.

278. Deputy Deasy.—Do you feel it would be a healthy thing if the good runs, such as the Dublin/London run, were opened up to competition, although it might adversely affect the finances of the national airlines involved? I think the overall result would be for the better.

Mr. Reed.—Speaking about routes in general in Europe and elsewhere, not specifically London/Dublin, we think that the responsible authorities ought to look seriously at the prospects of admitting additional carriers on to such routes which, of course, stops short of saying “open skies”. We go further in our UK licensing and designation policy. We try to form the policy of maintaining a competitive threat by the possibility of substitution. This is not a step that we will take very lightly. In fact, for the purpose of our discussion this afternoon, I was looking up to establish on how many occasions we have actually revoked the licence of an incumbent carrier. It only happens once every 18 months or two years. This is not a step we would ever take lightly. If we did, we would have something like the American situation, where a newcomer comes along who wants to get on to a route and to do so offers very low fares which studies show float upwards over the year to 18 months after taking the route. We certainly think the threat of replacement should always be there.

279. Deputy Deasy.—Does your Authority welcome the Laker-type operation?

Mr. Reed.—Yes, I think that all Laker’s licensing gains came since April 1972—the inaugural date of the UK Civil Aviation Authority. I had the honour of serving on most of those licensing panels myself.

280. Deputy Deasy.—Did you find that they brought about a reduction in the trend in air fares?

Mr. Reed.—There is no doubt that Laker Airways have had a massive impact on air transport markets, particularly those over the Atlantic. We sometimes tend to overlook the fact that there have been other developments going on. The coming, for instance, of the advanced booking charter was an important move; also the Apex-type fares, which we like because these are in our view fully cost-justified low fares. It is by exerting a strict control on the traffic, managing a particular inventory of seats and filling it right up that the price is brought down. The Apex-type fares did pre-date Skytrain by two years, so there have been a number of developments, but certainly Laker’s has been a tremendous contribution.

281. Senator Cooney.—We have had evidence that the North Atlantic at the moment is uneconomic for all scheduled carriers, both American and European, and that this is the result of very intense competition, principally from America but possibly triggered to some extent by the Laker intervention. Do you see the North Atlantic situation evolving in any particular direction in the next couple of years in so far as the scheduled operators are concerned? Are they going to look for any improvement in their economic position or is this squeeze going to continue?

Mr. Reed.—My view would be that we are in for two very tough years on the North Atlantic. There are several different aspects. There are the effects of rising costs, particularly the fuel. It is difficult for airlines to absorb cost increases of that sort of magnitude. There is a question mark over the United States economy in the amount of disposable income on the US/UK routes. Something like 55 per cent of the passengers originate from the USA. If the Americans stop travelling, this has a very big impact on the services. On the other hand, we have had a very active period of innovation with fares. It is probably accurate to say that the British tourist is still in the process of discovering North American markets and the very good travel bargains to be had there. My best guess would be stagnation this year, perhaps the same level of carryings on the US/UK as the previous year, with even a slight downturn in 1981. Possibly if we do not have a major world recession we will see some move back to——

282. Senator Cooney.—That is with regard to the level of traffic. Do you see any possibility that the present squeeze on fare levels will diminish and that fare levels will start to rise again because airlines will not be able economically to continue on the North Atlantic?

Mr. Reed.—This is a very difficult question to answer. I think the truth is that the market is resisting the increases that the airlines must have. This will probably be reflected on profit margins. I would expect to see some rather depressing financial results on the part of certain airlines this year and the following year.

283. Senator Cooney.—It will be very difficult for some airlines to survive in that market for any number of years.

Mr. Reed.—It will be very tough. One of the things that puzzled me a few years ago during this decade was the capacity of some of the big American operators in particular to carry on surviving in the face of red ink in the profit and loss account year after year. Perhaps we shall experience that again. I certainly suspect that some airlines will find survival difficult.

284. Deputy Deasy.—Do you find the operational and overhead costs of some of the long-established national airlines to be unrealistic? Do you believe that this is part of the reason for their high fare rates and that it is up to them to tackle that problem?

Mr. Reed.—Yes. I will agree with three yes’s. There is considerable evidence for that view and there is scope for reduction of overhead cost levels. We have an enormous amount of evidence from the studies that have been carried out in the UK. We have had international studies. We also had the opportunity in the UK of making comparisons of cost levels between different types of carrier. All these studies point to the conclusion that many of the major scheduled carriers have too high a level of overheads and these could be reduced.

285. Chairman.—What kind of overheads are unnecessarily high?

Mr. Reed.—There is evidence of a degree of overmanning. Some of this will come out in direct costs but it is also reflected in overhead costs. It is arguable that certain airlines spend too much on marketing costs because instead of competing on price by offering very keen prices to the customer, they prefer to engage in competitive scheduling backed by advertising and so on. Here we are not entering the rounds of definite statement that can be verified. To some extent I am putting forward hypotheses. Many people would argue that where there is not great pressure on prices, the airlines get rid of the financial surplus by operating too much capacity and spending that surplus on areas which are not strictly essential.

286. Chairman.—When the Laker operation is postulated to other airlines, they say that it has a minimum of overheads, that it avails, as it were, of the overheads which the other airlines have to have such as marketing, premises and so on and that it is unfair to make a comparison because if everybody operated on the same basis as the Laker operation then there just would not be the necessary kind of structure for the airlines to carry on at all. Is there some validity in that?

Mr. Reed.—Yes, there is. That type of operation is a point-to-point operation that does not consider itself as providing a network, and the overheads are pared down to the bone. When I think about the quite fantastic global communication network, it still strikes me as being almost something out of science fiction that I could go to an office in Dublin and reserve a seat between Sydney and Auckland and Honolulu. This all has to be paid for, but on the other hand the studies we have done, some of which we have published, indicate quite clearly that when we strip away these differences, there is still a residue we cannot explain. There is still a very important residual of between 10 to 20 per cent pure efficiency differences, pure cost differences, which cannot be explained in this sort of way. It is also true that the possession of this great globe-encircling marketing network gives one control of the traffic. It is not merely the laying out of costs. There are very big benefits from possessing it too.

287. Deputy Deasy.—Of course, the answer of the established airlines to the statement that the independent Laker-type operations can operate at a such cheaper rate, is that a lot of them are fly-by-night airlines and that they will not stand the test of time. How deeply do the Civil Aviation Authorities scrutinise the credentials of such airlines before granting them permission to operate the recognised runs?

Mr. Reed.—We go into questions of fitness, making certain, for instance, that the interests concerned do not have criminal connections. We go into their financial situation with a view to making certain that they can weather liquidity crises and will not disappear at the first puff of competitive pressure. This always takes place before we come to the actual licensing process which is then fought out on its economic merits. When we come to licensing, as an Authority, we have been very concerned about this problem of the fly-by-night operator. We come up against this particularly with certain of our outlying communities. For instance, if one were to talk to the Channel Islands communities, or to the Channel Islands Air Advisory Council, they would emphasise that they see their routes, say, to London and Southampton as lifelines. In several decisions, the Civil Aviation Authority has said that we do not want to take risks with such lifelines. Again if one were to talk to the Cornwall County Council they would say that 10 to 20 years ago, the Cornish people were experiencing somebody starting up operations and then disappearing again. Their public position is very clear and on the record: they want stability. These are considerations that the Authority place a great deal of weight on. This is one reason why we cannot go full bloodedly for the open skies philosophy. If one has commitments like this one has to make certain one meets them.

288. Deputy Deasy.—How great is the incidence of failure amongst the new operators? It must not be too great because of the strict examination which the CAA carry out beforehand.

Mr. Reed.—Unhappily, we have a few failures with the operators of very small aircraft. We have a rather liberal policy as regards newcomers to the industry who are going to operate in a very small way. For instance, one company wanted to operate aircraft from a British airport to the continent with a load of six or seven people. Our present Ministers would probably wish us to take an even more liberal attitude towards that type of operator as this does not really come near to the aviation heartland. We would not want to risk plunging an important route into chaos and we would be very careful to try to allow big operators to adjust to changed market forces. The only substantial failure we have had since the Authority began was Court Line in 1974 or 1975. An important factor in the failure of Court Line was the failure of the shipping part of the operation. They were part of a large group and it is arguable whether Court Line would have disappeared purely from an aviation and package holiday point of view.

289. Senator Hillery.—Will the witness summarise the effects of deregulation on internal US air services?

Mr. Reed.—It is rather too early to draw a balance sheet. Perhaps unwisely, some of the supporters of deregulation have drawn some rather quick conclusions. Speaking on a strictly personal basis, I would have expected more intense competition on the heavy routes, a withdrawal of service from thin routes, what we would call in the UK the lifeline routes, and a strong movement towards merger. We are starting to see the first signs of some of this. I have been reading in the United States press that certain Senators are rather concerned about the effect on small communities of the open competitive regime. It is now true that opponents of deregulation are finding some substantial material to use in favour of their views. I would prefer to reserve judgment for another year or two, particularly because of the adverse economic circumstances.

290. Senator Hillery.—Would there not be the temptation, however, to abandon the peripheral routes and concentrate on the heavy load routes?

Mr. Reed.—That must inevitably follow.

291. Senator Hillery.—Tourism is clearly a very important industry in this country and yet tourists are the very people who focus most on keen discount fares. Do you see any trend in the tourist area to shorten the trip to the holiday locations?

Mr. Reed.—We certainly see a tendency in the UK to break away from the seven-day unit block. Under our form of organisation it is the travel organisers who tend to be integrated with airlines and who evolve the packages. With the sort of pressure they have had, they seem to be becoming more and more imaginative in providing three-day packages or odd-day packages, all sorts of ingenious types of holiday, including one that I saw inviting one to have a holiday in a bat cave. It was some sort of device to get round the obligation to provide ground accommodation.

292. Senator Keating.—I want to ask a slightly lengthy question. First, a comment on this open skies versus something like the Irish situation—I think that is entirely a matter of where one sits. Possibly for America, Britain and Japan there are attractions but a country like Ireland either we have a State airline or we have no airline. We are interested in a State airline. On that basis, I want to go back over a number of things you said. When a comparison was made in prices between, let us say, Laker and BA, you said that you thought there was scope for reduction in the overheads of the State airlines and that when you made allowance for all the real and quantifiable factors of the costs that Laker did not bear, there still seemed to be a 10 to 20 per cent difference in the fares, for example, between Laker versus BA. We are going to continue with a national flag carrier: that is the reality. In the past decade, for example, I remember Sabena being in bad trouble. If this price difference is real, then many countries with national flag carriers that are loss-making or marginally in profit must be looking at their whole management structure because if there is a difference of 10 to 20 per cent when you allow for all of the other things then it must reside in management. With this marvellous communication network, airlines talk to each other and they can communicate very freely. Are ideas developing between major or minor European airlines as to how they could improve management? Do they accept that there is a real residual difference? Do they accept that there is some over-manning and inefficiency? Without wishing to change their basic status, are they looking for ways to improve the quality of management in regard to profits?

Mr. Reed.—Those are very interesting questions. I agree that it is a matter of where you sit and how you see the whole question of deregulation. At some of the international discussions I have been able to attend you had delegates from Third World countries saying to the Americans, “We find these arguments for deregulation absolutely compelling. Will you now apply these policies to shipping, textiles and a long list of other industries?” Of course the Americans for perfectly rational reasons of national interest had a different point of view in those areas. If we are realistic about it, I certainly cannot think of any country which would be prepared to sacrifice the national interest to such an extent that it would, for instance, allow its airline industry to go out of existence. I agree with the Senator from that point of view. On the question of the comparison, I can make available to the committee some of the material, the so-called Cascade Study that was done by British Airways in association with the Civil Aviation Authority which went into these matters.* On the question of the airline managerial reaction, I think the British Airways’ reaction has been a very honest and courageous one, because they have frankly admitted the facts in their annual report. They have put on the record that they recognise they have a problem of over-manning, a problem of securing greater efficiency and in my view, they are taking energetic steps to get things right. How long it will take I do not know: one will have to wait and see. It is my view that the main British flag carrier will become an enormously powerful international competitor if it can improve its efficiency and costs in the way that it indicates. I do not know if that answers the Senator’s questions adequately.

293. Senator Keating.—That is most interesting. We would be very interested to see some documentation. Is it possible to say a little more widely if there is a club of European flag-carrying airlines who exchange information or management personnel informally? This is not obviously a thing that the CAA would be directly involved in but, just as a matter of knowledge, they may be looking at ways in which the whole question of management quality can be improved within the context of a retained status as a national flag carrier.

Mr. Reed.—No. I do not know of any such meeting of minds. One of the problems is that the philosophies of some of the main continental carriers are so different from those of British Airways. I believe that British Airways are evolving a very realistic, cold-blooded attitude towards the sort of world they think is coming into being, namely one with very harsh competitive pressures. If we were to talk to some of the senior managers on the Continent we would find them very firmly taking the view that their governments ought to fight to the death to keep the present system and that they ought not to be addressing themselves as vigorously as British Airways are doing to this sort of problem.

294. Deputy Deasy.—How long is your Authority in being? I imagine it has been very effective in bringing about the type of thinking within British Airways which you just spoke about. I would like to know what type of opposition, if any, you have met not just from British Airways but from other established national airlines which would be affected if British Airways are going to be affected.

Mr. Reed.—We have a very fruitful relationship at the moment with the major British airlines. It is not just a question of British Airways: it is also with British Caledonian and Laker Airways. Our first day of operation was 1 April 1972. In the first few years most airlines were hostile to the views we were putting forward. There is no question about that. Our first Chairman, Lord Boyd-Carpenter, was driven to making several strong public statements on this matter and he committed himself rather firmly.

In recent times, I am very pleased to say that we have achieved a more harmonious relationship. We have a lot of cross fertilisation going. I would not like to claim on behalf of the Authority the major part of the credit for the way that the British airlines thinking is evolving because clearly the consumer presssures and competitive pressures they meet in the market place have a big effect as well. I am very happy with the consensus we have achieved in the British aviation industry.

As regards the Continent, this kind of thinking has not made a great deal of headway. There are certain countries and carriers, one thinks of Finland, which have a position slightly more radical than that of the United Kingdom. They put forward proposals in the European Civil Aviation Conference that all European normal economy fares be frozen. At the other extreme, there are Governments, like the West German Government, who take a rather more conservative position and would not agree with a great deal of what I have been saying this afternoon. There is a wide range of opinion. The centre of gravity or the balance is against the view I have been putting. On the other hand, although these views are probably minority views within European debating chambers, there is a slight but noticeable trend towards doing more for the consumer and opening the system up. This has been helped by discussions at the European Parliament and by the Commission’s memorandum and so on.

Deputy Deasy.—Perhaps what is needed are more Authorities like yours in other European countries, including Ireland.

295. Chairman.—What basic criteria do you use in deciding what is a proper fare? On the one hand, we have the situation where you say certain fares to Greece and so on are too high. Fares in general would probably be regarded as being too high. On the other hand, many airlines say they will go bankrupt. There seems to be some inconsistency between the two points of view. From what you have said it seems your criterion would be a fare is a proper fare if it is what a highly efficient airline could operate on and still make a reasonable profit. Is that correct?

Mr. Reed.—We have official Guidance from the Government until the new aviation Bill becomes law. This Bill proposes to remove the Guidance and more or less leave the Authority in future to evolve criteria. For the moment, the legal position is that we have a Policy Guidance which is a White Paper approved by both Houses of Parliament. The formulation is that is very similar to the one you have just made. It tells us to try to ensure that fares are related to the cost of an efficient airline. The only difference is that the word “really” is not used to qualify the cost of an efficient airline. We do not believe that we can specify fares or indeed ought to. It would be improper for a regulatory authority to take away the commercial freedom of action of airline management and say that the fare between London and Athens ought to be £291.87½. This would be utterly wrong.

What we do is undertake exercises as a matter of routine which attribute the cost of particular types of passenger and compare them with the fares charged. We see if these are wildly out of line. Where we have the situation, as we have had on certain routes, where you can be sitting in the next seat to a passenger with exactly the same product and you are paying four-and-a-half to five times what he is paying we say that this is slightly out of line particularly if the profit margin is something like 250 per cent over costs. That is the way we work. We say this is a signal to start squeezing that fare in the direction of its cost. Where, with great precision, we should stop doing this we do not know. We simply know that at present fares are so far out of line with costs we should just keep pressing them in a particular direction. At some stage we will have to face up to the question of what is an efficient airline. So far we had tended to take the costs of the airline making the fares application.

296. Chairman.—But you have an obligation to both the consumer and the airline.

Mr. Reed.—Under the present legislation, the obligation to the industry is stronger than it is to the consumer. There is a very strong implication that we will have to further the interests of the consumer. That is section 3 of the 1971 Civil Aviation Act. When we look at the Policy Guidance, which amplifies the Act, one sees formulations there which are very favourable to the consumer. Now if the Bill before Parliament becomes law in the form it is at present there will be a change of emphasis and the obligation to the consumer, which will be reflected in a change to section 3 of the Civil Aviation Act, will be put on a par with the interest of the industry. Interestingly enough, there will be a new subordinate obligation to look after the interest of the environment too.

297. Deputy Herbert.—Changing direction, I understand that air safety is in your field. In this context ATC is of apparent importance. How vital in your opinion is your control?

Mr. Reed.—I have no competence at all to talk about air traffic services matters. This is not an attempt to avoid answering the question, as I am anxious to help the Committee. In our organisation I have no responsibility for air traffic services matters and I am simply not in a position to offer any worthwhile help to the Committee.

298. Deputy Deasy.—Is it normal practice for national airlines to incorporate tour operator bodies within their organisation?

Mr. Reed.—Yes. Most of the major British airlines are associated in some way. British Airways have two subsidiary companies, Enterprise and Sovereign Holidays. Laker has associated holiday companies with the same name. There is the association between Cosmos Holidays and Monarch for example and Thompson Holidays and Britannia. Only Dan-Air of the larger British airlines do not have some kind of an association. An association also includes an ownership. It is not necessarily just a commercial arrangement.

299. Deputy Deasy.—As you probably know, we have an industrial dispute at the moment which is badly affecting our air services and I should like to know if you found that diversification as regards services by different airlines tends to reduce the impact of such industrial action.

Mr. Reed.—I find it difficult to see a general rule here because some of our most afflicted organisations, in the sense that they have industrial relations difficulties, are also very much diversified. Perhaps, we have a special problem in the United Kingdom. We have had several years of industrial difficulties. General questions of wages and employment have really dominated the British economy. I find it difficult to set forth any common rule regarding British airlines.

300. Deputy Deasy.—You have not seen that this open competition can reduce the impact or the discomfort on the public in such disputes?

Mr. Reed.—In the sense that you would have alternative operators available?

Deputy Deasy.—Yes.

Mr. Reed.—Again, the answer has to be that I have not actually observed this. It is quite likely that one would see that effect.

301. Deputy Deasy.—When the Aer Lingus executives were before us they put forward some points which they attribute to some of their added costs which did not exist some years ago. One is the fact that they cannot fly the shorter route to London, they have to do a detour over Liverpool because of controls by the Ministry of Defence in Britain. Do you see any possibility of relaxation in that regard?

Mr. Reed.—Again, this is an air traffic matter. I am simply not competent to comment on it. I would make the observation that in the studies I have seen, comparing European and United States operating costs, there is no question that air traffic constraints are one element in the difference in the cost levels between the two economies. There is no question about that.

302. Chairman.—Are they more of a constraint in Europe than in America?

Mr. Reed.—Yes.

303. Deputy Deasy.—I asked the question because in the terms of reference I note that the British Civil Aviation Authority operate joinntly with the Secretary of State for Defence on air navigation services.

Mr. Reed.—The Authority is responsible for that. I am the Head of the Economic Policy and Licensing Division and I have no responsibility or competence in that field. If it would help, I could carry some of these questions back and put them to the appropriate people who would be competent to reply.

304. Deputy Deasy.—Years ago we had starlight and moonlight flights to Britain and back, in the middle of the night and at dawn, but those flights are no longer permitted because of objections to night flying and the disturbance they cause to people. Have you any views on that? Do you feel that those restrictions may be relaxed?

Mr. Reed.—I cannot see the restrictions being relaxed. My former chairman, Lord Boyd-Carpenter, had very strong views about the noise restrictions at Heathrow and Gatwick. I have written several papers trying to persuade the Government of the UK that these restrictions ought to be relaxed, but there is enormous environmental pressure. This is now reflected in the new Bill before Parliament. As a personal prognostication, I regret I cannot see any relaxation of those night noise restrictions.

Senator Cooney.—The objection would probably be reciprocated on this side at this stage having regard to the amount of building that has been taking place in the north of Dublin.

305. Chairman.—If there were not restrictions would it have an appreciable effect on the cost of fares and so on? Would it bring them down appreciably?

Mr. Reed.—There is no doubt that you could mount additional low fare facilities. For instance, there used to be a lot of night fare facilities out of London to all sorts of continental points and those were killed by the restrictions. The answer must be “yes” to your question.

306. Deputy Deasy.—Will you look into the point I raised about the indirect routing from Dublin to London? It might be a factor in reducing fares.

Mr. Reed.—Yes, I will.*

Chairman.—I should like to thank Mr. Reed who has been very helpful indeed.

Mr. Reed.—I was honoured by the Committee’s invitation.

The witness withdrew.

*See Appendix 12.

*See Appendix 12.