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The noble Lord said: My Lords, the rapid growth of low-cost, no-frills budget airlines has been a phenomenon in Britain and Ireland over the past six or seven years. Low-cost airlines first became commonplace in the United States in the 1980s as a result of the liberalisation of the civil aviation market, and Europe followed in the mid-1990s.
The two most prominent and largest low-cost airlines are Ryanair, which is based mainly at Stansted, as well as Dublin, and easyJet, which is based at Luton. Ryanair has about 50 aircraft in scheduled flights but plans to buy 150 more within the next few years. EasyJet now seems to have about 60 aircraft but, like Ryanair, plans to buy 150 new aircraft.
These two airlines are highly competitive in the market, especially with each other. They are aggressive in their language and are not above knocking copy and black propaganda. Michael O'Leary, chief executive of Ryanair, and Stelios Haji-Ioannou, the boss of easyGroup, are happy to personalise these rivalries. For example, in a sharp exchange of correspondence in the Financial Times in June last year, Mr Haji-Ioannou was critical about Ryanair for using fully depreciated aircraft "about 23 years old", and, as he put it, on a,
Both companies are also rich in publishing press releases, and it is hard to keep track of their bewildering claims. On 8th February, easyJet reported a surge in passenger numbers for January, and its shares rose to 225 pence. But, on 26th Februaryless than three weeks latereasyJet was warning about the need to cut fares to fill its aircraft, and its shares fell to 213 pence. I assume that Ryanair and easyJet are financially sound, but it is difficult to ascertain their underlying current performance.
A year ago, there were two other well regarded airlinesGo and Buzz. I had flown with both of them. But Go has gone, absorbed into easyJet, and Buzz has been bought by Ryanair, which announced this week that it was retaining only a limited number of routes and aircraft and sacking three-quarters of its Stansted staff. Given the fate of buzz, the passengers are being refunded, or so it seems, but the workforce, including the pilots, may still be in dispute.
Among other low-cost airlines, there is the newish subsidiary of the long-standing company, British Midland, whose ownership is 30 per cent Lufthansa and 20 per cent Scandinavian Airlines. The new low-cost company is called bmibaby and is based at the East Midlands airport and at Cardiff and Manchester. Other low-cost and small airlines have been launched, but some will be here today and gone tomorrow.
The characteristics of low-cost airlines, with variations, are usually as follows. First, and most obviously, they offer cheap faressometimes at rock-bottom pricesespecially in the winter, and no discounts for children. Secondly, they offer no frills and, most plainly, no in-flight meals or additional services, and often no allocated seats, with queuing for a place. Then, booking is on-line or by credit card, with no ticket in advance and only a boarding card at the check-in. Low-cost airlines are often launched with a handful of second-hand aircraft. But established airlines are now buying new aircraft and settling for a single type in their fleeta version of the Boeing 737.
I welcome the growth of low-cost airlines because traditional airlines have had their own way for far too long. That has widened the opportunity to travel for leisure, including for those of limited means. Passengers now often have a choice of airline or a flight from a regional airport. There is a wide range of destinations with a variety of fares from day to day and at different times of the day. I hope that the low-cost revolution is here to stay. My concern is mainly about consumer protection and safety.
Many years ago, in the late 1960s, I was Minister of Trade, looking after civil aviation at the Board of Trade. I endorsed the Edwards report into civil air transport of 1969 and I argued strongly within the department in favour of a civil aviation authority, which was turned into legislation by a successor government in 1972. I also read accident reports and followed the history of short-lived, sometimes buccaneering independent airlines which seemed to steer close to the wind.
That is the background of my Unstarred Question, which puts together the role of the Civil Aviation Authority and the low-cost revolution. If I am raising questions, mainly in an agnostic spirit, it is because there is no reference to low-cost airlines in the chairman's statement in the 2002 annual review, none in the report and accounts, and no reference either in what is described as "30 years of the CAA 19722002", a short history of the CAA, in the review.
The CAA review and the report list the board of directors, which includes a group director, consumer protection. There is a passing reference to low-cost airlines in the appropriate section. But consumer protection seems to be mainly concerned with tour operators and the travel industry, not directly with the public.
The second report of compliance was published in November 2002. It was also disappointing. It conceded that the report was not complete because there was insufficient information about the airlines. Only nine UK carriers were included and none were low cost.
Ryanair and easyJet have declared their intention to resist European legislation that would require the payment of compensation when passengers suffer from delayed and cancelled flights. And according to Which? magazine, the idea of a charter of airline passengers has been described as "meaningless nonsense".
The Advertising Standards Authority, of which I was chairman for six years, has received justified complaints about Ryanair, easyJet and the late Go and Buzz. That includes misleading fares and destinations. The CAA's consumer protection group has had an interest in such advertising. In general, is the Department for Transport satisfied with the CAA's performance on consumer protection and content with its consumer protection terms of reference?
The CAA's annual report refers to safety as "the first priority", "the top priority" and the "primary objective"and quite right too. It states that the United Kingdom has one of the best aviation safety records in the world. I am ready to endorse thatas, I am sure, is the Minister. However, it would be reassuring if the CAA was to state explicitly that low-cost airlines are not under unreasonable strains and pressures, given some disturbing anecdotal remarks.
It would be helpful if the CAA could confirm that the quality of flight and cabin crew is as high as ever, given the projected number required by low-cost airlines. Can the Minister explain how the CAA maintains its standards?
Finally, I turn to aircraft. I understand that low-cost airlines generally utilise their aircraft for up to 13 hours a day, compared with eight or nine hours for traditional airlines. Given that some second-hand, elderly aircraft will continue to be used, I assume that the CAA is monitoring risks and watching for any cutting of corners.
In the course of my remarks, I have inevitably referred to Ryanair and taken for granted that the CAA's writ runs over any airline based in the United Kingdom. However, given that Ryanair is an Irish airline, the CAA may have limited powers. Perhaps the Minister will explain the position and tell us whether there are any reciprocal arrangements with the Irish aviation authority.
I repeat: I greatly welcome the low-cost revolution of civil aviation, but I hope that the Minister can reassure the public and me that the Civil Aviation Authority is fully alert to any shortcomings in that important, fast-moving sector. He might encourage the Civil Aviation Authority to be more forthcoming about low-cost airlines in its next annual report and review.
Lord Clinton-Davis: My Lords, I declare an interest as president of the British Airline Pilots Association. I congratulate the noble Lord, Lord Rodgers, who is an old friend of mine, on his choice of subject for this debate, which could hardly have been more timely.
I know that the noble Lord will forgive me if I focus entirely on the proposed takeover of Buzz by Ryanair. He mentioned other highly important matters, to which I hope the Minister will reply. More importantly, I hope that what he has echoed will be important in practice.
The noble Lord declared an interest as a former Minister of AviationI am, too. Never in his or my time as Minister was there a problem of this kind. It is most important that it is not ignored. It must be tackled, not only by the Government, but by all the agencies concerned with the consumer and airlines.
I have long been a believer in sensible debate about such issues and the role of the Civil Aviation Authority and other bodies concerned with airline regulation and the rights of the air-travelling public. We are talking about jobs and the future of airlines. We are addressing matters of profound importance to the Government, their aviation policy and how it impinges on European law. It involves the interests of the OFT and those likely to use the aircraft; namely, the consumers, as the noble Lord, Lord Rodgers, pointed out.
So much depends on the relationship permitted to be forged between the British Airline Pilots Association and Ryanair, in particular, at this time. The auguries are not good. Although I am president of the British Airline Pilots Association, I point out that it is regarded by most airlines, the travelling public and Members of both Houses of Parliament as a responsible body. Only one personthe chief executive of Ryanairhas chosen otherwise.
I wish that I could be more optimistic. Unfortunately, the intransigence of Michael O'Leary has collided with this. He threatened staff, telling them to take the contract or he would close the airline down. He said:
Fortunately, the British Airline Pilots Association enjoys different and, for the most part, happier relations with other airlines, but Mr O'Leary prefers the language of duress. He has accompanied his threats by saying that he may yet walk away if his terms are not accepted, leaving all 600 employees of Buzz without jobs. He has actually threatened that. It defies the imagination, but that is what he said. It may be, as Jim McAuslan, the general secretary of BALPA, suggested, that Ryanair never had any intention of running Buzzaway and wanted to close Buzz down to get rid of the competition. The Office of Fair Trading will have to consider that matter.
When it comes to employment issues, should not the Civil Aviation Authority and the Office of Fair Trading look more widely at these than so far has been depicted? If there may be an infringement of competition law and of merger control provisions,
So far, Mr O'Leary's tactics have been to menace and misrepresent. It may be true that Buzz is, as he says, losing £30 million a year, but is it not equally true that other relevant areasfor example, marketingwould now be assumed by Ryanair and would save the company about the same amount every year? Is it not true, therefore, that the company could survive without any change to the pilots' contracts? To Mr O'Leary, I say that there is a lot to talk about. Is he prepared to listen and come forward with some rational arguments? After all, we are talking about people's jobs, about the right to fly and about a host of important issues. There is plenty to talk about.
I want the new airline to be successful, but the BALPA pilots also must be able to enjoy their employment rights. I want them to have trade union recognition, as has been the case for many years. Those aims are by no means incompatible, and I hope that the CAA and the other bodies to which I have referred will shoulder their respective responsibilities, because a great deal is at stake.
Lord Newby: My Lords, I too should like to congratulate my noble friend Lord Rodgers on the timing of his debate because this week the financial press has been full of stories about low-cost airlines taking over each otheror not, as the case may be.
I have been surprised at the success of low-cost airlines in achieving an extraordinarily large market share in a very short space of time. Last year over 40 per cent of domestic passengers flew with low-cost airlines, with over 30 per cent of passengers flying to continental Europe. Low-cost airlines have brought considerable benefits to consumers, the most obvious being that of expanding consumer choice. Indeed, the extent to which the low-cost airlines have been successful at creating markets which previously did not exist was brought home to me when returning late last year from a family holiday in Italy. We caught a late night flight from Ancona to Stansted. I expected the incoming flight from London to be largely empty. Instead, it was completely full. To achieve a full flight at the beginning of September into Ancona late on a Monday evening was a considerable marketing achievement. Of course that has been replicated with flights to many other destinations.
Another successful innovation from the low-cost airlines, one that has been grudgingly accepted by the traditional operators, has been their introduction of new technology, not least in ticketing arrangements. The purchase of tickets is now so much easier.
In terms of air crashes, the safety record of the low-cost airlines has been extremely good. However, in a sense there can be no smoke without fireif that is not an inappropriate punin terms of safety. As my noble friend Lord Rodgers pointed out, genuine concerns have been expressed that corners may be cut when economic pressures are great. Here the CAA and its Irish equivalent need to be particularly vigilant.
The greater risk facing low-cost airlines and therefore the passengers flying with them is an economic one. As I mentioned earlier, the airlines have expanded very quickly and they are planning to grow even more.
I turn first to Ryanair. At one point last year, I heard Michael O'Leary self-confidently predicting that in a relatively short period of time it would have overtaken BA in terms of the size of its company. That is a kind of hubris coming from a relative newcomer to a sector, which would certainly get any shareholder extremely worried.
Secondly, as regards Ryanair, the Buzz purchase, referred to by the noble Lord, Lord Clinton-Davis, brings with it a number of significant risks. The noble Lord, Lord Clinton-Davis, is worried about the situation faced by pilots and the possible heavy-handed negotiating tactics of Ryanair. My concern is slightly different. Buzz was losing 1 million euros per week. Whatever is done to cut its marketing costs, if Ryanair can turn around that kind of loss, certainly in the short term, it is doing extremely well. It is to be hoped that it has deep enough pockets to turn around a very significant weekly loss and bring Buzz back into profitability.
In order to fill its airlines at virtually any cost, Ryanair has announced recently that it is to make 1 million seats available from upwards of £10 per seat. Clearly, it will be suffering a marginal loss per passenger even though it is desperate to maintain the number of flights and fill the airline. Indeed, fares at Ryanair are some 8 per cent lower now than for an equivalent flight at an equivalent time last year.
The situation facing those airlines, after a period of considerable growth, is one of tightness in terms of revenues and of desperate attempts to fill their seats. One of the almost certainly predictable consequences of the current international situation is that passenger volumes in the short term will fall, as they did after September 11th. Again, one hopes that those two airlines have the financial resources to deal with any such shortfall.
These potential problems of over-expansion are ones which the CAA cannot resolve adequately. Essentially, they are matters for the market. The point at which the CAA may become involved is if consumers find that the airlines are unable to maintain their obligations and compensation needs to be paid.
My question for the Minister, which is under the jurisdiction of the Government, relates to one element of the economics of the low-cost airlinesnamely, the issue of air passenger duty. Obviously, air passenger duty is particularly significant for no-frills airlines because taxes constitute a higher proportion of their costs than they do to the carriers charging a higher fare per passenger. I know that the Minister will not tell me what the Chancellor will be announcing in the Budget, but I should be grateful if he would pass on to his right honourable friend in the Treasury the fact that, at this stage in the economic cycle, a rise in air passenger duty could be particularly damaging to the low-cost airlines.
Viscount Astor: My Lords, low cost airlines are a success in this country. They represent approximately 41 per cent of domestic airline travel and 32 per cent of continental airline travel. I shall be brief, but not out of any disrespect to the noble Lord, Lord Rodgers. The questions that he asked are more for the Minister and of a more technical nature, rather than the policy of the airline industry. I am grateful to the noble Lord, Lord Rodgers, for giving me an opportunity to ask the Minister three simple questions.
First, there have been concerns about safety, as mentioned by the noble Lord, Lord Newby. Specifically, there have been concerns in the press about pilot hours. Are the Government satisfied that the CAA is doing all it can? Indeed, is the CAA satisfied with the safety of low-cost airlines.
Secondly, I want to ask about consumer protection. The Minister's colleague in another place, Mr Jamieson, announced that political agreement was reached at the European Transport Council in December last year,
Finally, in the light of the current crisis in the Middle East, which will affect airlines, is the Minister aware of airlines being unable to obtain insurance cover? Have they made representations to the Government? If so, will the Government do what they did in similar circumstances two years ago; that is, arrange for additional cover so that airlines can continue to fly?
Lord McIntosh of Haringey: My Lords, I am grateful to the noble Lord, Lord Rodgers of Quarry Bank, for introducing the subject. Clearly, it touches the personal experience of all of us. When the noble Lord, Lord Newby, was returning from Ancona and was surprised that the incoming flight was full, I was probably on one of them. My wife and son went to Ancona for £2.99, plus taxes, each way. That was rather good value.
I do not want to concentrate entirely on the cost. In economic terms, we should not be talking about low-cost airlines but about no-frills airlines. Not only is the cost different from the mainstream airlines, but the product is different. It is not just a matter of meals, free drinks and so forth; the no-frills airlines have discovered that some things which in other airlines are offered as a basis, people are willing to forgo for the sake of lower prices. That applies to meals, drinks, methods of ticketing, pre-booked individual seats and so forth. That is a marketing change; the airlines are selling a different product.
I believe that we should welcome such airlines. Anyone who opens up a new market in this way is performing a service for consumers. As the noble Lord, Lord Rodgers, said, it happened because of the introduction of the single aviation market in Europe in the early 1990s and, as he and other noble Lords have said, it is now hugely significant. More than one-quarter of the number of international passengers from the United Kingdom are on the no-frills airlines. Those airlines have opened up new routes from different places in Britain, which is most important, but also to different destinations in many parts of Europe. They have genuinely created a new market.
From that, the noble Lord, Lord Rodgers, went on to remark on the lack of reference to no-frills airlines in the CAA annual report and review. There is a good reason for that: the CAAI shall deal with the Irish Aviation Authority laterdoes not recognise a difference between no-frills airlines and others. It is enormously important that it does not distinguish on the basis of cost. That is important from the point of view of safety, from the point of view of the responsibility of the consumer protection group for
As to safety, based on the air navigation orderthe most recent one of 2000the CAA safety regulation group issues air operator certificates to all airlines that fly from this country. There is no distinction between no-frills airlines and any other airline. The same audits and the same flight inspections are carried out. Until I came to look at this subject, I did not realise that CAA pilots fly with all of these airlines as main pilots, co-pilots and in the jump seat to observe compliance. It is the same for Ryanair. The Irish aviation authority adopts the same practice. Clearly that is an important protection.
Allegations and accusations have been made which have been referred to by the noble Lords, Lord Newby and Lord Rodgers. It is alleged that something is going wrong; that corners are being cut; that pilots have been disobeying air traffic control instructions. I am not saying that the noble Lords are making those allegations but they are reporting that they have been made. The noble Lord, Lord Newby, went so far as to say that there is no smoke without fire. He would not like that being said about financial institutions in the City of London.
All of these allegations have been investigated by the Civil Aviation Authority and found to be unjustified. For example, every time allegations about non-compliance with proper flight schedules have been investigated, the schedules have been found to be in accordance with European standards.
Turning to the issue of commercial fitness, people ask why it was that Buzz continued to trade although it was losing 1 million euros a week. It was not criticised by the CAA consumer protection group for doing so because it had behind it a much larger organisationKLMand, unless there is evidence to the contrary, it must be assumed that the parent company will take responsibility for it.
The consumer protection group concerns itself with commercial fitness; with the financial resources available; with the corporate structure; and with the probity of airline management. Again, no distinction is made between no-frills airlines and other airlines.
The decision of Ryanair to buy Buzz and the decision of Buzz to allow itself to be bought by Ryanair are commercial considerations. They cannot be considerations for the regulator, the Civil Aviation Authority. I understand that Buzz is now being reconstituted as Buzzaway and that it will be applying for an operator licence and an operator certificate. That will of course be under regulatory control.
Before I leave Buzz and Ryanair, I must refer to the speech of the noble Lord, Lord Clinton-Davis. He referred with some feeling to the bad employment relations between Mr. O'Leary and the pilots and,
In so far as competition is concerned, that, of course, is a matter for Her Majesty's Government. The Office of Fair Trading has called for comments from interested parties. The Department for Transport and the Civil Aviation Authority have responded to that call. The OFT mergers panel will decide whether there are competition concerns and whether the matter should be referred to the Competition Commission. These are proper considerations of the Government and those responsibilities are being taken seriously.
I understand the dismay at the redundancies, especially the dismay of those who expected to take particular flights from particular places in the United Kingdom to particular places in Europe and found that they no longer existed. These are commercial considerations, however, rather than matters of regulation.
The consumer protection group of the CAA runs ATOL. It is a historic fact that under the EC package travel directive, ATOL applies only to bookings made on packages. If, for example, bookings are made for car hire and hotels on the Internet by somebody following a link between the airline and the car hire company, that does not count as a package and cannot be covered by ATOL. There is no prospect of the protection provided by ATOL being extended. That would have to be done by insurance.
I want to reinforce what I said about Ryanair. It is entirely properly regulated by the Irish Aviation Authority because its registered office and its business managementand, therefore, its principal place of businessis in Dublin, although it operates largely from Stansted. Ireland and the United Kingdom are both signatories to the Chicago convention and are both subject to the ICAO, which carried out a thorough audit of the Irish Aviation Authority in 2001 and awarded it a clean bill of health. I can therefore give the assurance that all the protections that exist for passengers of UK airlines from the Civil Aviation Authority also exist for passengers on Irish airlines under the Irish aviation authority. They work to the same European standards as we do.
I was asked about whether air passenger duty is damaging for low-cost airlines. I do not think that I can seriously be expected to comment on air passenger duty in the weeks running up to the Budgetor on any decisions that the Chancellor might make.
The noble Lord, Lord Rodgers, asked about the compliance reports on the voluntary commitment to airline service standards. They are carried out on a relatively voluntary basis because they are about voluntary commitments. However, the Government are satisfied that the CAA reports covered all the relevant facts and were a fair reflection of the progress made by the airlines.
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