20.
114.
Mr Philipson said that the applications had to be determined under Section 3 of the Act and under the Guidance. Paragraphs 7 and 8 and Annex A to the Guidance excluded the licensing of BCal because Hong Kong was a longhaul route in BA's sphere of interest. It was already operated by BA and BA had not consented to BCal being licensed on the route. There were no grounds for saying that paragraphs 7 and 8 did not embrace cabotage routes or that they were ultra vires as far as the relationship between BA and BCal was concerned as the Laker decision was expressly limited to the relationship between BA and Laker. BA's main submission was addressed to the merits and there was no case that could be made for any carrier which was unwilling to limit its capacity to demand. The exceptional circumstances in paragraph 7 of the Guidance had not been referred to by either BCal or Laker and it had been for either airline to demonstrate that they fell within that exception.
115. If the Authority was not prepared to accept BA's argument on paragraph 7 and 8
of the Guidance, then it would have to follow the spheres of interest policy as set out in its latest policy statement, which elaborated the Section 3 criteria and would permit the licensing of Cathay but not Laker or BCAL. The words in parenthesis in Section 3(1) (a) qualified everything in that paragraph. and enabled the Authority to question whether the proposals of BCAL and Laker were reasonable or whether the application from Cathay was to be preferred. Section 3(1) (b) did not mean that British airlines other than BA must be given opportunities to compete on every route. The prevailing CAA policy relevant to the present applications was set out in paragraph 4 of the Policy Statement, issued by the Authority in November, where the Authority had reiterated that it agreed with the generality of the spheres of interest policy. If the spheres of interest policy did not apply to the route then the logic of the policy dictated that it should because of the peculiar status of Cathay and Hong Kong.
116. The Chairman said that he believed the words in brackets in Section 3(1) (a)
meant that because international services were governed by bilateral agreements, it was not reasonable for the Authority to seek to ensure that British airlines should provide all services, because such a result could not be achieved. The purpose of the spheres of interest policy was to divide routes between BA and BCal so that they could concentrate on competing with foreign airlines instead of with each other. If there was no foreign airline on a route there was no logic in applying the spheres of interest policy. Mr Philipson maintained that the philosophy of the spheres of interest policy applied to the London-Hong Kong route even though on the strict wording of paragraph 4 the Authority could look at the route differently. Paragraph 70 of the St Louis-New Orleans decision applied equally here as logic required the separation of routes no less in the case of Hong Kong than on the North Atlantic.
117.
On cross examination Mr Thomson had refused to give any details of BCal's future plans and it was for the Authority to ask itself what significance should be attached to BCal's proposed use of Hong Kong as a base for a future Far East network. Their evidence had suggested that the London-Hong Kong route was not regarded as viable without other routes and there were doubts and difficulties about the intermediate points. The route Bahrain-Singapore was clearly one of the routes BCal gave up when the spheres of interest were introduced and the logic of that policy denied BCal the opportunity to operate a limited route network in the Far East. The Authority had said on a number of occasions BCal needed to be given the opportunity to improve their existing route network by being permitted to operate to stable points. Hong Kong was such a point, but there were doubts as to whether a route network developed beyond Hong Kong would provide the sort of stability BCal required. Most of the points of criticism applicable to BCal were also applicable to Laker who proposed to use the route as part of a round the world service and not just as an end to end route. They also required intermediate sector traffic from Sharjah.