Bermuda Agreement - Bermuda II

Bermuda II

In October 1976 the British Labour Government of Harold Wilson unilaterally terminated the Bermuda I agreement announcing that a new version of the agreement should be put in place by June 1977. This was widely criticised in the United States, where it was seen as an attempt to return to the more restrictive ideas which the British had favoured thirty years earlier and in Britain, where it was felt that it would upset the American Government and damage the attempts to obtain landing rights for the Concorde which British Airways was proposing to fly into New York and Washington. The timing was certainly poor as it preceded an US Presidential election and US negotiators might not be in a position to reach any agreements for several months.

The British move was prompted by the relatively low share of British airlines on the transatlantic route, which in most years since 1947 had varied between one third and two fifths. However most of the passengers were also American nationals so perhaps this should not have been a surprise. By this time Pan American had absorbed American Overseas Airlines and been joined by Trans World Airlines on the routes into London Heathrow, which was by far the most important European hub for American flights. TWA, in particular was able to exploit its network of US domestic routes to feed passengers through its New York gateway on to the transatlantic route to London. Pan American had also developed arrangements with other US carriers which developed further when it bought the domestic carrier National Airlines, the following year. All three airlines operated routes between London Heathrow and the Bermuda I gateway airports with Boeing 747 jumbo jets. Whilst many Americans enjoyed "English service" British Airways was unable to win a major share of the traffic on routes, where it competed with both US carriers.

The Bermuda II agreement which came into force in 1978 was much less liberal than Bermuda 1. Its most significant change was that it replaced the airlines right to set their own fares, subject only to a complex protest procedure by either government with a new system in which fares were agreed by the two governments directly. It restricted the number of airport gateways in the United States to be served directly from London Heathrow. At the same time, it permitted non-scheduled airlines to operate between the two countries, using other airports, particularly the relatively new airport at Gatwick. There was a complicated system of controlling capacity on routes between the UK and the US. The British aim was certainly to provide a system under which airlines from each country could compete on more equal terms.

Unlike Bermuda I, which was a rigid agreement set for all time, Bermuda II was a framework agreement which would permit changes whenever circumstances changed. In 1990 Manchester was added as a British gateway airport for transatlantic flights which was extended to certain other regional airports in October 1994. By 1996 access to all UK airports other than Heathrow and Gatwick was permitted under third and fourth freedom rights, in other words without the right to carry passengers beyond the UK.

In 1991 the bankruptcy of Pan Am and TWA led to a major renegotiation which allowed American Airlines and United Airlines to take their places at Heathrow. Virgin Atlantic was also given rights as a second British carrier to operate services.

By now with British Airways proving more successful on the route, Margaret Thatcher's government was prepared to be more liberal. Routes were opened up to further US gateways and fifth freedom rights were again extended for flights to Asia, Australia and Central and South America.

The negotiators also proposed that seventh freedom rights would again allow British or American airlines to carry passengers between Continental European airports and Britain or the United States, which had been permitted under Bermuda I. US and British airlines were also permitted to code share, which had previously been banned by the Sherman Act on anti-trust grounds.

The provisions of Bermuda II certainly had the desired effect from the British viewpoint. By 1999, 13 airlines were operating the transatlantic route from British airports. Of these, British Airways carried 40.2% and Virgin Atlantic 17.5% of the traffic. American Airlines with 13.9% and United Airlines with 12.1% were the leading US carriers. Continental with 6% Delta with 4.3% cent, Northwest with 2.2% USAir with 1.7% and TWA with 0.9% were handicapped by lack of access to Heathrow. Air India, Aer Lingus, Air New Zealand and Kuwait Airways, operated under Fifth Freedom rights but together flew only 1.3% of passengers. By that year 18m passengers from or to the US used London airports, up from 3m in the last year of Bermuda I. Just over 40% of all US traffic to European Union countries flew into or through London.

Fifth Freedom rights which had been widely available under Bermuda I were much restricted under Bermuda II. British airlines were permitted to carry American passengers only to Belgium, France, Germany, the Netherlands, Luxembourg and Ireland. American airlines were allowed to carry passengers from Shannon to Prestwick and Glasgow. They could also embark passengers at UK airports for Berlin, Frankfurt, Hamburg, Munich and Oslo. This was far more restrictive than Bermuda I which had permitted a large number of Fifth Freedom routes. Pan American made use of these rights for its Berlin and West German services during the time that German airlines were not permitted to fly to the city and these were later also used by United Airlines which acquired Pan American's rights. But otherwise there was little interest in such services from the airlines. The approval of other European Governments which would have been necessary for instance to permit TWA to carry passengers between London and a European city or British Airways to embark passengers in a Continental city for carriage to the US was simply not forthcoming in most cases. Only the Irish Government, perhaps more interested in tourism than supporting Aer Lingus played the game.