British Caledonian in The 1970s - Bermuda II Treaty

Bermuda II Treaty

In July 1976, Edmund Dell, the then new Secretary of State for Trade, renounced the original Bermuda air services agreement of 1946 and initiated bilateral negotiations with his US counterparts on a new air services agreement, which resulted in the Bermuda II treaty of 1977.

This presented BCal with new transatlantic opportunities to begin scheduled services to additional gateway cities in the US.

Under the new agreement, BCal had its licences to commence scheduled services from its Gatwick base to both Houston and Atlanta confirmed and was designated as the UK's exclusive flag carrier on both routes. It also obtained a licence and sole UK flag carrier status to commence scheduled services from Gatwick to Dallas-Fort Worth. In addition, BCal obtained a licence and sole UK flag carrier status to commence scheduled all cargo flights between Gatwick and Houston — including an optional stop at Manchester or Prestwick in either direction.

During the Bermuda II negotiations, the UK side succeeded in having inserted into the new air services agreement a clause stating that Gatwick — rather than Heathrow — was to be nominated as the designated US flag carrier's London gateway airport whenever BCal was going to be the sole designated UK flag carrier on the same route. This clause was meant to support the growth of BCal's scheduled operation at Gatwick as well as to redress the competitive imbalance between it and its much bigger, more powerful rivals.

The UK side furthermore succeeded in negotiating a three-year exclusivity period for the incumbent operator on any new route with their US counterparts.

For Gatwick-based BCal this meant that it did not have to face any competitor that was using Heathrow, a more accessible airport with a bigger catchment area and a far greater number of passengers connecting between flights, on any of the new routes it was planning to launch to the US. It also meant that it had any new route to the US completely to itself for the first three years of operation, which most airline industry analysts reckon is sufficiently long for a brand-new scheduled air service to become profitable.

At British insistence, Bermuda II furthermore contained clauses that made it illegal for any airline operating scheduled flights between the UK and the US to resort to predatory pricing or capacity dumping. Air fares were only approved if they reflected the actual cost of providing these services. Similarly, capacity increases were sanctioned on a reciprocal basis only. The reason for insisting on the inclusion of these provisions in the Bermuda II agreement was to prevent the much bigger, better financed and commercially far more aggressive US carriers from undercutting BCal with loss-leading fares cross-subsidised with profits those carriers' vast domestic networks generated, as well as to stop them from marginalising the UK carrier by adding capacity far in excess of what the market could sustain.

Both sides also agreed to continue dual designation on the London—New York and London—Los Angeles routes. The principle of dual designation was to be extended to another two high-volume routes.

BCal resumed scheduled transatlantic services on 24 October 1977. The airline became the first UK carrier to launch a daily, non-stop London (Gatwick)—Houston scheduled service as well as a weekly, direct all-cargo service on the same route, which operated via Prestwick on the outbound leg and via Manchester on the return leg. BCal inaugurated the daily scheduled passenger flights with a Boeing 707-320C narrowbodied aircraft. In April 1978, BCal re-configured the 707s plying this route in a three-class layout, which featured a dedicated Executive cabin, in addition to a first and an economy class section. This was the first time since the beginning of the jet age that a scheduled airline had offered a "third" class specifically aimed at the business traveller. It was intended to replace the 707s operating the all-passenger services with a brand-new, larger capacity as well as more fuel-efficient DC-10 widebodied aircraft at the start of the 1978/79 winter timetable period.