Brexit Challenges Aviation Industry

The United Kingdom had a referendum on whether to remain a member of the European Union (EU) or to leave. A British exit, or ‘Brexit’ in short parlance, became a reality on Friday 24 June. This means that the UK must now invoke Article 50 to formally notify the EU of the intention to withdraw and the country will cease to be a member 2 years from that date.

What does a Brexit mean for UK aviation?

Airlines have reaped immense benefits from a single European aviation market. Unrestricted access to all cities throughout the continent has transformed air travel in the region with lower fares and many more city pairs connected. The free movement of people throughout the union has been a driving force as the migration of people around the continent has meant air routes have sprung up to serve the diaspora.

Carolyn McCall of easyJet has already put her cards on the table and called upon the UK government and the European Commission to work together on the UK remaining in the EU single aviation market. This makes perfect sense as it would essentially continue the status quo and allow UK airlines to continue serving all European destinations as they do now. This appears to be the best outcome for the airlines.

This on its own fails to take into account the many variables that could change. The major travel related one could be the introduction of Visa requirements for EU citizens going to the UK and vice versa. This would restrict the movement of people between Europe and the UK and would likely have an immediate effect on demand, which would directly affect the aviation industry and its bottom line.

IAG, the parent company of Aer Lingus, British Airways, Iberia and Vueling is possibly in a better position than easyJet. The majority of its brands will continue to be EU based which means that if British Airways were hampered by the regulatory framework post Brexit, the other airlines could conceivably pick up the slack relatively easily.

FlyBe have mentioned the fact that it is domiciled in the UK could change, so it is quite possible that UK airlines could create a EU based subsidiary to continue their unrestricted access to the single market. This won’t come without additional costs.

The markets agree that airlines have the potential to be hardest hit, with aviation stocks falling in the EU and also in areas that could also be affected, such as the United States. IAG have already issued a profit warning on the back of the Brexit announcement and it is possible there is more to come. Should the value of the British Pound remain low, there will be a knock on effect to travel patterns. There are whispers of economic recession in the wings also.

Final Thoughts

There is going to be a lot of coverage on this topic over the next 2 years or so. It’s entirely possible that we are witnessing an entirely new version of the EU coming into play. The risks are many, but I believe the politicians in the UK will be doing everything to ensure the Brexit happens, while at the same time working in conjunction with their EU counterparts to keep as much of the status quo as possible. Everything is on the table and up for negotiation but it must be remembered that the UK is still part of the EU and all the relationships that have been forged still exist. It’s not an acrimonious break.

Once the dust settles from the announcement the real work will begin and I daresay we all will be watching the proceedings closely.

With thanks to Flight Global, The Wall Street Journal and Routesonline.

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