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Airlines race to work out how Brexit will hit them

June 27, 2016 Headline News No Comments Email Email

egtmedia59Airlines are moving fast to find how Britain’s landmark vote to leave the EU will affect them, with the International Air Transport Association (IATA) releasing a preliminary analysis of the financial and economic impact of the Brexit decision on the air transport industry.

“The Brexit vote has triggered much uncertainty – financial and otherwise,” IATA director general and chief executive, Tony Tyler, observed at the weekend.

“There were 117 million air passenger journeys between the UK and the EU in 2015. Air links facilitate business, support jobs and build prosperity. It is critical that whatever form the new UK-EU relationship takes, it must continue to ensure the common interests of safe, secure, efficient and sustainable air connectivity.”

The IATA report notes that uncertainty surrounds the detail of Britain’s EU exit “and it could be two years or more before these issues are fully resolved; prolonged uncertainty will influence both the magnitude and persistence of the economic impacts”.

  • Preliminary estimates suggest that the number of UK air passengers could be 3-5% lower by 2020, driven by the expected downturn in economic activity and the fall in the sterling exchange rate. The near-term impact on the UK air freight market is less certain, but freight will be affected by lower international trade in the longer term.
  • A big issue is with aviation regulation. The UK faces a trade-off between accessing the European Single Aviation Market and having the policy freedom to set its own regulations.

British Airways owner International Consolidated Airlines Group (IAG0 said Britain’s decision to leave the EU would not have a long-term material impact on its business.

It did, however, warn on profit on Friday.

“Following the outcome of the referendum, and given current market volatility, while IAG continues to expect a significant increase in operating profit this year, it no longer expects to generate an absolute operating profit increase similar to 2015,” IAG said.

RBC Capital Markets said that IAG could be worst hit among airlines, because it focuses on London’s Heathrow airport.

Marketing chief at low-cost carrier Ryanair, Kenny Jacobs, said that for British travellers, airfares would rise and holidays would become more expensive. Brexit could persuade passengers on trans-Atlantic routes to choose Dublin rather than London as an entry point to Europe, he said on Bloomberg Television.

Reuters reported that airlines with a strong focus on the British market were worst hit in a market slump, with IAG, easyJet, Wizz Air and Ryanair all down by 18-22% on Friday.

An exit could also lead to detrimental changes to airlines’ flying rights. This has been noted earlier. See: Why Brexit spells turbulence for airlines

As an EU member state, Britain is currently part of the EU’s single aviation market, which allows airlines to fly freely to and within member states. The UK government is expected to seek to rejoin the EU single aviation market, but there is no certainty that will happen.

easyJet said it is working on a number of options to allow it to continue flying in all of its markets. It is urging the British government and European Commission to ensure Britain stays in the single aviation market.

American Airlines’ stock price dropped sharply in early hours of trading Friday as news of the British decision was received, the Dallas Morning News reported. American is a close partner of British Airways and is considered the most exposed of US carriers to fallout from Brexit, with about 6% or 7% of its capacity touching the UK.

Delta share prices also fell. Even shares of Southwest, which does not fly to European markets, dropped 3.2%.

Meanwhile, Airbus chief executive Thomas Enders told the Washington Post the Brexit outcome was a “lose-lose ‎result for both – Britain and Europe. We will review our UK  investment strategy, like everybody else will.”

Written by Peter Needham

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