Yahoo Finance Brexit, airlines' worst fear, has become their preoccupation
There is no shortage of metaphors for what airlines expect from Brexit: analysts talk of crosswinds, executives fear turbulence. For some, it is simply flying into thick fog with no idea where they are going to land.
No airline wanted Britain to vote leave in last year’s referendum; easyJet and Ryanair campaigned against it. A single European market in aviation brought cheap flights spanning the continent, ever more passengers, trade and jobs. Why would they jeopardise that?
Now, Brexit is a huge preoccupation for airlines operating in and out of the UK – and airports, whose health is largely contingent on the success of short-haul European travel. Most obviously affected are the British low-cost airline easyJet and Dublin-based Ryanair, whose main market is the UK. Their share prices were hammered by the referendum: easyJet’s dropped by a third, wiping £2bn off its value in four days. They face, at the least, uncertainty, bureaucratic headaches and a runway of costly red tape.
The worst-case scenario of planes unable to fly between Britain and Europe is one that few foresee. But the legal framework underpinning international flights, wrapped up in EU membership, is set to disappear.
Dame Carolyn McCall, chief executive of easyJet, says: “We don’t know what’s going to happen. We are spending a lot of time working with the commission and the government to say we believe a liberal and deregulated aviation market is in the interest of every single aviation passenger in Europe.”
Airlines have argued that aviation is a special case. According to Brussels, that is deeply wishful thinking. The EU’s highest-ranking mandarin for transport, Henrik Hololei, told the Guardian: “There will be no separate deal.”
First comes a general Brexit deal, said Hololei, EU director-general for transport and mobility – one that could well limit the freedom of airlines to operate in and out of the UK. Brexit would “without doubt, have consequences” for airlines, he added. “They need to get a contingency plan.”
Concerns include landing rights, operating licences and ownership rules. Prior to the EU and deregulation of the skies, landing rights were negotiated between individual states – treaties allocating airlines to specific airports.
About 85% of Britain’s international air traffic is currently governed by EU-wide agreements, including flights to Europe and North America, allowing open access for airlines. Those rights include the freedom for airlines to fly between, and within, other countries in Europe: for easyJet to operate between Nice and Nantes in France, for example, or for Ryanair to fly from Stansted to Glasgow.
EU membership may not be essential: members of the European Common Aviation Area include Norway and Baltic states, and Norwegian has become the third largest budget carrier on the continent. But obtaining similar conditions after Brexit is far from assured.
EasyJet is pursuing air operating licences from other countries to keep its intra-EU network running, a £10m insurance policy. Yet it will be powerless to assure future flights between Britain and the EU can operate as usual without governmental agreement.
A further headache once Britain leaves the EU could be ownership rules that limit foreign shareholders to a minority stake: under the Chicago convention underpinning international airline treaties, operators must be majority-owned by the government or nationals of their home territory – currently the whole EU. But once Britain leaves the EU, Ryanair will find 20% more of its shareholders classed as foreign, and may require some to sell.
EasyJet may be thankful that its main shareholder, Sir Stelios Haji-Ioannou, has dual British–Cypriot citizenship, allowing the airline to easily reach the 50% shareholding threshold it will need to be classed as either British or EU-owned.
If there is no deal by the time it leaves the EU, the UK's ability to trade will be made significantly more difficult
Airport Operators Association
Some suggest that International Airlines Group, which owns British Airways, could run into red tape; but IAG’s chief executive, Willie Walsh, insists that the group’s structures, dating from the merger of BA and the Spanish airline Iberia in 2011, are Brexit-proof.
If cross-border issues are costly irritations to individual airlines, the bigger picture for Britain is more concerning. The Airport Operators Association warns: “If there is no agreement by the time the UK leaves the EU, the UK’s connectivity will be undermined and its ability to trade will be made significantly more difficult.”
Daily flight schedules that now start and end in Britain with business-friendly departure times may become less likely should, for example, easyJet have to shift increasing parts of its operations to bases within the EU. Ryanair has already said it will now grow its business in other EU countries rather than Britain.
Then there is the impact of the Brexit vote on passenger numbers. The slumping pound makes it harder for Britons to afford a foreign holiday, but easyJet puzzles over why it has not, conversely, lured in Europeans for a cheap break.
“What we’re really worried about is what it’s doing to demand,” says Sophie Dekkers, UK director of easyJet. “We’ve not seen any significant increase in inbound passengers. It’s only a hypothesis, but it could be a feeling after the referendum they’ve been rejected – that Britain is not making them feel welcome.”
Falling demand will make routes unviable, she says. That decline would be swiftly exacerbated should Brexit talks end with passengers needing visas. Paperwork swiftly deters leisure travellers, as easyJet found when tighter immigration rules killed off flights from the UK to Moscow that it had battled to secure.
The British government says it will continue to work closely with the industry, adding that it is in the interests of all European countries to maintain open air links – with British passengers vital, for example, for Dutch long-haul flights and Spanish tourism. A spokesman said: “The UK aviation industry is the largest in Europe, handling over 250 million passengers and 2.3m tonnes of cargo last year, benefiting both consumers and business in the EU and the UK.
“It will clearly be in the interests of both sides in the negotiation to maintain closely integrated aviation markets.”
But that view is not necessarily shared abroad. One well-placed industry source notes: “Other governments will have airlines in their ear – upcoming low-cost airlines as well as legacy carriers – whispering that they see a lot of commercial, competitive advantages in keeping the UK out.”
One executive does not discount the European commission’s warning. Michael O’Leary, chief executive of Ryanair – who campaigned in vain against what he calls “the stupidest decision the Brits have ever made” – says: “There isn’t going to be another arrangement. There’s a real prospect that the UK will be dumped out.”
