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Don’t panic - you'll still be able to fly to Europe after Brexit

“Airlines have already started analysing options that would allow them to operate, even with a hard Brexit.” (Richard Baker / Contributor)
“Airlines have already started analysing options that would allow them to operate, even with a hard Brexit.” (Richard Baker / Contributor)

Several alarmist scenarios have been proposed with respect to the UK aviation industry post-Brexit. There is no doubt that Brexit creates unwelcome uncertainty and risks in the operating, regulatory and economic environments of several industries including aviation.

The precise outcome will only be known once agreements on complex issues are reached. These include whether or not the UK will be part of the single market; and particularly part of the EU-US open skies agreement, whether it will be part of the European Common Aviation Area if it is not part of the single market, or whether World Trade Organization rules would provide an adequate framework or basis for continued operations.

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Having said that, the alarmist scenarios in all probability will not materialise. While there may be some short-term impact for aviation in terms of passenger numbers due to visa issues, in the medium to long term there may not be any significant adverse impact.

The reason is simple: commerce is an extremely adaptable institution. Business is like an extremophile (an organism that can thrive in extreme conditions), as anyone who visited China during communism, or Cuba, or seen the bootleg tapes of North Korean street markets can attest to. Business can thrive in tough, unpredictable, and challenging environments.

Aviation in particular has weathered many storms, such as security concerns due to the rise in terrorism, global epidemics, and fluctuating and uncertain prices of its biggest cost – oil.

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Airlines have already started analysing options that would allow them to operate, even with a hard Brexit. One such step is applying for air operator certificates in the EU as needed.

Easyjet has already applied for such a certificate in Austria, and plans to create a new airline, Easyjet Europe, headquartered in Vienna. The multi-divisional corporate form, where a corporation can hold a group of legally stand-alone (but operationally interdependent) companies allows such actions relatively easily. IAG, for example, already holds EU carriers in its corporate structure (Aer Lingus, Iberia and Vueling), in addition to British Airways.

Second, UK airlines that are not creating European subsidiaries can ensure that their shareholders are more than 50.1% based in the EU so that they can keep flying without any disruption.

Complying with this rule is not particularly challenging, as a significant percentage of airline shareholding structures is often made up of institutional investors that have European subsidiaries and can hold their investments in UK airlines via these subsidiaries.

Third, airlines are creating equity-based alliances that will allow them to continue flying the lucrative UK-US transatlantic route, such as the Air France-KLM/Delta/Virgin alliance that will account for 27% of this route, reducing risk for both EU and UK-based alliance partners.

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Even if some factions within the EU would like to make an example of the UK for daring to exit, in the end it is in the EU’s best interests to maintain a smooth commercial relationship with the UK.

In this case the EU does not want its inbound tourism income from the UK to drop in the longer term, as much as the UK does not want its EU tourism income to drop.

Further, if it came to the unlikely scenario that UK-based airlines were not allowed to fly within the EU and from EU cities to non-EU destinations, then EU-based airlines would not be allowed to fly from the UK to non-EU destinations. This is an outcome nobody wants.

The alarmist scenarios of flights grinding to a halt are just that: alarmist, without much basis in fact or much understanding of how business adapts to changing circumstances.

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Brexit is a classic strategy problem. CEOs and companies worth their salt are already taking steps to deal with the challenge. The solutions may be different depending on the industry and particular situation of the company, but strategic actions that will enable aviation to continue operating with minimal disruption are already happening.

Loizos Heracleous is professor of strategy at Warwick Business School and co-author of Practicing Strategy. Follow him on Twitter @strategizing.

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