Brexit referendum result leaves many airlines up in the air

The result of last Thursday’s referendum in Britain which saw the United Kingdom vote to leave the European Union has already had an effect on a number of airlines, particularly the low-cost carriers. The ripple effect is likely to spread further, not just as a result of complications caused by Britain leaving the European Open Skies agreement, but because of the slump in the value of the pound. Over the next few weeks a number of international airlines will likely see a good number of flight cancellations from British travelers as a result of the disadvantageous exchange rate. As an example, stirling has plunged to a 31-year low against the dollar. One of the hardest-hit airlines has been the low-cost carrier easyJet which had already posted a profits warning as a result of the uncertainty created in May and June by the impending referendum, combined with strikes by air traffic controllers and the Egyptair crash last month. Pre-tax profits in the three months to the end of June will be down £28 million from anticipated figures and revenue per seat will be even lower than the guidance figures provided last month. Carolyn McCall, EasyJet’s Chief Executive, said the company has requested the U.K. government and European Commission “to prioritize the U.K. remaining part of the single EU aviation market, given its importance to trade and consumers.” As Robin Byde, an analyst with Cantor Fitgerald stockbrokers, put it, “A lot of companies are being very cautious on the outlook at the moment and I think we will see a lot more of that. A couple of days ago easyJet were talking about how robust their business model is and today they are effectively downgrading numbers for the full year so it’s slightly at odds but you can’t fault them for being prudent.” EasyJet were certainly not alone in being affected, as on Friday last week, the day after the referendum, British Airways’ owner, International Airlines Group, declared that annual profits would be lower than expected because of weak trading created by the referendum. The news from the airline group which owns British Airways, Ireland’s Aer Lingus and Spanish carriers Iberia and Vueling, came very much as a surprise. In a statement, the airline said, “In the run-up to the U.K. referendum during June, IAG experienced a weaker-than-expected trading environment,” adding it no longer expected reaching its full-year target of an operating profit increase on par with last year. The operating profit target was around €3.2 billion. Michael O’Leary, Ryanair’s Chief Executive, had already indicated ahead of the referendum the airline’s growth in the U.K. could slow down should the country exit the EU, though he didn’t address the effect of the vote in the carrier’s business plans, only saying a seat-sale linked to the referendum had generated strong interest.
The EU’s single aviation market, which permits any airline within the region to fly to any city in the bloc, has been responsible for encouraging air travel and boosting profits for many of the region’s airlines. Additionally, the agreement also covers traffic rights with countries overseas, including services from the U.S. to London, the single-largest destination for trans-Atlantic flights. A situation now exists where British politicians will have to negotiate new rules for the skies. One option would be to become an adjunct member to the European single aviation market in the way that Norway and a few other non-EU countries have. Britain could also pursue a bilateral agreement with the EU along the lines of the one agreed by Switzerland.