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Brexit HOT TOPIC


OVER THE HORIZON I


t’s rare that a sector as used to dealing with crises as the airline industry is genuinely


confused, but immediately after the United Kingdom’s European Union (EU) Brexit vote in June, a collective head scratching ensued that looks set to continue all summer.


A whole host of subjects are being


pondered as the impact on currencies, bilateral agreements, expansion of London’s Heathrow Airport and even aircraft manufacturing are weighed up. While Britain as a whole waits for leadership and guidance from prime minister Theresa May, so does the airline industry. Before the industry considers the long-


term implications, there are more immediate concerns. This was brought into sharp focus by easyJet, whose share price plummeted almost 19% on the Monday morning three days after the referendum. The airline attributed an extra £25 million in fuel and exchange rate costs to the result and warned that revenue per seat would slide “by at least a mid-single digit percentage”. Dale Keller, chief executive of the Board


of Airline Representatives (BAR) in the UK, says the most pressing issue is how currency and costs to the industry are affected. “The initial impact will be one of


currency fluctuations and that will be the impact for some time,” says Keller. Not only does it affect airlines themselves, but the price-sensitive tourism industry will also be affected, as a 10-15% movement in price can mean the difference between travelling or not and, as any airline chief will tell you, a shift of this magnitude can wipe out profitability in a short period of time. “A few percentage points on dollar costs will have a huge impact,” adds Keller. As summer progresses, any cost


pressures on budget and charter airlines will be magnified as Europe’s tourism


industry enters the late sales period. With Egypt and Tunisia off sale and Turkey at bargain basement rates, accommodation in the western Mediterranean is at a premium as UK, German and Russian visitors seek new destinations (Tenerife, for example, has seen a 21% increase in UK visitors so far this year). If air ticket prices rise, there must come a point when things become just too expensive for the average consumer. Nevertheless, summer flying


programmes are locked in and next winter’s at least look unlikely to change much. As summer progresses, the UK industry will wait for guidance from the Civil Aviation Authority (CAA) and Department for Transport (DfT) as to what the impact will be. “Only then can we say that this is what it all means, meanwhile, currency is the big issue,” Keller concludes. The International Air Transport Association (IATA) has done its sums and estimates that the Brexit pound will be 10-15% weaker than one that is within the EU, meaning outbound travel from the UK will be more expensive and inbound cheaper. Last year, 54 million people flew out from the UK and 26 million flew in from other countries. IATA concludes that the outbound market will take a hit of 3-5% by 2020, but that this will be partially offset by increased inbound traffic.


Rewriting the rulebook As the industry wrestles with this, the DfT must grapple with thoughts on rewriting the UK’s aviation agreements. Given that 54% of scheduled UK flights are within the EU, this is no small matter. The easy way, of course, would be for


the UK to remain in the Single Aviation Market as a member of the European Common Aviation Area (ECAA), which includes Iceland, Norway and some Balkan countries. This would settle the intra-European situation, but some legacy carriers, for example, might object to


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