The Impact of Brexit on the UK Aviation Industry

Estimated reading time: 5 minutes

There are three separate forces impacting the aviation industry, following the United Kingdom vote to leave the European Union. These are, in order of magnitude:

The great uncertainty

It is still early days following the vote of 23^rd June 2016 for anyone to have a concrete view on what comes next. For better or worse, the debate between the two opposite camps in the referendum only focused on the advantages and disadvantages of a possible Brexit rather than providing a theoretical implementation plan on the road to Brexit. Accordingly, companies have very little in terms of guidance on which to base their short- and medium-term strategies.

Although UK and European airlines with strong UK presence voiced their concerns prior to the referendum, clearly seeing Brexit as a major negative event, the majority of airlines have not prepared comprehensive plans ready to be put into action following the result. The table below summarises the pre- and post-referendum opinions and actions by the largest airlines in the UK and Europe.

It is clear that the general uncertainty will intensify and the impact on airline operations will be greatest if the UK delays negotiations or fails to secure continued membership in the European Common Aviation Area (ECAA).

Impact on trade and business traffic

The UK is one of the world’s largest traders, with exports of $506 billion and imports of $684 billion in 2014 (Source: WTO). Moreover, an estimated 40% of Britain’s imports and exports by value travel by air (Source: Let Britain Fly), while almost 54% of Britain’s trade is with the EU (Source: Centre for European Reform). Accordingly, as much as $257 billion worth of UK-EU trade may be affected by future Brexit negotiations. Clearly, carriers with significant cargo business and cargo-only carriers will be most affected by any decline in trade as a result of a potential increase in the cost of doing business.

More importantly though, business traffic is already impacted and will be further affected in future and until there is clarity over the future role of the UK in the European marketplace. A fall in premium traffic, which is the main source of profitability for the majority of carriers, will put further pressure on yields and airline profits. It will come as no surprise if Europe experiences a new wave of airline bankruptcies, should major cost factors such as fuel prices compound the negative effect of premium traffic decline.

Impact of drop in outbound traffic

The UK is primarily an outbound aviation market, with over two thirds of all UK traffic being outbound. As such, airlines with significant operations to/from the UK will be negatively affected by the current and future weakness of the British Pound vis-à-vis the Euro and US Dollar. As European and international destinations become more expensive for UK travellers, we would expect airlines to adjust and reduce capacity deployed to the UK. The fact that the UK will become more attractive as a destination itself, will not compensate the drop in outbound traffic fully.

Page 1 of 2

• Next Page >