Brexit Gives EU Airlines Bumpy Ride
June 24 2016 - 07:10AM
Dow Jones News
LONDON—Amid Brexit market turbulence Friday, European airlines
have been among the hardest hit.
The U.K. is one of Europe's biggest aviation markets and home to
some of the region's largest airlines, including British Airways, a
unit of International Consolidated Airlines Group SA, and Europe's
second-largest budget airline easyJet. Europe's largest airline,
Irish discount carrier Ryanair Holdings PLC, uses London Stansted
airport as one of its main bases.
The effect on business quickly became clear. IAG, which also
owns Ireland's Aer Lingus and Spanish carriers Iberia and Vueling,
Friday issued a surprise profit warning.
"In the run up to the U.K. referendum during June, IAG
experienced a weaker than expected trading environment," the
London-based company said, adding it no longer expected to reach
its full-year target of an operating profit increase on par with
last year's. The operating profit target was around €3.2 billion
($3.6 billion).
European airline stocks fell sharply amid concern a weaker
British currency and feared slowdown in the wider European
economies would curtail demand for air travel. The vote also puts
into doubt agreements for traffic rights to and from the U.K.
"We expect airlines serving the U.K. market to face immediate
weaker outbound leisure demand, as the pound weakens and business
travel declines given economic and political uncertainty," HSBC
analyst Andrew Lobbenberg said Friday.
The European Union's single aviation market, which allows any
airline within the region to service any city in the bloc, has
spurred air travel and profits for many of the region's airlines.
The agreement also governs traffic rights with countries overseas,
including services from the U.S. to London, the single-largest
destination for trans-Atlantic flights.
"All of this facilitates greater competition between airlines
and, working effectively, results in lower fares and more choice
for passengers," lawyers at Eversheds said ahead of the
referendum.
EasyJet Chief Executive Carolyn McCall Friday said: "We have
today written to the U.K. government and the European Commission to
ask them to prioritize the U.K. remaining part of the single EU
aviation market, given its importance to trade and consumers."
Peter Simpson, chief executive of bmi regional, a smaller
carrier operating mainly from more remote cities, signaled the
airline may reconsider being based in Britain. "Our continued
business domicile as a U.K. entity is less than clear at this point
in time," he said. The carrier had expanded heavily outside the
U.K., he said, so it is wary of potential barriers to that
growth.
British politicians now will have to negotiate new rules for the
skies. Options include becoming an adjunct member to the European
single aviation market, not unlike Norway and a few other non-EU
countries; signing a bilateral agreement with the EU similar to
that agreed by Switzerland; or a hodgepodge of separate agreements
with the EU, the U.S. and other countries, industry experts
said.
Pablo Mendes de Leon, professor of air law at Leiden University
said adjunct membership in the European aviation market may be
unlikely, because it would subject the U.K. to European regulations
with little say to influence them. A more likely option would be
bilateral agreements with EU member states, he said, which may
vary.
Ryanair Chief Executive Michael O'Leary ahead of the referendum
said the airline's growth in the U.K. could be slowed if the
country leaves the EU. Ryanair didn't address the effect of the
vote on its business plans, only saying a seat-sale linked to the
referendum had drawn strong interest.
Write to Robert Wall at robert.wall@wsj.com
(END) Dow Jones Newswires
June 24, 2016 06:55 ET (10:55 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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