The UK has voted to leave the EU – the so-called ‘Brexit’ scenario. Considerable uncertainty remains regarding
the precise detail of the exit and it could be 2 years or more before these issues are fully resolved; prolonged
uncertainty will influence both the magnitude and persistence of the economic impacts. Preliminary estimates suggest that the number of UK air passengers could be 3-5% lower by 2020, driven by the
expected downturn in economic activity and the fall in the sterling exchange rate. The near-term impact on the UK
air freight market is less certain, but freight will be affected by lower international trade in the longer term. A big issue is with aviation regulation.
The UK faces a trade-off between accessing the European Single Aviation
Market and having the policy freedom to set its own regulations.
Sterling fell sharply in volatile trading conditions following the result, broadly in line with expectations. The general view amongst analysts is that it will recover somewhat over the medium to longer term. Nonetheless, the currency is expected to remain weaker than otherwise would have been the case under a no Brexit scenario (in the region of 10-15%). The impact that this would have on air travel is more clear-cut than the economic effects. The weaker pound has immediately made outbound trips for UK inhabitants more expensive (because a given amount of GBP will now buy less goods and services overseas).
Sterling fell sharply in volatile trading conditions following the result, broadly in line with expectations. The general view amongst analysts is that it will recover somewhat over the medium to longer term. Nonetheless, the currency is expected to remain weaker than otherwise would have been the case under a no Brexit scenario (in the region of 10-15%). The impact that this would have on air travel is more clear-cut than the economic effects. The weaker pound has immediately made outbound trips for UK inhabitants more expensive (because a given amount of GBP will now buy less goods and services overseas).
At the same time, for overseas visitors to
the UK, their local-currency earnings will now stretch
further than they did previously. The UK air market is dominated by outbound traffic,
with such traffic accounting for just over two-thirds of
total flows (in 2015 there were 53.9 million visits
overseas by air by UK residents, compared to 26.2m
visits to the UK by overseas residents).
The direct economic impact is likely to see the UK air passenger market be 3-5% lower by 2020 than the no Brexit baseline. Over the longer-term, however, there will be an impact on international trade when the UK does formally exit the EU and this, in turn, will affect air freight. For example, the OECD5 estimates that UK trade volumes could fall by 10-20% over the long run (to 2030), relative to the baseline. In part, the international trade impacts will depend upon the nature and timing of trade agreements and relationships negotiated by the UK and this remains highly uncertain at this stage. The OECD also notes that regulatory divergence could increase over time, increasing trade cTaken as a whole, the EU is easily the single biggest destination market from the UK, accounting for 49% of passengers and 54% of scheduled commercial flights. Taking into account those countries that have access to the Single Aviation Market as members of the European Common Aviation Area (ECAA) which includes Iceland, Norway and a number of Balkan countries, the importance of market access becomes even more significant. Of course, the importance of the issue is not just relevant to UK consumers and airlines; the UK is also a very important destination market for air travelers across Europe and is an important source of business for all major European airlines. Figure 5 shows the share of significance of operations between the UK and the EU compared to operations within the rest of the EU (EU27).
Dublin Airport could benefit from US air passengers searching for a quick and easy route to Europe post Brexit.The Irish capital is already equipped to undertake all US immigration and customs inspections prior to transfers on to other European destinations."Dublin could take business away from the UK if a Leave vote makes it harder for passengers to enter and exit the country." said Stephen Kavanagh, Chief Executive of Aer Lingus.He went on to say that Ireland should already be targeting passengers who want to travel to cities on the east coast of the US without having to endure the 'poor' customer experience of the country's largest airports.Last year more than 25 millions passengers travelled through Dublin Airport, including one million who were taking multiple flights.Kevin Toland, Chief Executive of Dublin Airport Authority, said: "If you want to go to North America from somewhere in the Uk, you can find 33 cities in the UK connecting to Dublin, from Heathrow you can only go to eight other cities and towns in the UK, so there's far deeper penetration."
The direct economic impact is likely to see the UK air passenger market be 3-5% lower by 2020 than the no Brexit baseline. Over the longer-term, however, there will be an impact on international trade when the UK does formally exit the EU and this, in turn, will affect air freight. For example, the OECD5 estimates that UK trade volumes could fall by 10-20% over the long run (to 2030), relative to the baseline. In part, the international trade impacts will depend upon the nature and timing of trade agreements and relationships negotiated by the UK and this remains highly uncertain at this stage. The OECD also notes that regulatory divergence could increase over time, increasing trade cTaken as a whole, the EU is easily the single biggest destination market from the UK, accounting for 49% of passengers and 54% of scheduled commercial flights. Taking into account those countries that have access to the Single Aviation Market as members of the European Common Aviation Area (ECAA) which includes Iceland, Norway and a number of Balkan countries, the importance of market access becomes even more significant. Of course, the importance of the issue is not just relevant to UK consumers and airlines; the UK is also a very important destination market for air travelers across Europe and is an important source of business for all major European airlines. Figure 5 shows the share of significance of operations between the UK and the EU compared to operations within the rest of the EU (EU27).
Dublin Airport could benefit from US air passengers searching for a quick and easy route to Europe post Brexit.The Irish capital is already equipped to undertake all US immigration and customs inspections prior to transfers on to other European destinations."Dublin could take business away from the UK if a Leave vote makes it harder for passengers to enter and exit the country." said Stephen Kavanagh, Chief Executive of Aer Lingus.He went on to say that Ireland should already be targeting passengers who want to travel to cities on the east coast of the US without having to endure the 'poor' customer experience of the country's largest airports.Last year more than 25 millions passengers travelled through Dublin Airport, including one million who were taking multiple flights.Kevin Toland, Chief Executive of Dublin Airport Authority, said: "If you want to go to North America from somewhere in the Uk, you can find 33 cities in the UK connecting to Dublin, from Heathrow you can only go to eight other cities and towns in the UK, so there's far deeper penetration."
"Unless you like a long car journey and an expensive car parking stop in one of the major UK airports, it's easier and more straightforward and a far better experience to come through Dublin."Three new routes between Dublin and the US are being launched this year: Los Angeles, California, Newark, New Jersey and Hartford, Connecticut.Leading low cost carriers such as Ryanair and EasyJet say their bargain flights to Europe are owed very much to the liberalised aviation market created by the EU 20 years ago.
Airlines have benefitted greatly by this since 2006 as well as offering more opportunity for cross-border investment.
Brexit could mean renegotiation of these agreements and if competition is reduced, fares could rise.
Sir Stelios Haji-Ioannou, founder of EasyJet, previously warned that Brexit may lead to greater restrictions on airlines, as competition drops.
Airlines have benefitted greatly by this since 2006 as well as offering more opportunity for cross-border investment.
Brexit could mean renegotiation of these agreements and if competition is reduced, fares could rise.
Sir Stelios Haji-Ioannou, founder of EasyJet, previously warned that Brexit may lead to greater restrictions on airlines, as competition drops.
Membership of the European Union provides many benefits that the UK will not be able to obtain otherwise. Our opinion on the aviation industry's effect from a Brexit is that air fares, capacity, and frequency will not be directly effect. Although it will have indirect effects in the longer-term for the Irish Aviation Industry. What are your thoughts?
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