The European Union revolutionised the airline industry in Europe, helping to foster the boom in cheap flights by creating a single market and doing away with bilateral agreements. How the UK extricates itself from this will be just one area to keep an eye on in the coming negotiations.
In the run up to the UK’s European Union referendum earlier this summer, Ryanair CEO Michael O’Leary was one of the most vocal corporate backers of the status quo – even going as far as to pose for pictures in a half Union Jack, half flag of Europe suit.
Things didn’t turn out the way he wanted and in the aftermath of the Brexit vote O’Leary said that he would shift investment away from the UK to instead focus on the rest of Europe. Almost two months later he is still not backing down.
While the carrier revealed two new routes as part of its London summer 2017 schedule, growth from the UK is set to slow from 15 percent in the current financial year to six percent in 2018.
Despite the lack of a Brexit-induced slow-down in the UK economy, O’Leary remains adamant that there will be a reckoning in the not too distant future.
“The impact of Brexit is masked in the fact that the airlines, certainly led by us, are lowering fares quite significantly. You won’t see it [the impact] in terms of traffic but you’ll see it in our fares and yields. That’s the impact of Brexit. We’re cutting fares much more steeply than we would have in the past,” he told journalists at a press conference in London Wednesday.
Ryanair’s aggressive approach to fares is likely to benefit passengers in the short term but it remains to be seen whether other airlines will follow.
He later added: “They’ll be a bunch of halfwits out there going, ‘Oh Jesus it’s great fares are getting cheaper’ but as fares get cheaper more aircraft will be moved away from the UK in the next two or three years.
“Inward investment decisions into the UK are being postponed. This is not good for the UK economy.”
Both easyJet and IAG, which owns British Airways, both issued profit warnings following the referendum and there remains a great deal of uncertainty about how the airline industry will cope when the UK goes it alone.
Ryanair is based in Ireland, EasyJet in the UK and IAG in Spain. Currently all three, as well as more than 100 other scheduled airlines operate in the single EU aviation market, which was established in the 1990s. The arrangement helped break the dominance of the old European flag carriers, allowing low-cost carriers to flourish.
The UK’s desire to quit the EU raises the possibility of commercial restrictions returning for routes into and out of the country but the complex and diverse ownership of airlines makes this incredibly problematic.
“You can’t put this back in the box,” O’Leary said.
Another issue that is likely to prove difficult to iron out is ownership. Currently EU rules dictate that foreign investors are only able to own up to 49 percent of any airline based in a member state.
Around 46 percent of Ryanair shareholders are based in the U.S. putting it below the threshold but around 20 percent of the remaining portion is British.
“Are they now treated as non-EU shareholders if there isn’t open skies? O’Leary said.
The shareholder question is likely to prove equally as problematic for EasyJet, IAG and other companies.
The conundrum for the politicians looking after the UK’s exit from the EU has always been how to marry up continued access to the lucrative single market with freedom of movement – something many of those who advocated leaving can’t stand.
O’Leary let slip that some airlines had been invited to meet with the UK’s new Prime Minister Theresa May in the wake of Brexit (although he insisted Ryanair was not invited).
If this was indeed the case, then the industry can at least hold out hope that she will listen to some of its concerns.
Photo credit: Ryanair marked 20 years of low fares at Leeds Bradford Airport. Fares are getting even lower because of Bexit, says CEO Michael O'Leary. Ryanair