Skift Take

Yes, Brexit is a big deal politically in the United Kingdom. But the decision should not affect the nation's airlines much.

Little has changed for the UK’s airlines since the country signaled in June it would leave the European Union, and carriers do not expect to markedly alter their models even when the UK withdraws, the CEOs of EasyJet and International Airlines Group said Thursday in London.

“It shouldn’t be affecting the business at all, and it isn’t,” EasyJet CEO Carolyn McCall said in a panel discussion at the World Low Cost Airlines Congress. “It definitely affected some [short-term] decisions because it made holidays more expensive, but from a longer view, nothing has changed.”

For airlines, the most notable difference has been the devaluation of the British pound, which, though it has recovered recently, has still lost significant value against the U.S. dollar and Euro. This summer, that made France, Italy and Spain vacations more expensive for Britons, though over the long term, airlines do not expect currency issues will significantly affect demand.

Exchange rates are affecting profits at IAG, owner of British Airways, Iberia, Vueling and Aer Lingus. The holding company is registered in Spain and reports earnings in Euros, but it earns a significant portion of its revenue from British Airways, a carrier that makes its profits in pounds. British Airways also pays a significant portion of its costs — most notably fuel — in U.S. dollars, and that has also affected profitability.

But IAG CEO Willie Walsh downplayed the exchange rate issues, saying the fundamentals of British Airways’ business remain strong. He called the currency issue more of a “technical accounting” problem.

“I am not in any way concerned about the impact of Brexit,” Walsh said, “except for short-term uncertainty.”

Both McCall and Walsh suggested financial markets likely overreacted to Brexit, as the decision to leave the E.U. should have little commericial impact on many industries, including airlines.

“It was a seismic political decision for this country to take,” McCall said. “No one can overestimate that. It was a shock to the markets. The markets definitely over-reacted to that. But actually everything we are doing today is the same, really.”

Walsh said British Airways saw weaker corporate demand just before the Brexit vote, as some businesses may have avoided booking trips until they could determine what would happen. But British Airways saw few cancelations after the vote, in comparison to 2008, when many businesses canceled bookings immediately after another economic shock — the collapse of Lehman Brothers.

While it should remain business as usual for the UK’s airlines, one major outstanding issue remains. Airlines do not know how the UK will handle international traffic rights. For now, UK-registered airlines can fly anywhere in Europe and to the United States under the continent’s open skies programs. The UK’s decision to leave the EU could mean the UK’s airlines would no longer have access to these traffic rights. Still, other countries, most notably Switzerland and Norway, do not belong to the E.U., but have opted into the continent’s air travel system, and it seems likely the U.K would do the same.

Even in the worst-case scenario of a total break with the EU, McCall said little would change for customers. EasyJet has been exploring creating an EU-based subsidiary that would give it access to the European market, just as now.

“If we don’t get the free flying – the flying without restriction that we have today – then every airline will have to think about how their corporate structure will work,” McCall said. “But it will be a technical and legal change, not an operating change.”

McCall also said UK airlines want to know soon how the country will proceed. “Businesses don’t like uncertainty,” she said.

As for international airlines, some have reported weaker demand on flights from the UK, and both United Airlines and Delta Air Lines have cut flights this winter to the United States. Ryanair is also slowing its UK growth, and CEO Michael O’Leary said recently that the carrier is lowering U.K. fares more than it would like to fill seats. 

But in an interview Thursday in London, Emirates Airline CEO Tim Clark said his carrier’s UK business remains strong.

“Surprisingly, notwithstanding everybody’s concern about Brexit, the European demand remains robust, particularly out of this country,” Clark said. “It didn’t seem to affect anybody, frankly, even though the pound had dropped and rose recently.”

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Tags: brexit, british airways, easyjet, iag, International Airlines Group

Photo credit: EasyJet CEO Carolyn McCall is predicting few long-term problems from Brexit. EasyJet

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