Last updated: 10:00 AM ET, Thu July 07 2016

Airlines Have a Backup Plan Post Brexit

Airlines & Airports | Paul Thompson | July 07, 2016

Airlines Have a Backup Plan Post Brexit

Photo via Wikimedia Commons

The ripple effects from the Brexit decision continue as time passes from that momentous vote. Apart from the economic backlash of Great Britain’s planned withdrawal from the European Union, the other primary concern is how British citizens will move from place to place. One airline, British low-cost carrier EasyJet is already planning for the future.

EasyJet last Friday became the first British airline to apply for an air operator’s certificate (AOC), which would allow them to continue operating within the EU bloc of nations. In a statement, the airline said, "EasyJet is lobbying the UK government and the EU to ensure the continuation of a fully liberal and deregulated aviation market within the UK and Europe. This would mean that EasyJet and all European airlines can continue to operate as they do today.” A post-Brexit profit warning by EasyJet led its shares to fall to their lowest point in three years.

READ MORE: Brexit and the Travel and Tourism Industry

EasyJet rival carrier Ryanair is Ireland-based, and has said it will be deploying new planes on EU routes rather than UK routes for next year. Ryanair is Europe’s largest airline when measured by passenger volume. Their CEO, Michael O’Leary, had campaigned against the Brexit movement in favor of remaining in the EU. Since Ireland is a EU nation, O’Leary has said they may consider setting up an AOC to fly within the UK. He also told Fortune that he expects Britain to suffer a steep recession, and that he doesn’t think Brexit will actually come to fruition.

O’Leary broke down the EU routing conundrum for Fortune: “European airlines can fly anywhere in the EU,” he said. “But a European airline with those rights has to be at least 50.1 percent owned by EU [or EEA] shareholders. A large part of Ryanair’s shares are owned by UK investors, so if the UK leaves the EU and doesn’t join the EEA, we’d have less than 50 percent European shareholders. We’d no longer be a European airline with rights to fly anywhere. The same problem would apply to IAG, owner of British Airways and Aer Lingus. It would be forced to sell over half its shares to European investors to remain a European airline. EasyJet is flagged in the UK. To fly all over Europe, it would have to reflag in another country with over 50 percent EU shareholders.”

British Airways has not yet filed for an AOC for EU flights, and the airline has been somewhat wishy-washy in its response. Willie Walsh, chief executive of International Airlines Group (IAG — British Airways’ parent company) had said (prior to the vote) Brexit would not have a material impact on the business, though he did tell the BBC that they have performed a risk analysis. Then within hours of the voting results, IAG issued a profit warning, citing consumer nervousness and a faltering demand to fly. BA still expects an operational profit for the year, but at a reduced rate.

READ MORE: Travel Website Shows Immediate Brexit Impact On Searches

On the positive side, Brexit has been a plus for those wanting to travel to the UK, because the price of the Pound (British currency) has weakened significantly, which means it is more affordable to go to Great Britain. A year ago it cost $1.54 to get 1 Pound, and now it’s only $1.29 — its lowest point in thirty years. Adding to the savings, British Airways and Ryanair each responded to the Brexit vote with strongly discounted fares.

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