Airlines in UK and across Europe face Brexit turbulence

Passenger aircraft operated by Ryanair on the tarmac at Stansted Airport in the UK. Simon Dawson / Bloomberg

A Vueling aircraft takes off at Barcelona airport in Spain. Josep Lago / EPA

Airbus A319-111s operated by easyJet at Manchester Airport in north-west England. Paul Thomas / Bloomberg

Aer Lingus. The airline is the flag carrier of Ireland. Cathal McNaughton / Reuters

A passenger at Iberia’s check-in area at Adolfo Suarez Madrid Barajas Airport in Spain. Pablo Blazquez Dominguez / Getty Images

A British vote to leave the European Union in Thursday's referendum would call into question EU agreements on open airspace that have fostered a huge expansion of air travel, creating uncertainty for both British and other EU airlines.

Flying rights between two countries, including how many airports a carrier may fly to and how often, are typically negotiated in bilateral treaties.

But by creating the single aviation market in the 1990s, the EU allowed the region’s airlines unlimited access to the skies of fellow member states, doubling traffic growth in the four years after liberalisation.

Liberalisation means an Irish carrier can fly between Britain and Spain, or a British carrier can operate domestic flights within France, opportunities seized upon by low-cost carriers.

A Brexit vote in Thursday’s British referendum on EU membership would therefore affect all pan-European carriers, not just British ones.

The biggest market for Ireland's Ryanair is Britain while the UK's easyJet is the second-largest airline in France, and they have campaigned for Britain to stay in the EU.

In the immediate future, airline bosses are worried about the impact a Brexit could have on travel demand.

KPMG says the number of passengers carried between Britain and the EU increased to more than 130 million in 2015 from 69 million passengers in 1996, while the top eight UK-based airlines made in excess of £10.5 billion (Dh56.45bn) in revenue from travel between Britain and other EU states.

Here are some of the scenarios for aviation.

Britain’s access to the single market is unchanged while an EU exit is formally negotiated: industry experts say one way to ensure nothing changes for airlines is for Britain to agree access to the European Common Aviation Area (ECAA), which comprises all EU member states, plus some non-EU states including Norway, Iceland and Albania.

Tony Tyler, the head of Iata, said this would be a plausible outcome. “If that were to happen, there would not be much impact, but nobody can make predictions.”

To rejoin as a non-EU country, Britain will probably have to ensure its aviation laws and standards comply with EU regulations, according to law firm Eversheds.

Analysts at CAPA-Centre for Aviation have said Britain might not be guaranteed ECAA membership, because other signatory nations could object to protect their own national carriers.

But James Stamp, the UK head of Transport at KPMG, said he did not think European states would restrict access to their markets, because they benefit from access to Britain’s large travel market.

As an alternative, Britain could negotiate bilateral deals with the EU as a whole, as Switzerland has done, or with individual EU countries.

As with the ECAA, any Swiss-style deal with the EU as a whole would probably mean adopting EU law and principles.

“It is important to note that negotiating such an agreement with the EU could be very complicated and time consuming, particularly if the UK government wishes to derogate [seek exemption] in any way from EU law,” Eversheds wrote of this option.

On the possibility of bilateral deals with each individual member state, airlines are sceptical.

“We think it would be very difficult for our government to negotiate with 27 other member states to get the flying rights that we have today within the EU,” the easyJet chief executive Carolyn McCall has said.

It is not only European routes that would be affected. Britain’s airlines enjoy unlimited flying rights to the United States, including on lucrative trans-Atlantic routes, thanks to the EU-US Open Skies agreement.

Britain could either negotiate joining the Open Skies deal, or seek its own bilateral agreement with the United States.

If no agreements are finalised during the two-year exit period, Andrew Meany, the head of transport at the consultancy Oxera, said airlines could use code shares and alliances to get partners to operate flights they were no longer permitted to make.

The London-listed IAG, comprising British Airways, Ireland's Aer Lingus and Spain's Iberia and Vueling and which has various code share arrangements, has been relaxed about the possibility of a Brexit. The chief executive Willie Walsh said he did not expect any material impact.

EasyJet, which like other budget carriers including Ryanair, does not operate code share flights for cost reasons, is reported to have looked at setting up a separate holding company to get an air operator’s certificate in an EU country.

However, Oxera said that may not be possible due to restrictions on ownership rules, which do not allow non-EU investors to own a controlling stake in an EU airline.

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