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Airlines exposed to Brexit volatility

A concern for all airlines flying in and to Europe is what happens now to the treaties and agreements in place to permit air connectivity

Dubai: The United Kingdom’s decision to exit the European Union will have ramifications that are to be felt across the world from London to Dubai to Shanghai. Airlines, like many, will be wondering “what does this mean for us?”

In the lead up to the vote, Emirates President Tim Clark warned a British exit would cause “shock waves” for the EU. It “will be pretty severe,” he said on June 2.

Emirates is the largest non-European carrier by seats flying into the United Kingdom, according to CAPA — Centre for Aviation. It flies to six different airports in the country, including London’s Heathrow and Gatwick airports.

The airline which made a record Dh7.1 billion for the financial year ending March 31, 2016, has warned it is facing currency volatility issues in a number of markets as the dollar strengthens. Its revenues dropped in its last financial year for the first time in at least a decade with revenues from Europe falling 5 per cent. On Friday, the pound fell to a 31-year low over concerns over the UK’s future. The euro dropped too.

Clark said on June 2 that demand for travel in Europe was likely to “flatline” if the UK voted to leave but assured that the airline has contingency plans in place and remains committed to the UK and EU market.

Reduced profit growth

On Friday, Emirates did not comment when contacted by Gulf News about its contingency plans or Clark’s thoughts on the result of the vote.

Etihad Airways and Qatar Airways, the Middle East’s two other major carriers, have both avoided commenting on the referendum.

International Airlines Group (IAG), the parent company of British Airways, said the decision of 52 per cent of UK voters to leave would reduce profit growth in 2016. Qatar Airways owns 15 per cent of IAG.

A concern for all airlines flying in and to Europe is what happens now to the treaties and agreements in place to permit air connectivity.

The chief executive of IAG’s Aer Lingus, Stephen Kavanagh, said on June 1 that the UK might have to renegotiate its air services agreements with other countries, including the EU, if it leaves.

It is unclear how many or even when these treaties would be renegotiated.

Andrew Charlton, managing director of Switzerland-based Aviation Advocacy, is of the opinion that the UK does not repudiate any agreements it has entered into in its own right, “and so it will remain a member of the European safety agency, for example, and agreements with individual countries, such as the existing treaties with each of the Gulf countries will stand.”

“But what will happen to all those agreements signed by the Europeans on behalf of all of the members of the European Union — most importantly the EU-US Open Skies agreement, remains much less clear,” he said, adding that the agreement that the Commission has just obtained a mandate to negotiate with the UAE too, will now “likely not include Britain”. “That weakens both the European case and the British case too,” Charlton points out.

Legal process

In announcing he would step down as UK Prime Minister, David Cameron said on Friday he would leave it to his successor to start the legal process of exiting the EU. A new Prime Minister is now expected in October who is then expected to invoke Article 50 of the Treaty of Lisbon so that the UK can leave. That process is understood to take around two years.

John Strickland, aviation expert and director of UK-based JLS Consulting, told Gulf News by email there were no immediate regulatory impact for airlines following the win by the leave campaign but said that negotiating the exit “will bring complexity for many airlines in due course”.

Costs for airlines in the UK are also likely to go up, he said, if the fall in the pound and increase in the dollar continues.

“For European aviation, in the short term the big winners will be the lawyers, as they scour the various treaties and agreements that delineate aviation, not just in Europe, but around the world,” added Charlton.

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