The landscape of the airline industry will be changing in the near future due to the recent Brexit referendum in Britain. To keep from free-falling, British airlines, currently operating under European Union airways agreements, will need to renegotiate agreements regulating the skies.
For 20 years, the airlines in the EU have been free to effectively fly whenever and wherever they want within the Union. However, this may soon change because of Britain’s vote last week to leave the EU. The Open Skies agreement between members of the EU, including Britain, and the United States, allowed for expanding “international passenger and cargo flights by eliminating government interference in commercial airline decisions about routes, capacity and pricing,” according to U.S. State Department.
Budget airlines like Ryanair and EasyJet capitalized on the convenience allowed by Open Skies policies and offered air travel at lower costs, forcing traditional airlines, like British Airways, to lower prices as well.
With Britain exiting the EU, the country's Open Skies agreements will need to be renegotiated with the EU and the United States. Negotiations may not begin for another three months as Britain waits for current Prime Minister David Cameron to step down and for the two year process of Britain leaving the EU to begin. When the negotiations do begin, they are expected to be time-consuming for all involved.
On Friday, the London-based budget airline EasyJet’s stock fell to a three year low, dropping 21 percent. Ireland’s Ryanair, which has multiple bases in Britain, fell 12 percent on Friday and another 4 percent on Monday. International Airlines Group (IAG), which owns the airlines British Airways and OpenSkies, both certified in Britain, along with Aer Lingus, Vueling, and Iberia, also saw shares drop 23 percent on Friday and 13 percent on Monday.
EasyJet now expects revenue per seat to drop by 8.6 percent with pretax profit cut by 28 million pounds. The carrier is already bracing for an underwhelming third quarter due to French air traffic control strikes and adverse weather, and a decrease in sales is expected for the second half of the year as a weaker pound makes traveling more expensive for the British people.
Air carriers are lobbying to minimize the effects an exit from the EU could have on their bottom lines. EasyJet chief executive Carolyn McCall told CNN Money Friday, "We have written today to the U.K. government and the European Commission to ask them to prioritize the U.K. remaining part of the single EU aviation market.” By advocating for a focus on maintaining the status quo for the airline industry, easyJet hopes to avoid consumer uncertainty in coming months.
Although European competitors Lufthansa and Air France also saw share prices drop on Friday, 6.5 percent and 8.3 percent respectively, this may be a chance for these companies to outmaneuver their competitors. Richard Quest of CNN Money writes, "Lufthansa and Air France may well take the opportunity to restrict formidable competitors like easyJet from European skies."
Although consumers may not see major impacts to flights for some time, as the British airline industry looks to hammer out the details of new negotiations, consumers could start to see increased rates, moved routes, and travel delays. RyanAir and easyJet have warned that the Brexit decision will lead to higher fares.