Airline regulation – what you need to know with Brexit approaching?
The UK’s vote to leave the European Union (EU) on 23 June 2016 has led to immediate political and economic consequences for the UK, including a change in Conservative Prime Minister and sharp falls in the value of the pound against other currencies. The details of the UK’s future relationship with the EU remain elusive. While Prime Minister Theresa May has announced an intention to trigger negotiations for UK exit of the EU by formally invoking Article 50 TEU before the end of March 2017, no firm indication has been given of her negotiating priorities or strategy. Consequently, a spectrum of possible outcomes remains on the table, ranging from a close future relationship with the EU including membership of the European Economic Area (EEA) and the European Free Trade Association (EFTA) - the current position of Norway - to a situation with no express UK-EU trade agreement, with the UK relying on World Trade Organisation rules as the basis for its trading relationship with the EU, an outcome commonly referred to as “hard Brexit”. Recent indications that the UK is leaning towards a hard Brexit – or that the EU would only be willing to accept Brexit on “hard” terms – may be little more than posturing before the true negotiations begin.
A recent additional factor is the UK Government’s challenge to the high court’s ruling that parliamentary agreement is needed before invoking Article 50 TEU and a Supreme Court decision is expected on this early in 2017.
The impact of Brexit on the aviation industry is similarly unresolved. Prior to the referendum, executives of several leading airlines came out in public support of the UK’s continued membership of the EU, citing freedom to fly across Europe as the foundation of modern low-fare air travel, and pointing out the dampening effect of uncertainty on demand. Although there have as yet been no changes to UK law as a result of the Brexit vote, there was an immediate and sustained impact on the share price of leading European airlines. For example, International Consolidated Airlines Group (IAG), the consolidated group comprising British Airways, Iberia and Aer Lingus, saw its share price fall from 528p on the day of the referendum to 345p the following Monday. This represented a fall of nearly 35 per cent, from which IAG’s share price had not substantially recovered at the time of writing. There was a similar impact on the share price of other major airlines serving the UK, in contrast to the FTSE All-Share index, which thus far recovered relatively quickly from the Brexit result. It was notable that the share prices of EU airlines such as Air France-KLM and Lufthansa were also negatively impacted by the Brexit result.
We begin by discussing the significant expected impact on flying rights and airline ownership regulations, before considering additional areas of regulation, and concluding with a brief consideration of areas which are likely to remain unchanged.
This briefing also features as an article in our client aviation publication Legalflyer (December 2016 edition).