In the event of Brexit, easyJet might need to set up a new European operation
If Britain votes to leave the EU, there would be impacts on airlines. The EU agreements that have been in place since the 1990s have fostered a huge expansion of air travel in Europe. Outside the EU, flying rights between two countries, including how many airports a carrier may fly to and how often, are typically negotiated in bilateral treaties. But currently in Europe with its single aviation market, an airline can fly between any EU countries. For example, an Irish Ryanair plane can fly between Britain and Spain, or a Spanish airline can operate flights within France. EasyJet is particularly worried about a Brexit vote. EasyJet is the second largest airline in France. Brexit could mean that the UK is excluded from the common aviation area. One thing EasyJet might have to do, in the event of Brexit, would be to obtain an Air Operator’s Certificate (AOC) in an EU country, which would require it to establish a local holding company. However, the holding company would have to be 51% owned by local investors and would have to comply with local regulations. Ryanair and British Airways already have AOCs in Ireland and Spain, while EasyJet does not. Brexit might have the effect of forcing Ryanair to set up a formal British business by obtaining a UK AOC. A Brexit vote could affect all pan-European carriers, not just British ones.
easyJet eyes new European operation if Britain flies solo
By Ben Martin and Ben Marlow (Telegraph)
Budget airline easyJet has examined setting up a separate European business in case Britain leaves the European Union.
Obtaining an air operator’s certificate (AOC) in an EU country, which would require it to establish a local holding company, is one of the options the FTSE 100 carrier has looked at as part of contingency planning in the event of a Brexit.
It is also thought that easyJet has examined making better use of its Swiss AOC and its easyJet Switzerland subsidiary if Britain secedes from the EU.
Should the UK vote to leave on June 23, the worst-case scenario for airlines would be if Britain was subsequently pushed out of the European common aviation area. Obtaining an operating licence in an EU country would help easyJet to fly in Europe.
An AOC would require the airline to have a subsidiary in that country, but that would not be an obstacle as easyJet already has bases and operations across Europe. The holding company would have to be 51% owned by local investors and would have to comply with local regulations.
It would not require easyJet to move its Luton headquarters abroad. A Brexit is seen as being more problematic for easyJet than for Irish rival Ryanair or British Airways parent International Airlines Group, which owns Iberia and Aer Lingus and which has AOCs in the UK, Ireland and Spain.
“Of those three, [easyJet are] the ones that have to do the most contingency planning,” said one analyst. “They are a pan-European airline, they make maximum use of the traffic rights that allow UK airlines to fly to points within Europe.”
Brexit may also force Ryanair to set up a formal British business by obtaining a UK AOC. A spokesman for easyJet, which is a vocal supporter of the UK staying in the EU, said it was focusing on that campaign and lobbying to ensure the country remained part of the common aviation area.
On 22nd June:
“Ryanair boss Michael O’Leary has warned the airline will put fewer aircraft in the UK if it votes to leave the EU.
O’Leary, a vocal support of the Remain campaign, said if there is a vote to exit on Thursday, Ryanair will look to move some of the aircraft currently in its 26 UK airports to other countries. He said this would, of course, lead to job losses. If it stays, it will continue to invest very heavily in its UK operations.” Link
UK Referendum Could Affect European Airline Traffic Rights
June 20, 2016 (Industries Reuters)
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 liberalization.
Liberalization 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 UK-based 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 over 130 million in 2015 from 69 million passengers in 1996, while the top eight UK-based airlines made over 10.5 billion pounds ($15.4 billion) 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:
ECAA (European Common Aviation Area)
Industry experts say one way to ensure nothing changes for airlines is for Britain to agree access to the European Common Aviation Area, which comprises all EU member states, plus some non-EU states including Norway, Iceland and Albania.
Tony Tyler, head of the International Air Transport Association, 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 likely 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, UK head of Transport at KPMG, said he didn’t think European states would restrict access to their markets, because they benefit from access to Britain’s large travel market.
SWITZERLAND STYLE OR BILATERALS
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 likely 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 skeptical.
“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,” easyJet CEO 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-U.S. Open Skies agreement.
Britain could either negotiate joining the Open Skies deal, or seek its own bilateral agreement with the United States.
IF TIME RUNS OUT
If no agreements are finalised during the two-year exit period, Andrew Meany, head of transport at consultancy Oxera, said airlines could use code shares and alliances to get partners to operate flights they were no longer permitted to make.
London-listed IAG, comprising British Airways, Irish Aer Lingus and Spanish Iberia and Vueling and which has various code share arrangements, has been relaxed. CEO Willie Walsh said he did not expect any material impact.
EasyJet, which like other budget carriers 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.
EasyJet CEO says UK should stay in the EU for low fares and airline benefits
easyJet will campaign for Britain to stay in the European Union, with its chief executive telling consumers that membership encourages low cost travel between European cities. easyJet ‘s CEO, Carolyn McCall, said the EU was good for its business and its customers. “We will do everything we can to make sure that consumers understand that they are far better off within the EU when it comes to connectivity and low fares,” she said. Ms McCall is part of the pro-European lobby group, “Britain Stronger in Europe”, headed by former Marks & Spencer chief executive Stuart Rose. EasyJet would not be shy about its support. easyJet operates over 600 routes, most of which are in the EU. Ms McCall said: “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.” EasyJet has detailed contingency plans in place for if the UK votes to leave the EU, but they are not making these public. Ryanair has also urged Britain to stay in the EU. Though several large British businesses favour staying in the EU, often due to the benefits of tariff-less trade, many smaller firms feel the EU imposes what they argue are costly regulations.
Brexit up in the air: implications for aviation if the UK votes to leave the EU
CAPA, the Centre for Aviation, has set out some of the issues that UK aviation might face, if the UK chose to leave the EU – Brexit. CAPA says the biggest source of benefits to UK aviation from EU membership is in the area of traffic rights and the nationality of airlines. Any airline owned and controlled by nationals of EU member states is free to operate anywhere within the EU without restrictions on capacity, frequency or pricing. The European Common Aviation Area (ECAA) covers 36 countries and 500 million people. CAPA believes if the UK were to leave the EU, its airlines would no longer enjoy automatic access to this market, although the UK might negotiate continued access. The most obvious way for the UK to do this would be to participate in the ECAA Agreement in the same way as countries such as Norway currently do. CAPA says it would be questionable whether continued pan-European access would be popular in the EU for easyJet which has caused significant competitive damage to European legacy airlines. Being Irish, Ryanair would continue to have access to the European market, but if the UK had left the EU, this could cause Ryanair difficulties operating in what is its largest country market. Hence Michael O’Leary is backing the UK’s continued EU membership.
Willie Walsh says Brexit will not have ‘material impact’ on IAG’s business
A Brexit vote would not have a material impact on the airline business, according to Willie Walsh, chief executive of International Airlines Group (IAG). Last year, he said he was “pro-Europe”, adding that he believed the UK is better off within the EU from a business point of view. On Radio 4’s Today programme he said IAG had taken advice from a number of sources, looked at it within the company and done a risk analysis. Though there is a lot of uncertainty, the view of IAG is that leaving the EU would not have much impact on them. The low cost airlines fear Brexit could mean higher air fares. Ryanair apparently plans a poster campaign on his own planes, encouraging customers to vote to stay in the EU. Heathrow and Gatwick airports are in favour of Britain staying in the EU, for their businesses. Willie Walsh had previously spoken out about the impact of a possible Brexit on Ireland’s economy, but urged fellow Irish chief executives to stay out of the debate. IAG has announced profits of €2.34bn for the year ending 31 December 2015 – a year-on-year increase of 125%. Helped by the low price of jet fuel, (and savings not passed on to passengers?)