IATA: Brexit could cut UK air passengers by 3% to 5% by 2020

IATA released (24-Jun-2016) its initial assessment of the potential impact of 'Brexit' on UK air transport. Key points include:

• Economy:
• • The most pronounced near-term impacts derive from heightened uncertainty causing businesses and households to delay spending and investment decisions, as well as transmission via financial channels. Impacts vary according to the different scenarios and assumptions used, but broadly point to UK GDP being 2.5% to 3.5% lower in level terms by 2020 compared to the 'no Brexit' baseline;
  • UK pound is expected to remain weaker than otherwise would have been the case under a no Brexit scenario (in the region of 10% to 15%). The impact that this would have on air travel is more clear-cut than the economic effects. The weaker pound has immediately made outbound trips for UK inhabitants more expensive. At the same time, for overseas visitors to the UK, their local-currency earnings will now stretch further than they did previously.
• Traffic:
• • Preliminary estimates suggest that the number of UK air passengers could be 3% to 5% lower by 2020, driven by the expected downturn in economic activity and the fall in the sterling exchange rate;
  • The near-term impact on the UK airfreight market is less certain, but freight will be affected by lower international trade in the longer term. There will be an impact on international trade when the UK does formally exit the EU and this, in turn, will affect airfreight. The OECD estimates that UK trade volumes could fall by 10% to 20% to 2030;
  • Short-term movement in sterling will affect purchasing power immediately and, over time, will serve to discourage outbound travel by residents and to encourage inbound trips by foreigners;
  • UK air market is dominated by outbound traffic, with such traffic accounting for just over two-thirds of total flows. The impact of weaker sterling on UK air traffic is likely to be relatively muted.
• Regulation:
• • There will be little or no immediate change to the regulatory environment. Once the UK notifies the EU of its intention to leave under Article 50 of the Treaty on EU, it will have two years to negotiate the exit terms;
  • The uncertainty around the future regulatory environment is likely to amplify the negative economic impacts. The more protracted the process of agreeing new terms between the UK and the EU, the greater the negative impact;
  • The EU is the largest destination market from the UK, accounting for 49% of passengers and 54% of scheduled commercial flights. Taking into account those countries that have access to the Single Aviation Market as members of the European Common Aviation Area, the importance of market access becomes even more significant;
  • Whether the UK would need to negotiate new bilaterals would likely depend on the nature of its future arrangements with the EU. Broadly speaking, the closer the future relationship with the EU, the less likelihood that the UK would need to amend air services agreements;
  • The closer the post-Brexit cooperation arrangements are the greater the cost in terms of having to accept continuing to be subject to European rules, albeit with much less influence over policy design. On the other hand, a clean break between the UK and the EU would give UK rule-makers much greater discretion over national policy but with much less certainty over market access, particularly to the single aviation market. [more - original PR]