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BREXIT

David Harris by David Harris
June 24, 2016
in Capacity & Demand, News Archives, Strategy
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Brexit image 01The votes have been counted.

In yesterday’s referendum on the UK’s future in the European Union, 52% of voters said “Leave” while 48% said “Remain.”

The world’s financial markets, and Britain’s political landscape, shuddered in response.

  • Stock markets dived worldwide.
  • Oil prices plunged while the price of gold soared.
  • The Pound dropped against the dollar to its lowest level in more than thirty years.
  • UK Prime Minister David Cameron tendered his resignation.
  • Scotland’s First Minister Nicola Sturgeon said Scottish independence was back on the agenda (Scots voted overwhelmingly to remain).

Now, before we go further, consider that the UK’s status in the EU is the same today as it was yesterday. That is, the UK has not left the EU. There is no guarantee that it ever will leave the EU, as the referendum is not binding. And even if the UK does decide to leave the EU (as now seems likely), the process will take a minimum of two years to complete.

With those thoughts in mind, it is easy to see the financial panic as a short-term over-reaction, but there will most definitely be long-term consequences, not least to the aviation and logistics industries. For a look at what those consequences may be, we turn to an analysis by the International Air Transport Association.

You can read the six-page “The impact of ‘BREXIT’ on UK Air Transport” on the IATA website. In fact, you should read it. But here we pull out a few excerpts of particular interest to the cargo side of the industry.

  • Preliminary estimates suggest that the number of UK air passengers could be 3-5% 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 air freight market is less certain, but freight will be affected by lower international trade in the longer term.
  • Over the longer-term, however, there will be an impact on international trade when the UK does formally exit the EU and this, in turn, will affect air freight. For example, the OECD5 estimates that UK trade volumes could fall by 10-20% over the long run (to 2030), relative to the baseline.
  • In part, the international trade impacts will depend upon the nature and timing of trade agreements and relationships negotiated by the UK and this remains highly uncertain at this stage. The OECD also notes that regulatory divergence could increase over time, increasing trade costs. Many of these issues are addressed more fully – albeit with specific application to air transport – in the following section.

It could be argued that Brexit is not all that big a deal. The UK is just one country, and both it and the EU will cope. No doubt there will be bumps in the road, but there are bumps in every road. However, polls across the EU suggest that if a similar referendum were held in every EU country today, France, Italy, the Netherlands, Denmark, and Sweden would alsovote to leave, just as the UK has done.

Perhaps the EU could function as well as ever after the UK leaves. But the possibility of a real breakup has to be frightening for companies – Airbus first among them – that have built their business case on a Europe without internal borders.

Tags: AirbusBrexitEUEuropeIATAStrategy
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