U.K.-based carriers, airports search for Brexit signs
Last month’s British vote to bow out of the European Union has unleashed political turmoil across the nation. In the logistics industry, responses to the “Brexit” have been less dramatic, but operators are bracing themselves for tough and uncertain times ahead.
Initial reactions showed consternation and confusion in the face of an outcome that had been unexpected and scarcely explored. Several airlines contacted by Air Cargo World had no comment other than expressing a need to wait and see how the situation will unfold. “I think most people are just waiting for some indicators to try and work out if it is going to impact them or not,” remarked one airline spokesperson.
IAG, the carrier that will likely be most affected by Brexit, had no comment on cargo beyond a general statement that the airline released after the result of the referendum was announced: “The vote to leave the European Union will not have a long term material impact on [IAG’s] business. In the short term, however, in the run up to the U.K. referendum during June, IAG experienced a weaker-than-expected trading environment. Following the outcome of the referendum, and given current market volatility, while IAG continues to expect a significant increase in operating profit this year, it no longer expects to generate an absolute operating profit increase similar to 2015.”
The International Air Cargo Association (TIACA) said the referendum has heightened complications for the industry. “It is too early to speculate on what the actual implications of Brexit may be for our industry, but the fact is that the U.K. vote to exit the European Union stirs up the already muddy global picture,” commented TIACA secretary general Doug Brittin.
IATA, which foresees negative impacts on both passenger and airfreight sectors, said it envisages prolonged uncertainty ahead, suggesting that it could take two years or longer to resolve issues arising from the Brexit decision. A paper on Brexit released by IATA predicted that the decision is going to have serious ramifications for the British economy as well as for travel, trade and in the regulatory sphere.
Predictions from a variety of sources show a negative impact on British GDP, ranging from 1.3 to 6.0 percent in 2018 and from 1.2 to 7.5 percent by 2030. They broadly pointed to the U.K. GDP ending up 2.5 to 3.5 percent lower, in level terms, by 2020, compared to the “no Brexit” baseline.
The repercussions for trade appear to be starker yet. The Organization for Economic Co-operation and Development reckoned that U.K. trade volumes could fall by as much as 20 percent.
Besides a decline in cargo volumes, the transportation sector is bracing itself for additional costs in the wake of the Brexit. The Freight Transport Association (FTA), warned that it will add to costs as well as bring more restrictions and bureaucratic hurdles for moving British goods in and out of Europe.
Much hinges on the terms of Britain’s exit from the EU, ranging from a close alignment with Europe (such as developed by Norway, which is in the European Common Aviation Area) to a complete cut, which would base the relations on a WTO footing. Most observers reckon that the U.K., under leadership from the incoming Prime Minister Theresa May, will seek a closer alignment rather than abandon common frameworks like ECAA. The Airports Council International- Europe has called on the British government to strive for U.K. and EU aviation markets to remain integrated.
A complete exit would force the U.K. to renegotiate countless aviation and trade accords with other nations that have so far been covered by treaties wrought by the EU and ratified at national levels. This raises questions about a slew of arrangements, from duty benefits for garment imports from Cambodia, Myanmar and Bangladesh that were negotiated by the EU, to the U.S.-EU opens skies agreement. Brittin pointed out that Pre-Loading Advance Cargo Information regulations may require a new version as a result of Brexit.
These issues raise questions for U.K. airports, especially in London, that wish to function as gateways for European traffic. Could Brexit undermine Heathrow’s hub status? Stan Wraight, executive director of Strategic Aviation Solutions International, said he doesn’t think so. The documentation required for road-feeder services would not raise any hurdles, he said, adding that he expects the U.K. to remain closely aligned to the EU.
For its part, the management of London’s premier airport does not foresee a drop in traffic, but presents Brexit as reinforcing the case for its stalled expansion plans, particularly the call for a third runway. “Only Heathrow can help Britain be the great trading nation, connecting all regions of the U.K. to the world,” the airport said in a prepared statement. “It is the keystone that connects businesses of every size to markets across the world as the U.K.’s only global hub airport.”
If the issue forces action on the third runway, perhaps the Brexit will become more evidence that when one door closes, the universe opens another.
