Introduction
International cooperation is needed for the development of the aviation industry. However, BREXIT is about to change the way airports and airline companies operate within the UK and the EU. Given that the UK’s aviation industry has relied heavily on the EU for its growth, pulling out of the union would have serious ramifications. This paper is a case study discussing the predicted impact of BREXIT on the airline industry in the UK and Europe if a withdrawal agreement is not reached. This aspect means that the exit will be based on a “bare bone” agreement.
The Predicted Impact of BREXIT on the Airline Industry in the UK and Europe
The most significant impact of BREXIT on the airline industry in the UK and the EU would be economic ramifications as key drivers of industry change. Since the liberalisation of the EU aviation market, the number of passengers transported between the UK and the EU changed from 69 million to 130 million in 1996 and 2015 respectively (KPMG, 2016). Additionally, the number of passengers carried to Europe by UK-based airline companies increased by eight times (KPMG, 2016). However, this scenario is about to change. For instance, if an exit agreement is not agreed upon, companies based in the UK would not access the EU market, thus affecting revenue significantly (Burghouwt & de Wit, 2015; House of Commons, 2018). This scenario would also affect Europe adversely. According to KPMG (2016), about 73 per cent and 63 per cent of business and tourist travel respectively to the UK comes from the EU. Industry players in the EU would suffer major economic constraints if they cannot access the UK market freely.
Increased competition will be another important impact of BREXIT (Strom, 2017). By being a member of the EU, the UK enjoys the most liberalised airline market with access to over 44 countries around the world (Baldwin, 2016; Dobruszkes, 2014; Masutti & Laconi, 2016). This market accounts for about 85 per cent of all international aviation traffic from the UK (KPMG, 2016). Therefore, after BREXIT, industry players from the UK will not enjoy this liberalised market, and competing against other major carriers will be a major challenge. The level of air connectivity will be reduced to basic depending on the agreements that will be made (IATA, 2018). Restrictions may be made concerning market access based on the regulatory convergence of the EU and the UK.
Additionally, if the UK ceases being a member of the European Aviation Safety Agency (EASA), airlines operating in this region would be required to come up with operational standards for safety, which is a complex issue affecting major infrastructures such as air traffic control and airports (Rosewell, 2017). Politics is also another driver of change in the aviation industry (IATA, 2018). To this end, border management faces uncertainty concerning customs and immigration processes. Facilitation of passenger, cargo, and availability of spare parts will be major concerns for the aviation industry in the UK and the UK (Department for Transport and CAA, 2019a; Maddox, 2018). Finally, on the environment, as a change driver, the UK government will be required to create regulations, especially concerning carbon policy, with which industry players will be mandated to comply during their operations.
Key Challenges that the Exit will Create for the Industry
The regulatory mechanism governing the aviation sector especially on bilateral trade will be the most significant challenge for industry players after BREXIT. The aviation industry and other sectors in the UK have been conceived and developed under EU law (Hannan, 2016). Additionally, access to markets in the US and Canada among others around the world has been secured through EU negotiations. Therefore, industry players in the UK will be required to renegotiate these deals afresh or agree on how to retain the current status quo (Dobruszkes, 2019). Alternatively, the UK will embark on the arduous task of creating a new regulatory framework and engage tens of countries around the world for planes to continue flying in and out of the region after the exit. For instance, currently, the European Common Aviation Area (ECAA) has negotiated for a single aviation market in 36 nations (Fox, 2016; Goldman & Schulte-Strathaus, 2017). EASA manages safety standards within 32 nations, while the Open Skies Policy was signed with other countries, such as the US, under the EU (IATA, 2016).
On legislative matters, the European Court of Justice (ECJ) is the umbrella body that enforces the legislation of Open Skies and the ECAA (IATA, 2018; Walulik, 2018). After the BREXIT, industry players in the UK will face the challenge of addressing these issues independently. Another challenge would be the logistics of getting spare parts in the wake of restricted free movement of goods between the EU and the UK. This element would affect the day-to-day operations of airline companies in the UK resulting in flight delays, lags in maintenance activities, and the associated losses (Humphreys, 2016). Industry players will be forced to make the necessary changes to adapt to the evolving market dynamics caused by the exit. The movement of aviation skills will also be a problem, and it will compound the maintenance challenge mentioned earlier. Finally, market competitiveness at airports in the UK may be affected based on the regulations that the government will put in place.
The Possible Structure of the Industry Post-BREXIT
First, market liberalisation will be restricted, and thus industry players will be required to think creatively on how to remain competitive in the international aviation market. In the case of a “bare bone” agreement, the industry will only enjoy the 3rd and 4th Freedom traffic rights and safety (Airey, 2018). The current EU-Third Country (TC) ASAs that the UK currently enjoys under the EU may be replaced with new agreements to govern the industry (Vrbaski, 2016). For instance, the UK-US open space policy would be created. EASA will be replaced by another safety body based on the UK’s civil aviation authority (CAA) (Department for Transport and CAA, 2019b). Alternatively, the UK may become a TC member of EASA. The other option would be to establish bilateral safety arrangements with other TCs and perhaps the EU. On-air traffic control, the UK is likely to continue applying technical and interoperability standards voluntarily. Concerning border control, UK borders may be managed through a third-lane option when dealing with travellers from the European Economic Area (EEA). A new free trade agreement may be created to govern the transport of goods by air.
Conclusion
BREXIT is looming and uncertainty surrounds whether a withdrawal agreement will be signed or not. In the case of a “bare bone” agreement scenario, the aviation industry in the UK and the EU may undergo a financial crisis due to restricted market access and increased competition. The greatest challenge would be coming up with a regulatory framework to govern operations within the region. The possible structure of the industry after BREXIT will depend on the nature of laws that the UK will decide to implement to govern the aviation sector.
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