06 September 2017

The airline industry—and the low-cost carriers EasyJet and Ryanair in particular—was vocally opposed to Brexit during the 2016 referendum campaign. Ryanair boss Michael O’Leary has since issued the stark warning that if there is no deal offering continuity post-Brexit, flights between the UK and the EU will be grounded after March 2019. So, how realistic is this “no fly-zone” scenario and what is at stake for the millions of UK and EU air passengers and our cheap holidays during the Brexit negotiations?

Liberalisation of air travel is a significant EU achievement. It has created a single aviation market across Europe that extends beyond the EU itself—agreements are in force or under negotiation from Iceland to Israel, and the ultimate ambition extends to incorporating “50-55 states with a total population of up to a billion.” This European Common Aviation Area (ECAA) created a number of “freedoms” for airlines of signatory countries which allows them to have one base in a member state and operate within other states. For example, EasyJet, registered in the UK, can fly without restriction from the UK to the rest of the EU, between other European states (Italy-Germany) and within other EU countries (Nice-Paris). As a result of this liberalisation, which occurred in the 1990s, the number of routes on offer has grown significantly. Liberalisation has not been confined to Europe, but fares from the UK to EU destinations have fallen much faster than fares for flights across the Atlantic or the rest of the world.

Understandably, the industry is still heavily regulated and airlines need legal permission to fly. Failure to reach any Brexit agreement at all would mean relying on outdated bilateral air agreements with individual EU member states. These pre-date the creation of the single European aviation market, and there is a great deal of uncertainty about their validity. However, it is virtually impossible to imagine a scenario under which flights between the UK and the EU are grounded as O’Leary has warned—both sides benefit from air connectivity and the UK has the third largest aviation sector globally. The EU already has a plethora of aviation agreements with third countries. The questions really are: what type of agreement can be reached, on what terms and what this will mean for services?

There are a number of potential forms that a deal between the UK and the EU could take. As with many other issues affected by Brexit, these options can be thought of as a sliding scale: with integration with EU markets on the one side, and UK freedom for manoeuvre on the other. Another challenge the UK faces is replicating the aviation agreements the EU has with the US and other markets.

It is important to note that time is of the essence—airlines want certainty by September/October 2018, before formal Brexit in March 2019, because they want to finalise their schedules six months in advance.

Retaining full access to the ECAA would probably require our signing up to the EU’s acquis communautaire relating to aviation—from safety and security to state aid and competition—and the jurisdiction of the EU’s Court of Justice (ECJ) over these matters. The UK Government would need to nuance its opposition to ECJ jurisdiction in this instance but this approach would largely replicate the status quo as far as airline operators and consumers are concerned.

The Swiss, landlocked by EU airspace, have a bilateral deal with the EU. Under this deal, Swiss airlines can fly to and between EU member states, but cannot provide domestic routes within another EU state. Even the Swiss—who have fiercely resisted jurisdiction of supranational and foreign courts over their affairs—accept the jurisprudence of the EU court over matters contained in their aviation agreement with the EU. The UK could seek a like-for-like version of this deal but EasyJet would no longer be able to operate its Toulouse-Paris route without altering its business model.

Alternatively, the UK might seek a bespoke arrangement with more limited control ceded to EU courts and EU aviation regulators—the EU has such an “open skies” arrangement with the US (confusingly, the term “open skies” is used to refer to intra-EU arrangements and the EU-US deal). This would likely come at the compromise of further reduced rights for UK-based airlines to operate in EU markets.

Ultimately, at this stage, the potential impact on consumers in the UK and the EU is unclear. It is highly likely that a compromise will be reached that preserves the right to fly between the UK and the EU. However, the exact terms will determine the legal or economic adjustment that individual airlines will need to make.

The UK government must weigh its own freedom of action in this area—which it may want to exploit in aviation agreements with third countries—against integration with the EU. But given that the EU already has a comprehensive deal with the important US market, the UK may not value regulatory independence over aviation as highly as it might in other economic sectors—at least in the short-term.

For consumers, as with other industries, such as financial services for example, anything that fragments what has become a highly integrated and networked market will reduce competition and push up the cost of doing business. This could affect not only UK air passengers but also the many, presumably EU, citizens who take advantage of the low prices provided by the likes of EasyJet and Ryanair across Europe.

A version of this blog was originally published by Prospect Magazine