Brexit – what could, might and will happen
With the die cast in favor of the UK’s exit from the European Union, the business aviation industry is taking stock of the potential impact on the European market. Already in the immediate aftermath of the result, the stock price of quoted business aviation groups tumbled along with those of the major airlines.
Business aviation in Europe has endured a very long recession, but had stabilized over the last 18 months. The missing ingredient in its weak recovery has been confidence, specifically the willingness of the wealthiest to continue investing in flying private – even in an uncertain and volatile economic climate. The last thing the industry needs now is for that uncertainty to be extended by several years.
The downside of exclusion
For the commercial airline industry, the most obvious concern is the prospect of the UK’s exclusion from Europe’s open skies policy. Business aviation operators could suffer from the same constraints on traffic rights. Granted, the business aviation activity that would be affected by traffic right limitations is small compared to the potentially affected commercial traffic, but it’s still quite significant.
By way of illustration, there were over 5,000 business jet flights conducted by non-UK registered aircraft within the UK last year, over 6,000 such flights operated by G-Register aircraft within continental Europe, and some 1200 flights between the UK and the US. No doubt business jet operators, whether non-UK registered flying within the UK or G-register flying within Europe, will find ways to operate such sectors. But the necessary hoops and potentially intensified immigration processes required for passengers are likely to deflate demand. Last year over 100,000 passengers flew into the UK on private jets, many of them EU nationals, henceforth subject to tighter border control – not exactly the convenience they paid for to fly private.
Impacting fuel prices
A more immediate downside for UK business jet operators will be fuel prices. This cost-hike is already writ large in the unprecedented fall in the value of sterling in the aftermath of the referendum. Operators will need to factor in these, as well as additional regulatory burdens to their pricing. True, there is much less price-sensitivity to pricing comparing private jet customers to easyJet passengers, but at the ‘air-taxi’ end of the market, pricing is highly competitive.
An uncertain future
A more generally negative impact from Brexit will come from any sustained damage to the UK economy. The initial carnage unleashed by the result has seen global markets plunge, whether it’s sterling, equities, government bond yields or crude oil. Historically, business aviation activity has correlated closely to these trends. So in the short-term, the types of investors, entrepreneurs and C-suite executives who charter aircraft from time to time may disappear from view.
The longer term prospects for the UK economy are much less certain. The Remain camp, including prime-minister and chancellor, along with most economists and international institutions, have predicted serious economic damage. If they’re right, the consequences of declining trade and investment in the UK will hit corporate profits and disposable income, undoubtedly slowing business jet demand from the UK, with likely consequences for the Eurozone as a whole.
What about London?
The UK business aviation market would face the disproportionately large share of the impact. London is well known as a global hub for the ultra-wealthy, but even in the months preceding the referendum, falling top-tier house prices indicated some concern for the outcome. The demise of London as Europe’s premier financial center would undoubtedly hurt business jet demand.
As Brexit might drain London of some of its wealthiest inhabitants, it’s likely also to encourage business jet operators to relocate from the UK. This would not be as drastic as for airlines, as operators’ fleets are generally dispersed and already many operators manage activity from off-shore location. But it might now make sense for them to shift registration within the EU umbrella. Perhaps that might simply be the UK’s loss and the EU’s gain?
But maybe there’s a silver lining…
There is of course a flip-side: the sunnier view of the Leave campaign that it should be in the UK’s best interests to exit the EU. That side of the argument foresees the UK economy flourishing once disentangled from the Brussels red-tape, particularly in terms of growing bilateral trade with the fastest-growing economies around the world. It is worth noting that while the annual growth rate in business jet flights between UK and Europe is a sclerotic 1%, flights to and from the rest of the world have grown 5% a year over the last decade.
It’s also worth noting that while almost all big businesses weighed against the UK’s exit, a number of successful entrepreneurs were in favor of Brexit, or at least fairly sanguine about the implications. These individuals are regular users of business aviation, most benefiting from its convenience and agility. If they’re right about the future, and Brexit opens up opportunities as well as risks, there might at least be a silver lining for our beleaguered industry.