ATW Editor's Blog

Brexit could lead to doors closing on Open Skies

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Among questions being asked in the air transport industry since last week’s shock Brexit referendum result is what does the UK’s divorce from the European Union mean to the US-EU Open Skies aviation agreement?

Unlike the immediate financial tremors that followed the referendum, when the pound tanked after the British voted 51.9% in favor of leaving the EU, effects on the UK’s global trade agreements will take longer to percolate.

For one thing, formal divorce proceedings can’t even begin until after the UK invokes the now infamous Article 50 clause that is the trigger for an EU member country to begin exit negotiations. And with even some of the pro-Leave campaign leaders now saying they are in no hurry to pull that trigger, existing trade agreements could remain for months, certainly, and maybe years.

So it is with the US-EU Open Skies agreement. This historic air transport treaty, signed in 2007, permits any airline in the EU to fly to any point in the US and vice versa. The agreement was particularly significant for the UK because it opened up transatlantic opportunities to London Heathrow, whereas the previous bilateral gave access only to American Airlines, British Airways, United Airlines and Virgin Atlantic. Heathrow’s runway and slots capacity constraints still limit Heathrow access, but US-EU Open Skies at least opened the door to competition.

In theory, that door could close once the UK is no longer part of EU and, by extension, no longer party to the transatlantic Open Skies treaty. In theory, the UK would need to renegotiate a bilateral with the US and that could take us back to the days of airline access limits.

In reality, that scenario is highly unlikely. Even if a US-UK agreement has to be forged, the expectation is that it would be a liberalized, Open Skies treaty. Such an agreement may not even be necessary if, as some believe, the UK opts to take up membership in the European Common Aviation Area. Norway and Iceland are ECAA members and it gives them access to the Single Aviation Market. This is why, for example, Norwegian Air Shuttle has been able to establish a low cost carrier unit in Ireland – an EU country – and is entitled to fly between Ireland and the US under the US-EU Open Skies agreement. However, despite acknowledging there is no reason to deny Norwegian a foreign air permit, US regulatory authorities have dragged their heels for well over two years and still not given final approval – much to the annoyance of European Commission regulators.

While the Brexit vote and the US-UK air transportation relationship may seem separate from the Norwegian situation, they are linked in one important way.

The general thinking is that the UK’s unrestricted access to the EU aviation market, and by proxy the US aviation market, is so important that one way or another, the UK will negotiate continued unfettered access to both.

The problem with that belief is that it is based on logic. And if logic were the compelling argument, the UK would have voted to stay in the EU and all talk on new aviation agreements would be moot.

Logic is not the plat du jour. On global trade fronts, retreats into national protectionism are becoming more visible. Example number one in this industry: the attempt by US major airlines to revisit the US Open Skies agreements with the UAE and Qatar once the success of the Gulf carriers looked like presenting more competition than the US carriers had anticipated. Example number two: the US’ long delay in granting a permit to Norwegian Air. Labor groups on either side of the Atlantic have been active voices protesting against the Gulf carriers and Norwegian, scaremongering about job losses and even, however baseless, safety.

IATA produced an excellent, cool-headed examination last week of the potential aviation implications of Brexit, which we reported here and which you can read in full here.  The UK, IATA points out, has been a prominent proponent of some European initiatives such as liberalized market access and airspace reform.

But more than 17 million Brits voted against unrestricted access to the general European market. If there is fear of market liberalization in general, it’s difficult to see why there would be acceptance or understanding of aviation liberalization in the specific. More worryingly, those who led the Leave campaign could paint aviation liberalization in the same lost-jobs-at-home terms as those in the US have painted their Gulf and Norwegian competitors. As it happens, Norwegian also has a UK unit that is hitting similar roadblocks encountered by its Irish sister. There is a very real danger that such blocking tactics by the US, despite the transatlantic agreement, will arm those who are left to forge the UK’s new trade deals with accusations that the US does not uphold its Open Skies obligations, so what’s the point?  

In other words, the UK referendum echoes a global fermenting mistrust of liberalization and open market and yes, it could have long-term negative outcomes on what has been one of air transport’s most significant and stimulating phenomena.

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