How ‘Brexit’ Might Impact U.S. Airlines

For those that do not know, a referendum is being held on Thursday so Britain can decide on whether to leave the European Union (“EU”) or not. The potential British exit from the EU has been coined the “Brexit.” The issue has been hotly debated and has far reaching implications outside of whether Britain remains in the EU. One such implication is the potential impact on U.S. airlines and the Open Skies Agreement.

For anyone who has been in the award travel game for a little while, the words “Open Skies” may sound rather familiar. That is because it is the name of a British Airways subsidiary that flies exclusively between Paris-Orly (ORL) and New York (JFK/EWR).

Open Skies

The name comes from the EU-US Open Skies Agreement which went into effect in 2008. Under the Open Skies Agreement, any EU or U.S. airline is allowed to fly between any points in the EU and any point in the U.S. What was interesting about the Open Skies Agreement was that it opened London’s Heathrow Airport (LHR) to full competition. Prior to the Open Skies Agreement, U.S. airlines United and American held exclusive service rights (along with British Airways and Virgin Atlantic) to routes between Heathrow and the U.S.

After the Open Skies Agreement was signed, we saw a significant increase in the number of U.S. carriers that flew to Heathrow (LHR), limited only by Heathrow’s lack of runway capacity. This obviously resulted in increased competition for paid fares on Trans-Atlantic flights between the U.S. and London. That meant that there were all of a sudden more seats available for the airlines to potentially release into award inventory, which the result being overwhelmingly positive for the average award traveler looking to get to Europe on points and miles.

I give you that background on the Open Skies Agreement as it is important information in how a British exit from the EU could negatively impact the average award traveler who seeks to travel to Europe. The Open Skies Agreement was signed between the U.S. and the EU – not, specifically, the individual countries that form the EU. That means that although each of the EU countries has agreed to the terms of the Open Skies Agreement – including Britain – there is no individual agreement between the U.S. and each of the countries that make up the EU. Rather, the Open Skies Agreement was entered into between the U.S. and the EU as a whole. It is a minute distinction, but an important one in this case none-the-less.

In the event that Britain were to vote to leave the EU, they would no longer be subject to the Open Skies Agreement. That would mean that the British could, if they wanted, return London Heathrow (LHR) airport back to the old system of limiting which airlines have rights to fly in and out. For an airline like Delta who previously did not have a seat at the Heathrow table, that is an incredibly worrying prospect as Heathrow was the 6th busiest airport in the world last year, servicing nearly 75 million passengers.

Brexit-cartoon(Source: TTG Media)

Many analysts are predicting that if Britain does in fact vote to leave the EU on Thursday, that the U.S. and Britain would revert back to their old reciprocity style relationship (essentially that the two countries trade slots at their respective major airports). I personally think, however, that in the event that Britain votes to leave the EU, that we will see the British and the Americans working fervently to reach an open skies-esq agreement between the two countries. I believe this would be the case as the commercial aviation industry has one of the strongest lobbies in the world and would no doubt push to maintain the status-quo.

American Airlines and Delta are likely to see the biggest impact from a British exit from the EU as American has a joint-venture with London-based British Airways and Delta owns nearly half of London-based Virgin Atlantic. United on the other hand does not really have much of a stake in Britain outside of its daily flights between the two countries, so I really do not think this issue impacts them as much as the other major U.S. carriers. The upshot of this is that the four airlines that have the biggest stake in this issue represent an incredibly strong segment of the market, which would likely have some sway with regulators to help push through an open skies-esq agreement between the two nations sooner rather than later.

The downside of this would of course be a limiting of the numbers of daily flights between the U.S. and Britain until the two countries could get a new agreement sorted out and signed. When you decrease frequencies on a given route, you usually see an increase in paid ticket prices as competition for the lower number of seats increases. The direct result of that is that airlines stop opening up as many seats to award inventory as they stand to make much more by selling that seat. That means that should Britain vote to withdraw from the EU, we are all but guaranteed to see a decrease in award availability on routes between the U.S. and Britain.

At the end of the day, I think this issue impacts those with American Airlines AAdvantage miles more than anyone else. The reason being that London is often the gateway to Europe for many award travelers who have tons of AAdvantage miles to burn. Eliminating frequencies between the U.S. and Britain means that competition for partner flights to other OneWorld European hubs (Finn Air – Helsinki (HEL), Iberia – Madrid (MAD) and Air Berlin – Dusseldorf (DUS)/Berlin (TXL)) will increase exponentially. Considering award space on the other three European based OneWorld carriers already tends to be weak, this could be catastrophic for those who were stockpiling AAdvantage miles for a European vacation.

For anyone that wants to read a great overview of just the facts of the Brexit issue, the BBC has put together some cliff notes on the issue.

Final Thoughts

While I know this steers away from my traditional award travel content, I both want to include interesting information on this blog, as well as think this issue will ultimately have a trickle down impact on award travel. Although it remains to be seen whether the British citizens will vote to withdraw from the European Union, I think the vote on Thursday is an important issue for the award traveler to keep an eye on. I tend to believe that the referendum will fail and that Britain will remain a part of the EU, but the current poll numbers on which way the country is swinging are so close that it is anyone’s guess at this point.

What other impacts to the commercial aviation sector do you think we might see from a Brexit?

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