As the prospect of a hard Brexit looms, Ryanair CEO Michael O’Leary made some dire predictions about its effect on UK airlines.
When asked about a hard Brexit during the Irish low-cost carrier’s latest earnings call, O’Leary replied that while it’s still two years away from happening, the expected effect on his airline will not be substantial.
But, the chief executive warned that his UK rivals may not be so lucky.
(A “hard” Brexit means that the UK would make a clean break from the EU and fully relinquish its access to the European single market. In that case, the UK’s economic relationship with the EU would fall under World Trade Organisation rules until individual trade agreements can be negotiated.)
“However, the impact on our competitors, particularly our UK competitors, will be much more severe,” O’Leary said.
“For example, EasyJet has about 40% of its capacity operating on intra-EU routes and we would find it difficult that a UK registered airline would be able to operate intra-EU routes in a hard Brexit scenario.”
EasyJet is the UK’s largest low-cost carrier and Ryanair main rival for dominance over British skies. O’Leary’s comment stem from the potential regulatory limitations UK airlines such as Easyjet and British Airways will face if Britain makes a clean break from the EU.
As part of the EU, UK airlines can operate flights around Europe without limitations. However, in a hard Brexit, UK airlines operating flights inside Europe would be seen as no different than one from China or the US — should a UK/EU open skies agreement not be reached. As a result, there could be severe limitations on access to routes and markets in which UK airlines are currently major players.
Representatives from Easyjet were not immediately available for comment on the matter.
O’Leary’s predictions for International Airlines Group — the parent company of British Airways, Iberia, and Irish national airline Aer Lingus — is even more dire.
“I think the shareholder structure of IAG becomes untenable in a hard Brexit,” the Ryanair CEO added. “British Airways cannot be owned by the same shareholders as Aer Lingus and Iberia and I think it would lead to the breakup of IAG should a hard Brexit emerge in two years time.”
Even though IAG’s operating headquarters is in London, the company is actually registered in Spain.
This arrangement has worked well for the company, which formed in 2011 after the merger of British Airways and Spain’s national airline, Iberia.
Foreign-ownership restrictions for airlines are customary around the world. The US limits foreign ownership to 25%, while the EU’s cap is at 49.9%. Because British Airways is now 100% owned by an EU company, IAG may be put in a position in which it will have to divest its holdings.
However, IAG doesn’t seem particularly bothered by the Brexit. At least towards the public and the press, the company has remained steadfast it is stance that the Brexit will not have a major effect on its business.
Following the Brexit vote in June, IAG chief financial officer Enrique Dupuy de Lome issued a statement
saying that “the vote to leave the European Union will not have a long term material impact on its business.”
On Monday, an IAG spokesperson reiterated the same stance in a statement to Business Insider which read, “IAG has said, on many occasions, that in the long term Brexit would not have a significant impact on our business.”
Ryanair reported a $1.29 billion profit for the first half of 2016 with net margins up 1 point to 28%.
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