A Brexit is terrible news for airlines

There is a lot to be figured out following the Brexit vote Thursday, and no one is certain how the negotiations with the EU will wok in the following months and years.

But, it looks like airlines serving the United Kingdom will not come out on top.

The number of passengers travelling to the UK is expected to fall by 3-5% in the next four years, according a report from the International Air Transport Association (IATA).

Freight and regulation bodies will also be affected by Britain’s exit. Freight shipments leaving the UK are expected to fall and the regulatory environment will necessarily change, but is uncertain if this will be positive or negative for Britain according to IATA.

Europe is, not surprisingly, the largest destination for UK travellers, representing 49% of British travellers.

Due to the vote, many airline stocks fell Friday. American Airlines fell 10.8%, United tumbled 9.1% and Delta slid 8.1%, compared to the S&P 500, which lost 3.6%.

Investors should focus on airlines in the US market if they want to put money in the sector, Michael Linenberg, an analyst at Deutsche Bank, said in a note to clients.

‘We continue to favour domestic names such as Southwest, Spirit Airlines and Jet Blue which should gain from a favourable leisure/discretionary travel outlook,” Linenberg said.

Though the exact amount of traffic to and from the UK is uncertain, Heathrow isn’t likely to shutdown any time soon.

“While we continue to believe that London will remain a major origin and destination market for the foreseeable future,” Lindenberg said.

Airlines shares continued to fall during Monday’s trading, as stocks everywhere continued to fall following the Brexit vote.

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