The Financial Times has today commented
on Moody’s report on the airline sector. According to Moody’s report, a weak pound and economic uncertainty following the “leave” vote in the referendum has had a negative impact on the UK’s airline industry. The report cites passenger growth which will reportedly be only half as fast as previously forecast over the next two years. Moody’s said that although the wider UK economy has fared better than many had predicted, the airline industry is particularly vulnerable to a decline in value of the pound. As whilst UK airlines earn their revenues in sterling, many have US dollar denominated costs, and if the pound weakens, such costs become more expensive to pay.
Both EasyJet and IAG (the owner of British Airways) have issued profit warnings since the Brexit vote, indicating the companies have already experienced the impact of the economic uncertainty. Moody’s report predicts these difficulties are set to continue over the coming years. In addition, President Trump’s executive order on travel restrictions to the US will impact on UK airlines with British Airways and Virgin Atlantic expected to be hit the hardest. Moody’s further commented that whilst the UK’s continued membership in the European Common Aviation Area is possible, it cannot be guaranteed. Moody’s vice president, Xavier Lopez del Rincon, stated that leaving the agreement “would be severely disruptive for airports and airlines, with far-reaching ramifications, including on UK-US aviation agreements”.