BERLIN: Political turmoil caused by Britain’s vote to leave the European Union could knock demand for air transport later this year, the director general of airport association ACI Europe said.
Shares in major European airlines such as easyJet, British Airways owner IAG and Ryanair have been hard hit since the Brexit vote, due to fears over travel demand and whether flying rights will be affected.
The vote is not expected to impact overall European air traffic levels this summer, ACI said in its monthly traffic update on Thursday.
“However, the political instability and uncertainty it has created in the UK and beyond is already hurting business confidence and might end up doing the same for consumer confidence — this could affect demand for air transport later in the year,” Olivier Jankovec said in a statement.
Three percent of Britons with holidays booked this summer plan to cancel due to concerns over the value of the pound, according to results of a survey commissioned by online deals website Travelzoo and carried out after the Brexit vote.
ACI Europe said May traffic data showed the impact of attacks and geopolitical tensions. Passenger numbers for Turkey were down 8.2 percent, while Russia saw a 6.5 percent drop.
Overall, traffic at EU airports rose 5.5 percent in May, but dropped 2.5 percent for non-EU airports, ACI said.
“Some of the leisure demand is shifting toward the EU market — contributing to boosting EU passenger traffic performance for airports in Portugal, Spain and Cyprus in particular,” Jankovec said.
According to IATA, the precise effect of the pound’s depreciation on air transport hinges on two key variables.
They are: a) The inbound/outbound shares of air travelers. All else equal, if traffic on a given market is split equally between inbound and outbound travelers, the outbound residents who would be discouraged to travel abroad by the weaker exchange rate would be entirely offset by the additional inbound traffic encouraged by their increased purchasing power.
b) The sensitivity of inbound and outbound air travelers to the exchange rate. The exchange rate affects the price of overseas travel. The literature suggests a price elasticity in the region of -0.7 (ie, a 10 percent increase in the price of travel would, all else equal, correspond with a 7 percent decrease in outbound traffic).
While the exact impact would depend on exchange rate developments in 3rd party currencies, the inbound elasticity is likely to be higher, as a weaker GBP has raised the attractiveness and affordability of the UK relative to other destinations.
In passing, while the discussion above holds overall, the GBP will not move by the same magnitude against all currencies, leading to different impacts.
Also, there are typically lags between significant exchange rate shifts and this being reflected in the pattern of passenger travel as trips are typically planned some months in advance.
These factors complicate but do not invalidate the more straightforward assessment noted above.
Shares in major European airlines such as easyJet, British Airways owner IAG and Ryanair have been hard hit since the Brexit vote, due to fears over travel demand and whether flying rights will be affected.
The vote is not expected to impact overall European air traffic levels this summer, ACI said in its monthly traffic update on Thursday.
“However, the political instability and uncertainty it has created in the UK and beyond is already hurting business confidence and might end up doing the same for consumer confidence — this could affect demand for air transport later in the year,” Olivier Jankovec said in a statement.
Three percent of Britons with holidays booked this summer plan to cancel due to concerns over the value of the pound, according to results of a survey commissioned by online deals website Travelzoo and carried out after the Brexit vote.
ACI Europe said May traffic data showed the impact of attacks and geopolitical tensions. Passenger numbers for Turkey were down 8.2 percent, while Russia saw a 6.5 percent drop.
Overall, traffic at EU airports rose 5.5 percent in May, but dropped 2.5 percent for non-EU airports, ACI said.
“Some of the leisure demand is shifting toward the EU market — contributing to boosting EU passenger traffic performance for airports in Portugal, Spain and Cyprus in particular,” Jankovec said.
According to IATA, the precise effect of the pound’s depreciation on air transport hinges on two key variables.
They are: a) The inbound/outbound shares of air travelers. All else equal, if traffic on a given market is split equally between inbound and outbound travelers, the outbound residents who would be discouraged to travel abroad by the weaker exchange rate would be entirely offset by the additional inbound traffic encouraged by their increased purchasing power.
b) The sensitivity of inbound and outbound air travelers to the exchange rate. The exchange rate affects the price of overseas travel. The literature suggests a price elasticity in the region of -0.7 (ie, a 10 percent increase in the price of travel would, all else equal, correspond with a 7 percent decrease in outbound traffic).
While the exact impact would depend on exchange rate developments in 3rd party currencies, the inbound elasticity is likely to be higher, as a weaker GBP has raised the attractiveness and affordability of the UK relative to other destinations.
In passing, while the discussion above holds overall, the GBP will not move by the same magnitude against all currencies, leading to different impacts.
Also, there are typically lags between significant exchange rate shifts and this being reflected in the pattern of passenger travel as trips are typically planned some months in advance.
These factors complicate but do not invalidate the more straightforward assessment noted above.
