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IATA warns of 'permanent downward shift' following Brexit

IATA estimates that UK passenger numbers could be 3-5% lower by 2020 in the wake of the Brexit vote.

That, says the airline association in a preliminary analysis, would be "driven by the expected downturn in economic activity and the fall in the sterling exchange rate".

Air freight, it adds, will be "affected by lower international trade in the longer term".

And in the area of aviation regulation, the nation "faces a trade-off between accessing the European single aviation market and having the policy freedom to set its own regulations", notes IATA.

The most pronounced near-term economic impacts will derive from delayed spending and investment as a result of uncertainty, IATA believes. It expects GDP to be 2.5-3.5% lower by 2020, versus the "no Brexit" baseline, and warns that this will be "a permanent downward shift".

Sterling value, it predicts, will be "weaker than otherwise would have been the case" by a margin of 10-15%, and its impact on air travel "is more clear-cut than the economic effects", the weaker pound having "immediately made outbound trips for UK inhabitants more expensive".

The UK market is, IATA notes, "dominated by outbound traffic", which accounts for some two-thirds of total flows. However, a weak pound also encourages inbound trips by foreigners – which are more price-elastic, adding to the offsetting effect.

While it sees the "GDP shock" from Brexit as "broadly comparable" to that which followed the UK's exit from the European Exchange Rate Mechanism in 1992, IATA expects the recovery to be "longer and shallower".

On the subject of regulation, IATA points out that in return for access to the single aviation market, members of the European Common Aviation Area "have to comply with the range of EU aviation law, but do not have any role in shaping new legislation".

It adds: "The UK has been a prominent proponent of some European initiatives such as liberalised market access and airspace reform, often in the face of opposition from other member states. Accordingly, Brexit could further dent the prospects of progress on these policy agendas.

"The trade-off is therefore clear. The closer the post-Brexit co-operation arrangements are, the greater the cost in terms of having to accept continuing to be subject to European rules, albeit with much less influence over policy design."

An alternative to ECAA membership would be a bespoke UK-EU horizontal agreement, which IATA says "might preserve some policy freedom for UK law-makers" but "could come at the cost of more limited market access".

A reliance on bilateral agreements, meanwhile, would "secure maximum policy freedom" but "the UK could be excluded from European initiatives such as the Single European Sky which it has long promoted and championed," warns IATA.

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