UK airlines to run into Brexit turbulence stirred up by the weak pound, warns Moody’s
The slump in sterling has more damage to do to UK airlines, according to the latest report from Moody's.
It has predicted passenger growth in Britain's airline industry will only be half as fast as had been previously forecast over the next two years.
The ratings agency said revised travel choices and operating dollar costs could cause UK airlines' revenues to take a hit, though airports will likely weather the short-term impact.
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Economic uncertainty remains a problem and while the wider UK economy has been more resilient than many anticipated, airlines have been particularly susceptible to the weak pound.
The likes of EasyJet and British Airways owner IAG have warned of post-Brexit vote trouble due to a fall in sterling. EasyJet has noted no other major airline reports in sterling or earns a similar proportion of its revenue in sterling, making it more exposed to the pound.
The Brexit vote has impacted the economic outlook causing the slump in passenger growth forecasts (Source: Moody's)
The year ahead still looks difficult: it's expected airlines will continue to feel the pain on the back of a slowdown in outbound leisure travel – especially to the US, with many expected to look for more affordable holidays nearer to Britain.
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That hit to US travel means British Airways and Virgin Atlantic are expected to be the most severely impacted.
Moody's also flagged the UK no longer being a member of the European Common Aviation Area could "significantly affect airlines and airports" on the air travel rights front. The report notes transitional arrangements will "likely be needed to avoid a sudden loss of air travel rights".
Xavier Lopez del Rincon, vice president at Moody's said while passenger numbers will grow in the short-term, albeit at a slower rate enabling UK airports to deal with the immediate impact of the Brexit vote, this benefit will not be felt evenly across the UK.
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"Manchester, Luton and Birmingham airports which are dominated by outbound traffic are more exposed to weaker domestic economic prospects and sterling's depreciation, while others like Heathrow, and to a certain extent Stansted airport, are better insulated from UK economic conditions because of their higher proportion of inbound traffic," he said.