Easyjet—Written evidence (TAS0048)

Submission to the Lords EU Internal Market Sub-Committee on the inquiry Brexit: future trade between the UK and the EU

Sectoral overview

Please provide us with an overview of trade in your sector. Please include a summary of the significance of the sector to UK trade in services, including employment statistics (linked to trade if possible), the volume and balance of trade, value added and Foreign Directive Investment (FDI), and UK strengths and specialisations in the sector.

Aviation is an enabler of economic activity. People fly to get somewhere, not for the sake of the flight itself, and the main value of aviation is the activity that the travel enables, whether economic or social. By facilitating trade and investment, aviation supports economic output and jobs. The work of the Airports Commission set out these linkages in significant detail and its Final Report concluded that “aviation connectivity contributes to the success of UK businesses in several different ways.  It facilitates the movement of services and goods, workers and tourists, and drives innovation and investment.  In doing so, aviation generates employment and helps to improve the productivity of the wider UK economy.”[1]

Aviation brings significant value to the UK, particularly due to our reliance on air links for international travel. This includes enabling the development of trade and investment links and tourism spending by foreign visitors.

Alongside this, aviation benefits the UK economy through its direct contribution to GDP and employment: 

• The UK aviation sector produced an economic output of £12 billion (in 2013)[2] and it directly employs more than 220,000[3]. 
• Aviation also brings other benefits to society such as increasing travel for leisure and helping people to maintain relationships with friends and family.

Aviation is absolutely critical to connecting the UK to the rest of the EU: 

• Around three quarters of trips made between the UK and EU are made by air[4]. The EU is the main destination for UK tourists, and the main source market for overseas tourists coming to the UK.
• The UK tourism sector alone, of which overseas visitors arriving by air is a large part, is now worth £127bn and accounts for over 9% of our economy[5].
• Around a fifth of aviation passengers between the UK and EU are business passengers.  It is also estimated that total spending by EU air passengers in the UK per annum is around £7.5 billion[6].

easyJet is Europe’s leading airline, flying on more of Europe’s most popular routes than any other airline. easyJet carry over 73 million passengers annually, of which more than 12 million are travelling on business. We operate over 240 aircraft on more than 800 routes to over 130 airports across 31 countries.

easyJet employs around 6,000 people are in the UK, including 1,600 pilots and 3,500 cabin crew, across our eleven UK airports bases and at our head office at Luton.

Around 60% of our passengers now come from outside the UK and over 40% of passengers are flying on routes between other European countries which do not touch UK airspace.

In addition to the UK, we have bases in France, Germany, Italy, The Netherlands, Portugal, Spain and Switzerland. In each of these countries we employ pilots and cabin crew on contracts reflecting the local employment regulations, as well as recognising the trade unions in these countries.

EU and market access

How and to what extent does the EU facilitate enhanced market access for your business/in your sector? Is there a harmonised Single Market framework that allows you full access to other member states’ markets? If not, how (and how well) does the Single Market function in your sector?

Aviation has an unusual international framework as it is not part of the international trade framework. There are no WTO rules for air links. Instead international aviation is arranged under principles set out in the Chicago convention of 1944, and the default setting of these principles is in general mercantilist.

The two main aspects that are relevant to the debate over Brexit and its impact on aviation are that (1) airlines are only able to fly routes between two countries if there is some form of international agreement that allows those routes and (2) in general most countries only allow airlines that are majority owned and controlled by nationals of the countries party to those agreement to access the rights granted under those agreements.

So for example, the UK has a range of international agreements, known as bilateral aviation agreements, that govern the rights to fly between the UK and the relevant countries. The vast majority of those agreements only allow UK airlines and those from the relevant country to fly those routes, so for example Air France is not able to fly between the UK and the vast majority of countries outside the EU. Many of these agreements do not even provide for unlimited rights for UK airlines and some restrict the number and frequency of the routes that can be flown.

The UK has led the way in working to introduce more liberal and deregulated aviation agreements. This work was particularly successful within the EU, and in 1992 the EU started the process of deregulating and liberalising the aviation market within the EU, through the Third Aviation Liberalisation Package. This progressively removed the previous restrictions that existed across the EU on routes, the number of flights, and fares within and between Member States. The final restrictions were removed in 1996, which supported the growth of airlines such as easyJet.

Alongside the deregulation of routes and fares within the EU, the restrictions on which airlines could fly routes were also removed. This meant that any EU airline could fly any route within the EU. This level of deregulation is unusual globally and was a significant driver of the benefits to EU economies and residents. Not only have routes increased by 180%, particularly from regional airports such as Bristol, but air fares have fallen by about 40% in real terms over the last 20 years.

As the Airports Commission noted, deregulation in Europe has increased competition amongst airlines; “deregulation of the EU market has undermined the dominance of European flag carriers.  As slots became available at previously restricted airports and as European carriers obtained the freedom to operate between airports anywhere in the EU, the low cost sector emerged to take advantage of these new freedoms”[7].

The UK aviation sector in particular has thrived in the deregulated EU aviation market. Several of Europe’s largest airlines are based in the UK, creating jobs and generating tax revenue here.

However, it is important to separate the aviation market from the EU’s single market as it is normally understood. Aviation is not a traded good, and a route from the UK to Spain is neither an export nor an import for either country. Instead aviation brings economic and social benefits to both ends of a route. It is also different in that the EU has aviation agreements with several third countries outside the EU, and is seeking to reach more of these agreements. Similarly, where there are no overarching EU level agreements, individual member states have agreements with third countries outside the EU. This is unlike the situation with traded goods, where there is no requirement for country to country agreements to support trade (as WTO rules generally apply) and indeed it is not the norm for the EU or member states to have trade agreements with third countries.

An example of this is the relationship with the US. Air services between the EU and the US are governed by the EU/US Open Skies agreement, but there is not yet a EU/US trade agreement.

The policy pursued by the EU of liberalising and deregulating aviation has been positive for both the UK’s economy and consumers. It has also been good for easyJet. But this positive outcome is not dependent on membership of the EU, as it can be replicated through a future UK/EU aviation agreement that maintains a liberal regime. There is strong precedent for the EU reaching aviation agreements with third countries, and indeed both the UK and the EU have pursued a policy of pushing for the most liberal aviation agreements possible.

We believe that aviation should be treated as part of the international economic network, reflecting its role in facilitating trade and creating social value. Just as there is no suggestion that Brexit will impact communications links or the banking payments system, there should be no suggestion that it will impact air connectivity. The impact on aviation of Brexit is a problem for the UK, but also for the EU as connectivity brings benefits to the countries at either end of a route.

Taken together we would suggest that these points mean that aviation should be treated separately from the trade aspects of the UK’s relationship with the EU, and that aviation should be ring fenced from the final agreement. Instead the UK and EU should reach an early agreement on aviation following the triggering of Article 50, to ensure the maintenance of the economic and social benefits of connectivity for everyone.

Do other aspects of EU membership help or impede the ability of your business to operate (e.g., access to justice, horizontal legal regimes, free movement of persons, mutual recognition of professional qualifications, regulation and standards)?

EU membership has operational benefits for easyJet.  Freedom of movement allows easyJet to have a mobile workforce which can work from any of our EU bases.  The European Aviation Safety Agency regulations also support our pan-European operating procedures.

Indirectly, easyJet enables and benefits from Europeans ability to live, study, work and play across Europe.

Exiting the European Union

What specific issues does the UK exiting the EU raise for your business/sector? Please be as specific as possible.

The UK’s exit of the EU will create the need for new air service agreements to maintain the current aviation links and the economic and social benefits these provide.

Global aviation is facilitated by a raft of national and international agreements conferring rights of access between the participating states and airlines.  The European aviation market is one of the most comprehensive agreements in the world, allowing UK airlines not only freedom to fly within the EU but also beyond this through a series of international agreements made by the EU with non-EU states.  If these agreements are not in place, then airlines have no legal right to put in place scheduled international air services. 

We think it is inconceivable that the UK and EU would not ensure that air connectivity is maintained between the UK and the EU. However, this will require the two parties to reach an agreement to make this happen.

Any restrictions on air connectivity would damage productivity growth via trade and FDI, reduce passengers’ choice and put upward pressure on air fares.  Negotiations on air services agreements must be given the highest priority because maintaining connectivity is crucial to both UK and EU economic success.

Future UK-EU trade relationships

What would the impact be for your business/sector of leaving the EU and operating on WTO (GATS) terms? To what extent would businesses be able to continue to trade in services as at present? How would your business adapt to this specific scenario? Are WTO terms an attractive option?

As noted above, airlines need permission based on government treaty-level agreements to connect one country to another.  Air services agreements are not like agreements in other sectors as they are not covered by WTO rules and a range of related restrictions applies to airlines such as foreign ownership limitations. For aviation connectivity to continue between the UK and EU as we currently have, there is no option to rely on WTO rules and therefore an agreement must be in place prior to the UK’s formal exit from the EU.

Would leaving the EU but remaining a member of the European Economic Area (EEA) retain present levels of market access for your business or not? Is this an attractive option?

Is a negotiated UK-EU Free Trade Agreement (FTA) an attractive option? How confident are you that the needs of your business/sector, including but not limited to market access, would be accommodated in such an agreement?

Taking these together, easyJet’s priority is to ensure that a new aviation agreement results in maintaining a liberal and open market for all UK and EU airlines, rather than making the case for a specific EU-UK trading relationship model. 

If the UK were to join the EEA then this would carry with it the rights for UK airlines to fly within the EU and would maintain a liberal and deregulated regime for flights between the UK and the EU.

A UK/EU free trade area would not in of itself protect connectivity, as free trade agreements are normally separate from any international aviation agreements.

What should the Government’s key objectives be for your sector in its negotiations with the EU?

The government’s objective should be focussed on ensuring that consumers in the UK can benefit from a liberal and deregulated aviation regime. This requires it to reach an agreement with the EU on aviation that ensures no restrictions are placed on flights to and from the EU. Further, to support the UK’s airline industry and competitiveness of services both within the UK and across Europe, the government should seek an agreement that treats British airlines as European within the EU and EU airlines as British within the UK.

This agreement should be reached early, with aviation ring fenced from the broader EU/UK agreement.

Opportunities

Does leaving the EU raise significant benefits or growth opportunities for your business/sector? What are these and how can they best be exploited? To what extent do they offset/outweigh concerns about reduced access to EU markets?

Whilst the UK’s exit from the EU does not provide any specific growth opportunities, easyJet remains committed to the UK and plans to continue to grow and invest in this market.

October 2016