Impact due to Brexit

As soon as the results of the referendum were announced on 23rd June 2016 the immediate
effect was seen in the currency market as the pound went down by more than 10% at $1.33
compared to $1.50. Also we can see in the graph Compared to the euro, the pound fell by
more than 7% . After the Brexit announcement it was stipulated that this would effect the air
traffic volumes negatively. As their is a direct relation between the GDP and the air traffic so
any reduction in the economic growth of UK and EU would have a negative impact on the air
traffic demand.Also Any changes in the trading policies would effect the air cargo volumes
which is the main source of revenue for aviation industry.

The reaction of this was soon seen in the aviation sector where the sector’s average global
reduction in share price was 25% and the average reduction in the listed UK airlines’ share
price was 33% as can be seen in the graphs here showing drop on the share prices during that
period for Ryanair, EasyJet and IAG which is the parent company for subsidiaries like aer
lingus, british airways etc. This immediate effect was based on regulatory uncertainties with
brexit. The fuel industry was also hit by the brexit announcement as the prices of oil went
sharply by 25% with Brent crude down 4.9% to $48.41 a barrel and US crude also fell 4.7%
to $47.77 a barrel.

Impact due to COVID

The Pandemic hit airlines industry the most. Due to the global lockdown and International
travel restrictions aircrafts were not flying and the share price of aviation industry dropped
drastically in the mid of Feb 2020 as soon as the news of lockdown came . the european
airlines were the largest hit as investors were afraid due to early corona virus strains found in
Europe. Also a lessor tourist and business travel was expected in Europe.

As can be seen in the Grapghs Rynairs price fell by 13%, easyjet dropped by 17% and IAG
dropped by 9%.
The oil prices collapsed drastically. But this did not helped the aviation industry much as
most of the companies have hedged themselves against the fluctuations in fuel prices.
The Half yearly reports of the airline companies were very depressing as
Rynair experienced a loss of 197 Million euros and an additional loss of 227 million euros
charge for fuel hedging.
IAG reported an operating loss of 1300 million compared to a profit of 1425 millioneuros
last year. Total loss reported by IAG after including the fuel hedging charge was around 1918
million euros.
Easyjet faced a substantial before tax loss of 1.27 billion pounds compared to a profit of 430
million pounds at the same time last year. Easyjet stated that it had not faced such a loss in
its past 25 years.
This is all from my side now my colleague will further discuss on how companies can hedge
against such risks..
Thanks...