Legal Environment

The airline industry is subject to manifold legal restrictions including (i) operating licenses, (ii) take-off and landing slot’s/rights and (iii) safety requirements, as well as (iv) labor law issues²⁰⁸.

4.2.6.1 Operating Licenses

With respect to aerospace service rights, European regulations shifted from national to an EU setting when the Single European Sky (SES) was introduced. The main intention behind the SES was to regulate airspace across the European Union and to ensure a sustained traffic growth and safety (Pellegrini & Rodriguez, 2013). As a general rule, operating licenses are to be awarded by the state, in which the majority of the companies’

208 Section 4.2.5 provides more details regarding environmental issues than influence a carriers business.

71 shareholders are domiciled (Civil Aviation Authority, Licensing Airlines in the UK: the Framework and Criteria for Granting Operating Licenses, Route Licenses and Air Transport Licenses, 2008). Accordingly, easyJet’s current operating license has been provided by the British Civil Aviation Authority and allows operating the SES. As of today, it is at least questionable, whether this license allows operating the routes from and into the “new EU” following the BREXIT. One scenario could be, that the UK and the “new EU” sign an agreement, like the one the EU has with the US, which guarantees open skies. Another scenario could be that the UK tries to reach bilateral agreements with the “new EU” countries, into which British airlines want to offer routes. Such bilateral agreement as e.g. the contract between Germany and UAE exemplifies are complex:

UAE airlines do not have the right to choose any route they would like to serve and are only allowed to serve Frankfurt, Munich, Dusseldorf, and Hamburg. Furthermore, they can only offer “agreed services” on these

“specific routes”. All details are reviewed on a rolling basis and may be adjusted (Bundesrepublik Deutschland, Gesetz zu dem Luftverkehrsabkommen vom 2. Maerz 1994 zwischen der Bundesrepublik Deutschland und den Vereinigten Arabischen Emiraten, 1996). Furthermore, Germany (German Federal Foreign Office, 2016) and most of other EU member states have transferred the responsibility for air transport agreements to the EU, what may even make things more uncertain. So as there is a risk, that no agreement will be reached or that an interim period of uncertainty about future operations can occur, easyJet’s management must consider carefully the available options in order to not jeopardize its business. Consequently, this analysis considers different scenarios: (i) “Norway” ²⁰⁹, (ii) “Average-PTA” ²¹⁰, and (iii) “No-agreement” ²¹¹. Under “Norway” UK airlines would also in future operate under the wings of SES as to date. “Average-PTA” would give the UK only limited access to the “new EU” and may result in losing EU and non-EU routes. “No-agreement” could mean easyJet is not able to serve the “new EU”; furthermore, easyJet may lose non-“new EU” routes it currently operates under EU right²¹².

4.2.6.2 Take-off and Landing Slots

The growing competition in air travel has put more pressure on airports to allocate, or even better, to increase capacity, and especially the available take-off and landing slots. IATA oversees the distribution of slots to airlines, as it grants the permission to use airport facilities at a given time and date. If an airline operates 80%

or more of a specific slot over the course of a full year, it can secure the same slot for the next year²¹³. Access to “new” and “additional” slots is therefore largely dependent on whether an airport has excess capacity and

209 According to “Norway” UK exports would decrease by 12%, while for services and domestic value added a decrease of exports of 16% and 6% respectively is suggestes in literature (Mulabdic, Osnago, & Ruta, 2017). Section 7.4 provides more details regarding the scenario.

210 “Average-PTA” could lead to a decrease in exports of 26%; service would decrease by 48%, so the assumption (Mulabdic, Osnago,

& Ruta, 2017). Section 7.4 provides more details regarding the scenario.

211 “No-agreement” might lead to services exports go down by 62%, which implies a further 14 and 46%-point drop relative to

“Norway” and “Average-PTA”, respectively, value added exports would decrease by about a quarter and the foreign value added in UK’s exports would decrease by one-third (Mulabdic, Osnago, & Ruta, 2017). Section 7.4 provides more details regarding the scenario.

212 Section 7.4 investigates easyJet’s potential to pro-actively counter the risk of uncertainty about its operating license.

213 Also known as grandfathering and enabling established airlines to continue operating profitable routes (Sieg, 2010).

72 whether established airlines “fully” use their allocated slots. This represents a strong advantage for established airlines²¹⁴. At major airports, large airlines even operate and control terminals and gates ( European Commission, An Aviation Strategy for Europe, 2015). However, trading slots among airlines is also an option and happened in the past: e.g. in 2013 easyJet acquired 25 take-off and landing slots from Flybe for GBP 20 m to get a sizeable presence at London Gatwick (Strydom, 2013).

4.2.6.3 Safety Requirements

Safety requirements increased over the last years, also in light of September 11, 2001²¹⁵. The requirements imposed on carriers, respectively its passengers, include restrictions on liquids, massive and locked cockpit doors during flight, and additional controls for domestic flights. These stricter safety requirements have increased the costs for airlines, as well as for airports.

4.2.6.4 Labor Laws

In general, the minimum wage is a concept that establishes how much an employer must at least pay an employee on an hourly or daily basis. The details vary across countries; some do not set a minimum wage by law, but rely on minimum wages to be agreed upon by unions or other workers’ representatives. Minimum wages can e.g. have substantial effects on a country’s GDP or unemployment rate development (Meer & West, 2015). They can differ not only between industries, but also across countries and even between cities within the same jurisdiction. The profitability of an international company competing against others in a variety of countries can be affected when competing for the same clients and need to offer similar prices, but staff costs differ, due to minimum wage policies. The United Kingdom does politically establish a minimum wage.

easyJet, however, has to offer competitive salaries and pays UK-based employees above the minimum (easyJet, Recognition and reward, u.d.). As most UK employment law is knotted with EU law, a BREXIT could change the labor market regulation, too, and therefore affect easyJet’s workforce and, consequently, its operating costs²¹⁶. At the current stage, there is a general tendency that large enterprises benefit more from the EU regulations than small companies do (Coulter & Hancke, 2016). As easyJet is a large company, the EU employment regulations currently do not have a major negative impact on easyJet’s operating costs²¹⁷. However, any changes in labor regulations induced by BREXIT, could materially affect the industry in general, and in particular easyJet (Centre on Migration, Policy and Society, 2016) and it is uncertain, whether or not the UK will weaken domestic employment regulations (Dhingra, Ottaviano, Sampson, & Reenen, 2016) and/or

214 As Section 4.4.1.2 explains in more details this also creates sustained competitive advantages, as continuously renewing historical slots can be seen as a strong barrier for potential new market entrants.

215 Section 4.2.1.2 provides more details regarding the impact of September 11, 2001.

216 Labor costs are also subject to changes in the economic environment. Section 6.3.4.4 investigates how sensitive easyJet’s reacts on a potential change in labor costs.

217 The industry is amongst those with the least UK employees, as of the UK transportation industry’s total workforce 7.4% (around 210,000 employees) are non-UK EU citizen and 14.1% (i.e. 400,000) non-EU immigrant workers. Labor costs are also subject to changes in the economic environment. Section 6.3.4.4 investigates how sensitive easyJet’s reacts on a potential change of labor costs.

73 restricts immigrations and/or cross-border labor mobility (Busch & Matthes, 2016).