Qantas and Virgin Australia Shares Drop Following Brexit
29th Jun 2016
Two biggest Australian airlines Qantas Airways and Virgin Australia are among the first to feel the effects of United Kingdom's exit from the European Union. Shares of both carriers dropped on the market amid concerns over Brexit.
Qantas' shares fell by 12 cents, or four per cent and are were at $2.61 on Tuesday by the close of the Australian Securities Exchange. Its rival Virgin Australia ended the day at $0.21 per share, after sliding down 1.5 cents, or seven per cent.
Speaking about the changes caused by Brexit, Michael McCarthy, Chief Market Strategist at CMC Markets said:
"In broad terms, what we are seeing today is a continuation of a pervious downtrend. On a day of weakness, they are just not finding the support. With oil prices rallying ? doubling almost from lows of about $26 a barrel to be sitting just below $50 ? a lot of the benefit of that cheaper oil has rolled off and the pressure that we are seeing on airline prices is, not solely, but largely reflective of those increased energy costs. That and the concern that international business for airlines will be hurt by what is going on in the UK and Europe."
According to the International Transport Association (IATA), one of the results of Brexit will be fewer UK travellers:
"Preliminary estimates suggest that the number of UK air passengers could be 3 to 5 per cent lower by 2020 driven by the expected downturn in economic activity and the fall in the sterling exchange rate. In other words, the outcome of yesterday's referendum could reduce air passenger growth by 1.0 to 1.5 percentage points each year over the near term."
According to the Centre for Aviation (CAPA), UK could join the European Single Aviation Market to negotiate an arrangement with the EU for market access. In case the UK is unable to do so, CAPA notes this could lead to higher price tickets for the travelers.
Despite the drop, Qantas and Virgin's fall was not as dramatic as that suffered on the European market and companies based on that continent. Parent company of British Airways and Iberia, IAG, slid 16 per cent on the London market, while easyJet's shares dropped 22 per cent and Ryanair's were down 14 per cent.