Thursday, 22 September 2016

Brexit Blues or Brexit Beater? Why the UK Travel Industry Could Be One of the Strongest Economic Sectors

The dust has now cleared on Britain's vote to leave the EU but plenty of uncertainty and heated debate remains ongoing. Not least of which is the lack of clarity from Westminster. It is frankly absurd that we are none the wiser as to precisely when the UK will trigger the leaving mechanisms nor as to what any deal will look like three months on. However, we can at least begin to make some conclusions and it seems that one of the beneficiaries of the referendum will be the UK travel industry.

Firstly and most critically, the pound's fall is precipitous and, in general, bad for the overall UK economic health. As a net importer with a pretty parlous balance of payments, it is going to be more expensive for the UK to buy goods and services and therefore add to inflation. However, for inbound travel to the UK, it is a big boon, with travel becoming nearly 10% cheaper overnight for the Americans. Indeed for euro holders, they can buy nearly 19% more pounds at the time of writing than they could at a high point in November last year. It is unlikely that the pound is going to recoup many of these losses due to the economic environment and the Bank of England's potential to cut interest rates rather than raise them. A Bloomberg survey reckons that the pound will finish up this year at $1.28. With a competitive accommodation market and an increasing number of air connections, particularly across the pond to North America, the UK is looking good from a pricing perspective for international travellers.

This also plays well for the UK domestic tourism scene. Naturally, travel abroad is now significantly more expensive for UK tourists. Indeed, such have been the fluctuations that some UK holidaymakers were required to pay a surcharge after the referendum to cover the extra cost incurred by the travel provider. This is going to push UK tourists to consider holidaying at home this year and next.

Furthermore, the UK's economic environment is widely anticipated to worsen in 2017 due to Brexit, although if the UK government puts off triggering Article 50 past even that year, it might perform better. Consensus forecasts estimate that the UK will struggle past stagnation but struggle to grow by more than 1%. Given inflation and uncertainty wage growth is expected to be worse, as will the hiring environment. Well if that all seems bad, take heart as during the Financial Crisis and subsequent weak periods for the UK economy, domestic trips performed well just as international journeys fell.

Britain's aren't keen to give up their holidays, with research showing they take up all of their allotted holiday on average, and so largely substitute more expensive foreign travel for shorter breaks within the country. Companies such as Center Parcs performed well in the previous downturn and EyeforTravel's consumer survey - conducted just before the referendum - showed that 61% of consumers already planned some sort of vacation in the UK.

For both UK and international travel consumers there is also the perception of a terrorist threat in several mainland European tourist destinations. I feel that I should point out to everyone that is reading this at their desk that you are far more likely to die at your workplace than in a terrorist attack but nonetheless these actions do affect people's travel choices. Last year's Paris attacks negatively affected the city's tourism market and we have seen Spain and Portugal's bookings over the last 18 months benefit massively from instability in other Mediterranean destinations. The UK has many of the cultural attractions of France and Germany but has not seen a successful major attack inside the country for nearly a decade, meaning it will seem a more attractive destination in the medium term from this perspective barring a successfully prosecuted and substantial attack.

As any good analytics or data professional will tell you, the past is by no means a guaranteed predictor of the future. However, given all of the above I think we can be fairly confident of a strong domestic performance in the UK, especially as the Eurozone is cautiously growing, as is the US. Great British businesses have every right to be concerned right now but perhaps those in travel can look forward with more optimism than most.

To find out more about current and future trends in UK travel download our UK Consumer Report now. You can also get the pulse of the European travel industry face-to-face at EyeforTravel Europe 2017, our largest event on the continent.

Alex Hadwick
Head of Research, EyeforTravel

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