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In or Out? Potential Impact of Brexit on UK Travel and Tourism

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Brexit is front of mind as David Cameron, the UK Prime Minister, announced the date for the in/out referendum on the UK’s place in the EU as 23 June 2016. The next few months of campaigning will lead to great debate and polemic, along with fear-mongering, not just in the UK, but also around the world, at a time when the global economy is fast running out of steam.

Down with the pound

We are already witnessing a slide in the pound against the US dollar as the uncertainty surrounding the UK threat of exiting the EU takes its toll. As a destination, a devalued currency makes the UK more attractive to potential visitors, however, the UK’s travel and tourism industry has a negative balance of trade, where outbound travel far outweighs inbound, so the positive impact would be limited. In 2016, 34 million inbound visitors are forecast, with 64% coming from Europe – clearly, imposing restrictions on travel and introducing visas and additional border controls would have a major impact on inbound tourism.

After Hong Kong, London is the second most-visited city in the world by international tourists, with 17.4 million visitors in 2014. Yet, with the UK set loose from Europe, the capital is likely to see an exodus of global corporations and this could damage the city’s reputation as a global financial hub. The knock-on effect would seriously undermine the lucrative business travel market, which accounts for roughly 20% of visitors and 30% of spending per year in the capital.

Trending in reverse

To get a sense of the potential impact on arrivals to the UK after a Brexit vote to leave, we can review the impact of accession of countries to the EU, when the EU welcomed new members over the past 15 years and the boost gained from freedom to travel.

On average, the uplift to arrivals after accession was almost 7%. Our current expectations for the UK inbound market are 2% arrivals growth over 2015/2016 thanks to the UK’s strong economy and post-Olympics revival. With a reverse move to exit the UK, this would lead the UK into negative territory in terms of inbound growth performance.

Coupled with the impact of recession and the uncertainty of at least two to seven years whilst the UK renegotiates its borders, trade relations, tariffs and duties with the rest of Europe, this could lead to a worst-case scenario of over 15% decline in volume, with even greater impact on tourism receipts, as prices fall to stimulate demand as the shockwaves are felt across the travel industry and broader economy.

Historic Impact of European Union Accession on Arrivals

New EU Member Year of Accession % Growth PPT Uplift Year After Accession
Romania 28.8 24.6
Lithuania 20.7 16.3
Hungary 10.9 13.1
Estonia 19.7 12.4
Czech Republic 18.4 11.4
Cyprus 2.0 6.8
Poland 4.2 6.1
Slovenia 9.2 3.7
Malta 2.6 3.2
Slovakia 1.0 1.9
Croatia 5.6 1.1
Latvia 11.1 -3.4
Bulgaria -0.1 -6.7
Average 6.9

Note: Accession for all countries in 2004, except Croatia in 2013 and Romania and Bulgaria in 2007

UK Arrivals % Growth Scenarios Post Brexit

Arrivals (Trips) % Growth 2015/2016
Exit -7
Exit and recession -12
Exit, recession + other -15

Source: Euromonitor International

Opportunity vs risk

With a weak pound, UK hotels, attractions and lodging providers like short-term rental players may see an uplift, although this may be offset by the negative damage that Brexit will have around the world, with the UK and its population seen as shunning the democratic values shared by 500 million people across Europe.

There will be a threat to outbound tourism as travel abroad becomes more expensive, which would impact airlines and intermediaries especially, with easyJet’s Carolyn McCall one of many voicing concerns about the negative effects Brexit would have on not just their business, but on the overall airline industry in Europe, making air travel much more expensive.

Leap into the dark will require fresh thinking

Following a potential Brexit, a period of introspection is likely to occur as the British people come to terms with their new independence and future role in the world, just like when Japan withdrew from the global marketplace following its recession in the 1990s or Iceland after the global economic crisis and its banking collapse.

To move forward and transform the UK as a destination, a process of creative destruction of previous national tourism strategy will be necessary and the national tourism board would enter a stage of crisis management in the short term, and would then need to develop a destination brand recovery strategy to help overcome long-term reputational damage to its brand.

Welcome to Brand #New UK

Some bold steps that the new-look UK, following a Brexit (with or without Scotland), could implement to help tell the world that this new, independent UK is still open for business are as follows:

  • Remove APD from all UK airports, reduce landing and airport charges to make the UK more competitive
  • Forgo concerns about airport expansion in the Southeast and expand the Heathrow hub
  • Develop sub-hubs in Gatwick, the Northeast and Scotland to boost air connectivity, particularly from emerging markets like China and Asia
  • Establish ultra low cost, long haul airlines to boost the North Atlantic air traffic
  • Offer discounts to European travellers by air, rail or sea
  • Counter-intuitively, the new UK could join Schengen, if still operational
  • New UK could hold another Olympics in 2024 or 2028
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