Brexit – the killer of the travel sector?

Brexit – the killer of the
travel sector?

Brexit. The talk of the decade. After 30 million of the British public voted, the EU referendum finally concluded on the 23rd June 2016, with ‘leave’ barely closing the deal at a 51.9% to 48.1% swing, making Britain due to be the first nation state to ever leave the European Union. After David Cameron’s shock exit, Theresa May is still at centre stage three years on and with Article 50 triggered and coming to a close, the amount of uncertainty for a post-Brexit Britain is still a worrying dilemma for travel-based organisations.

What we know so far

Ever since the result of the EU referendum, the pound plummeted and is still struggling to keep up with other economies, making the pound currently weaker by the dollar by 10% and the euro by 10-15%. This is a concern to the travel sector and British travellers who want to vacate to these destinations as they will have to pay more for their money, which can reduce the demand to these destinations, thus impacting economic growth of these countries as well as Britain.

Britain currently plans to start the transition process of Brexit on the 29th March 2019, however with May’s rejection by her proposed Brexit deal to be the “biggest defeat on a government policy since 1924” it begs the question if we will have to delay Brexit, despite May insisting that she does not want to do so.

Delaying the process will lead to adding further debt into the £39bn pounds already owed to the EU and will reduce the competitiveness and market share to Britain, against other countries. More importantly, this will also prolong the uncertainty of Brexit indefinitely. This is extremely concerning for individuals as employment is already declining by 7% for British employees within the sector due to holiday companies planning 12-18 months prior to date, therefore any more delay will unfortunately only make this number increase.

In the circumstance that we don’t need to delay Brexit, Britain will only be able to strike their own deals by 2021 and aim for the completion of Brexit to be by Spring 2022, meaning Britain will have to be under fire of Brexit for five years, and must follow EU regulations without any input on changes and new rules made during that time.

In May’s recent win to the vote of no confidence, this should encourage the public as the government do support May’s policies to a degree, as it will allow our Prime Minister to focus on creating an amended deal in an attempt to avoid a no Brexit deal. Since the first deal was heavily criticised on being tied to EU regulations without a say on any changes they make indefinitely, if May cannot create a deal where it suits the public’s needs and the EU, a ‘hard Brexit’ might be on the cards, resulting to greater difficulty for Britain’s currently in the EU and trading.

Withdrawal Agreement

As we processed Article 50, the withdrawal agreement was created between Britain and the EU in an understanding of what will happen before we enter the transition process. This consisted of the following:

Britain will begin the transition process on the 29th March 2019 – 21st December 2020 and can be extended until 2022 if necessary.

Any extension must be agreed and taken out before the 1st July 2020 – but all 27 members will have to agree.

Britain will have no formal say about any changes in making or amending EU agreements but must follow them accordingly.

Citizens who take up residence in any EU country (including Britain) will be allowed to stay.

Individuals who have stayed in EU countries for over five years will have the option for permanent residency.

Britain can stop the process at any time, however will need to organise the appropriate legislations since leaving the EU has now become a law for Britain.

A ‘backstop’ for Northern Ireland meaning that they can abide by usual EU laws unlike Britain who will use the EU customs union.

How has Brexit already affected the travel sector?

Since the announcement of Brexit, some holiday companies have to close down their businesses as their business models do not fit in with any of the Brexit forms. Many companies are shortening their leases in the UK and have now introduced a ‘break clause’ around Brexit in contracts to protect themselves during the process. The apprehension investors and individuals outside the UK have with Brexit pending in the background holds 25,000 jobs within this sector at risk at a primary age bracket of 18-24-year-olds, who contradictory were the age bracket that wanted to remain. The reality of this is dawning on our ‘next generation’ can push young talent out of the sector and decrease the value of what is currently a £16.5 billion sector.

What are the threats?

The primary threat to Brexit against the travel sector will be about the status for the right of free movement once we leave as this will impact business travellers heavily, and companies with international offices based on the rights of the EU membership.

The BBC announced that holiday companies should expect to face a 58% cost increase from the consequence of Brexit, primarily due to the ‘open skies’ policy created in 1994. This policy allows EU members to fly anywhere around EU countries, resulting to an increase in airlines and therefore competition, forcing airlines to reduce their prices by ‘40%’. However, since we will be leaving the EU the uncertainty of what will remain and what will not, is still unsure, placing this policy at risk and meaning that a reduction in competition will encourage prices to rise again.

This is consequential to business travellers as their tickets will cost more, will also need additional red tape to be carried out when travelling to EU countries and separate insurance. Travel organisations should see this as a threat as many firms will have to reduce the number of trips per employee, which can impact relationships with other international companies. Employees should also anticipate impacts as smaller travel organisations may prefer to employ individuals from EU countries in future openings to be cost efficient since these employees will not require a work permit, insurance complications or possible border controls.

Is it all bad?

The severity of Brexit solely relies on the type of deal the Prime Minister and the EU will agree on, if at all. Although May has previously stated that she wants to be visa-free from EU countries and want members of the EU who are living in the UK to be allowed to stay, she warned prior to the vote that if the EU did not agree with her deal there would be a risk of not having Brexit at all. The question lies that if it came to a no deal Brexit, will this consequence to a ‘hard’ Brexit and cause issues impact, trading, movement and health care immediately?

Having smaller changes as possible free movement, similar to the EU’s deal with Norway is in the best interest of business travellers and international organisations who have strong relations within the EU in order to operate business as normal. However, the reality of this becomes more doubtful after May’s statement outlines how the primary reason why Britain’s voted for Brexit were to reduce net migration as her aim for Brexit is to reduce migration to 100,000 per year, which evidently means more barriers gaining citizenship and a reciprocal deal for the EU.

With possibilities of general elections and another referendum pitched by Jeremey Corbyn, alongside May’s second proposed Brexit deal upcoming, people are preparing for the worst. Travel companies should have a variety of Brexit contingency plans prepared to outline how they can overcome this and reduce the impact if the worst were to occur to minimise disruption within organisations. As we come closer to the 29th of March, what are your predictions about Brexit?