The Brexit Story Part II: The Impact on the Industry
Yesterday we published the wise words of Eduardo Santander, Director of the European Travel Commission, predicting that “within six weeks Brexit will not be headline news.”
Little did we know that within six hours of speaking to Eduardo, Britain and the rest of Europe would have forgotten all about Brexit thanks to two goals by Iceland’s soccer team that knocked the mighty England out of the European Cup. The English are nothing if not reliably true to their word and definitely the only nation capable of leaving Europe twice in the same week!
Jokes apart, the absence of any mention of Brexit on most European front pages this morning is illustrative of how the general public will soon recover from the shock of Britain’s referendum, hopefully to start thinking about their summer vacation. If however, you subscribe to the Financial Press or the Travel Trade Press you would be reading a very different story this morning. Ever since the first symptoms of Brexit fever became evident in the markets, even while the great British public was still voting, a seemingly endless list of new and increasingly concerned “what ifs” continued to pop-up.
Uncertainty is the worst condition for stock and money markets. The fact is that this is the first time a key player has left the European playing field, and nobody really knows what will happen next.
Brexit’s Impact on Airlines
It was indicative to us that two of the most successful entrepreneurs in the airline business, Virgin Atlantic’s Richard Branson and Ryanair’s Michael O’Leary, both actively and passionately campaigned against Brexit. These are men who have built empires on taking bold risks, playing for high stakes and seeing opportunities where others see obstacles. Yet, neither was prepared to take the risk of Britain leaving the EU.
Branson and O’Leary know how to voice their opinions to through the media, but it was actually the direct competitors of both Virgin Atlantic (British Airways) and Ryanair (Easyjet) that first felt the immediate effects of Brexit on their stocks. Easyjet is a UK-based low-cost airline, subject to British legislation, trading in pounds and dependent on the UK economy and travel to and from the UK. Ryanair, despite having British tourists in 40-percent of its seats, is an Irish registered airline dealing in Euro and, therefore, still part of Europe and flying under EU terms and conditions.
Ryanair is already the largest single carrier in Europe and the airline’s outspoken leader has been quick to tell the world that Brexit was a huge mistake for Britain and that he will be focusing his strategy more on Europe and less on the UK. Virgin Atlantic is less exposed than British Airways or its IAG partner Iberia because it is essentially a transatlantic operation and, in the short term at least, transatlantic travel stands to be less affected than other routes into the UK from Asia, Middle East or Europe where British Airways has invested heavily. Also, the value of the pound versus the dollar will play an important role in pricing and profitability for British airlines and travel companies because – whilst fuel prices are still comparatively low – airlines that sell tickets in pounds and pay fuel in dollars will have to keep a close eye on their margins over the next few months.
Brexit’s Impact on Hospitality
In times of crisis or uncertainty, air travel is the most obvious and immediate affected area of the travel industry. Although, if there is one thing that we have learnt in the world’s largest industry it is that we are all interconnected and ripples spread wide. Take hospitality for example. Some of Europe’s big multinational hotel chains have invested heavily in properties in the UK and their properties on the beaches of Southern Europe depend heavily on UK tourists to survive. All these brands have seen their market value do a double-digit dive since Brexit crept up from behind them and pushed them into the deep end. But the uncertainties and ramifications to the hospitality industry go right through each organization. It is estimated that up to 70 percent of staff in London’s hotels are nationals of other European countries. The status of this highly qualified and efficient, but now “immigrant” work force, is now as uncertain as the future of England’s goalkeeper.
Brexit’s Impact on Other Industries
Brexit is uncharted territory for everyone from Miami based cruise giant Carnival, who have seen their stocks slump as Brexit coincided with the eve of their Q2 results announcement – to Gordon Ramsey who is wondering how much he will have to pay for European wine or olive oil. We can be sure that this uncertainty is more damaging to the global travel industry than the reality of UK without the EU.
Tourism has shown its resilience, time and time again when faced with problems far bigger than Brexit. We will find a way to adapt to this new reality (for a start we potentially have two years of “what ifs” to go through until it actually becomes a reality). If however, there is a lesson to be learnt from this experience it is that next time we should ask the thousands of nagging little “what if” questions before we ask the single, simple big question: “in or out?”