Since Britain joined the European Union (EU) in 1973, the number of trips by Britons to the Continent has grown four fold. Over the past 43 years, higher incomes, falling travel costs and closer integration between the two parties on matters as wide ranging as banking to health care, have enabled this steady rise in not only holidaymakers but second-homeowners choosing mainland Europe as their destination of choice.
With an impending EU summit at the end of the week, during which Britain’s terms for remaining in this union may be agreed upon before being put to a referendum later this year, the big question now is how would a British exit (Brexit) impact the travel industry?
If we leave the possible currency effects to one side for the time being and focus initially on the logistics and possible increased expense incurred for UK citizens wanting to travel across the channel, two prominent figures in the travel industry in particular are beating the doom mongering-drum.
Over the weekend Easyjet CEO Dame Carolyn Mccall and former boss of TUI group Peter Long approached the hypothetical situation of a Brexit from differing angles, whilst agreeing that it would ultimately result in worse conditions for tourists. Mccall wrote in the Sunday Times that being in the EU was behind the fall in air fares across Europe over the past two decades, and that before its creation air travel was “reserved for the elite.”
The development of several low-cost carriers in the airline industry over the past 20 years, appears to have been more a product of entrepreneur’s like Ryanair’s Michael O’leary or Easyjet founder Stelios Haji-Ioannou himself spotting a niche in a maturing market, rather than resulting from Britain’s EU membership. The concept of budget air travel was first implemented in the United States by Herb Kelleher, former CEO of Southwest Airlines, before Britain had even joined the EU. With Heathrow still the clear hub of long-haul flights in and out of Europe, it seems unlikely the European parliament would attempt to impose a significant increase in taxes or tariffs on travellers from the UK due to a concern that they may face a reciprocal arrangement.
Moving on to the effects it may have on travel agents, Mr Long made the rather absurd assumption that the UK remaining it’s current close ties with Europe - its government and foreign offices - helped responses to security threats such as the attack on holidaymakers in Tunisia last year. Long, who was in charge of TUI when the tragic attacks took place, warned that “it would not be like that if we weren’t in a situation where we were as Europe working together.” To draw comparisons to events that occurred in North Africa in an apparent attempt to scaremonger eurosceptics and suggest similar may occur in Europe following a Brexit seems at best ill-conceived and poorly thought through.
In conclusion it seems unlikely that a Brexit would significantly alter travel costs or preferences for Britons, with arguably the biggest effect on the industry should the out vote prevail, coming from the possible implications for Sterling.
Due to the unknown nature of the terms whether the UK public decides to remain or exit the EU, it is a difficult task to accurately predict the effects on the EURGBP exchange rate. One thing that can be stated with a reasonable degree of conviction is that financial markets dislike uncertainty, and with the latest polls suggesting the outcome of a referendum to be far from clear cut this is likely to weigh on the Pound as we approach a vote.
The EURGBP has retreated from multi-year lows (a lower exchange rate means it’s cheaper for UK tourists to visit Europe) lately as the divergent monetary policies of the Bank of England and European Central Bank have converged somewhat as well as the aforementioned Brexit uncertainty depreciating Sterling.
Several investment banks, such as Goldman Sachs and Bank of America Merrill Lynch, have predicted a worst case scenario whereby the UK leaving the Eurozone would cause a further significant weakening in the Pound, and this rather than unrealistic claims regarding substantial increases in flight costs or greater security threats following a Brexit should be the main concern for the travel industry, if it were to occur.
For more information visit xtb.com