Impact of Brexit on travel companies | Adventure Alternative blog
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In 2008 when the Lehman Brothers collapsed it triggered a global recession which, some say, we were only just beginning to emerge from. We saw the world economy have a major heart attack and banking organisations shoring up nation states by essentially printing money to provide the oxygen for business to continue. Since then The Great Recovery has been like an endless series of false summits.

In 2009 we at Adventure Alternative saw our 65% Irish market share drop to 5% in nine months. We went from being a happy fish in the pond to there being no pond at all. It was the beginning of a long struggle that arguably was only just beginning to ease in 2014.

During the intervening time we invested in a new website and conducted an intensive quality control audit over several years. We worked hard to create more social benefit to our trips, highlighting a model of responsible tourism that won us some nice awards. The idea was that we would emerge leaner, fitter and more able to cope with the exigencies of a competitive digital world and absorb all the new platforms that erupted onto the net.

Brexit Brake

Now that the Brexit vote has succeeded we can make a few comments on the impact to the travel industry. It’s easy to dwell on the negative aspects, which will surely affect everyone in the short term while our future is being constructed out of – it would appear – thin air. However, seismic events like this also create opportunities and the long term prognosis could be better than anticipated. Some people reckon that we will be better off if and when the European Union implodes, so better to get out now. “That which does not kill us makes us stronger”, to quote Nietzsche; quite a risky strategy for a travel company.

There can be no denying that in the short term the referendum has put a big brake on things, but what are the immediate and long term implications and worries?

Weak pound = cost of sales up, margins down

Most travel companies have to buy and sell currencies all the time; for example we deal in dollars, Kenyan shillings, Malaysian ringgit, Russian roubles, Moroccan dirham, Nepalese rupees and euro. The pound has dropped dramatically so the short term impact is the cost of the holiday rising and the profit margin dropping. Safe haven currencies will become more expensive.

Most travel companies buy currencies in advance so that their budgets don’t change every month. Small changes can be absorbed and often level out over long periods of time. But Brexit has resulted in such a big drop that companies will have to issue surcharge invoices to cover the losses. Supply contracts may be challenged. Companies that offer price guarantees but have not hedged ahead will suffer a lot. There will be cancellations and taking into account political instability around the world inevitably some companies will fail. It’s already happening.

No idea how to price future trips

Every company has to price their trips for the future based on what they think the exchange rate will be. We all adopt a general rate, for example we might assume that the dollar will be 1.4 to the pound in 2017, and price our trips accordingly. However, nobody can make even a rough guess at the moment, so everyone will hedge their bets and opt for a lower exchange rate, which will lead to higher prices for holidays. This currency volatility could theoretically go on for years. In the long term we might have to accept a weakened currency. All this will add immeasurable stress to company owners and may lead to staff being laid off.

Higher prices and lower customer numbers

As the higher prices results in fewer customers there will be greater competition but also lower tax receipts for the government which will no doubt mean higher taxes for the population. The government will have to offset this against tax cuts to encourage investment (witness the latest idea to reduce corporation tax to 15%).

In many areas of the world, particularly developing countries, the net effect will be to create a greater divide between cheap holidays and expensive independent holidays. Cheap holidays generally mean that the cost of variables are compromised, the most obvious one being local salaries. In countries where legislation is not enforced to protect workers’ rights this will inevitably lead to more inequality and continuation of people living in poverty. So much for ethical tourism and protecting the destination, UK companies will be fighting for their existence.

Holiday spending worries versus our travel culture

Of course people will have less money to spend on holidays but on the plus side foreign holidays are very much the norm nowadays and big ticket items like the dream holiday to some exotic location may still be secure. General depression at the state of our country – and a wet summer – could encourage people to want to get away from it all and go on holiday. Anywhere just to get away!

The rise of the discount psychology in virtually everything we buy, including holidays, will continue to a point where pricing will just be another variable factor. Discount companies like Groupon analyse the relationship between a selling price and the percentage discount based on data collected about peoples buying habits. We can expect that this sort of mentality to continue, but for some companies their engagement will be to prop up a struggling cash flow. Discounted holidays don’t do much for the balance sheet.

Make room for foreign holidaymakers

Meanwhile the weak pound should boost our inbound market and already Americans and Europeans are booking their cheap holidays to Britain. So make way for a busy summer of tourists, no bad thing for our faltering tourism industry at home.

What about our staff in Europe?

Worries over the legality of UK staff working in Europe and vice versa will increase as this particular political football gets kicked around. Will people need visas or work permits? Will UK training standards be accepted in Europe and vice versa? At the moment nobody knows but there will be an extended period of worry and stress for sure as this subject dominates the issue of free movement and the arrangements that Britain makes with Europe sometime in the future.

If we join the European Free Trade Association (EFTA) with Iceland, Leichtenstein, Norway and Switzerland which some are saying might be our best option, then we will have to comply with the European Economic Area (EEA) agreement which will mean we sign up to much the same agreements as we had before the referendum. That includes freedom of movement across borders. 

What tourism legislation will we follow?

The UK Package Travel regulations are strongly influenced by the EU Travel Directive which has just been revamped in 2015. In all likelihood the UK will still adopt these new measures in 2018, irrespective of what Brexit brings. These regulations exist to protect the consumer and as EU regulations go, it’s comprehensive and beneficial. Some might say better to have British regulation and bureaucracy than European regulation and bureaucracy but it’s a moot point because the legislation was jointly created anyway.

Uncertainty, uncertainty, uncertainty

The main outcome of the referendum result to date, both short term and long term, is what appears to be a national hysteria and depression over what will be. You don’t need a crystal ball to predict that we will now experience consumer uncertainty and a lack of confidence in spending for the foreseeable future. Booking a holiday may be the last thing on people's minds right now, especially with such a weak pound. 

The travel industry already exists in very challenging times and this situation will make it difficult to create any sort of useful strategy. Company owners will be very worried about how to take their company forward and to some extent we’ll all just be holding on, waiting to see what happens.

Decisions will be reactive rather than pro-active, but I suspect that for now we're all slightly frozen into inactivity, like rabbits caught in the oncoming headlights. Consumers will do what they always do in times of deep uncertainty and head for established ‘comfort’ brands. This applies to travel like any other industry, and small companies will really struggle. Some may opt for cheap debt financing if they can get it, some will downsize, but some may be nimble and innovative enough to create some competitive advantage.

The disruptive enemy

Some see the innovative companies who are creating amazing online platforms which become embedded into people’s online social lives as disruptive and even dangerous. For example, AirBnb claims to be changing the way that people perceive and buy authentic holidays by literally bringing them into our homes. I think it’s wrong to create a 'them and us' polarity. We are all involved in providing holidays and experiences, and if the consumer is moving away from traditional models then don’t blame the new entrepreneurs. Learn and adapt to the changing landscape and we might just weather this storm.

Companies with large infrastructure, a traditional business model, fine margins and binding supply agreements may rely heavily on brand value and customer loyalty but it may not be enough in the long term. Embracing the rapidly changing buying culture and being nimble enough to ride that technological wave is probably key to survival and, dare I say it, growth.

For now we live in troubling and changeable times. Everything is a moving target and until we get some sort of signal about what lies ahead and how Britain will fit into Europe and the rest of the world, nothing will appear secure. Meanwhile a voracious media will whip every incremental event into a daily and even hourly frenzy.

Maybe everyone should go on a nice long relaxing holiday..