Phase I of Brexit concluded recently and discussions have moved to phase II. Trade negotiations with European Union (EU) and other countries during this phase of the implementation will give businesses in the U.K. greater clarity.
The WNS Brexit series provides an analysis of all possible Brexit scenarios and what it means for industries in the U.K.
In my previous blog, I discussed about the implications of Brexit on the healthcare and automobile sectors. This blog trains its sights on the travel and leisure industry.
Tourism is one of the most successful industries in the U.K., contributing to no less than 9 percent of the GDP and 4.9 percent of exports. It employs 3.1 million people and the rate of growth of employment has been twice that of other industries. The extent of inter-dependency between the EU and the U.K. in this sector is evident from the fact that the EU contributed to the largest number of visitors to the U.K. in 2016 and U.K. residents have frequented the EU the most in the last three years.
In this context, the outcomes of Brexit will bear significant implications for the travel and leisure sector in the region. Let us look at three critical areas that will be impacted.
Freedom of Movement:
Currently, U.K. citizens are allowed to travel freely inside continental Europe. However, the U.K. maintains passport control and is outside the free Schengen area. This requires EU citizens to undergo basic border checks while entering the U.K. The possible dissolution of the Schengen agreement as a result of Brexit will curtail the free movement of U.K. passport holders to the EU, and will require them to apply for visas online.
Various EU travel regulations allow special privileges to travelers. Key among them are:
Roaming charges: A single digital market allows EU members traveling within the EU but outside their country to call mobile and fixed lines, send text messages and use data services, without paying additional roaming charges
Passenger rights: The EU regulation 261/2004 allows passengers entitlement to a compensation of up to Euros 600 if their flights are delayed by three or more hours, cancelled or overbooked due to the airline’s fault
Package travel services: EU’s Package Travel Directive offers comprehensive protection to buyers of package travel services, including key features such as making the retailer/organizer liable for satisfactory provision of all services offered as part of the package; and an active insolvency protection package pertaining to the financial stability of service providers
Whether travelers from the U.K. will be able to avail these privileges will depend on the outcomes of the Brexit discussions. Not getting access to these privileges may impact the plans of travelers.
Shortage of Skilled Staff:
Of the 4.5 million people employed in the U.K. hospitality industry, 700,000 are EU workers. The decreasing unemployment rate in the U.K. has increased the dependency on EU nationals. For example, many in the U.K. look down on jobs in hotels and restaurants. A coffee and sandwich chain such as Pret A Manger estimates only 1 in 50 of its job applicants are from the U.K.
A shortage of EU staff in the hospitality sector due to possible changes in immigration laws will increase employment and training costs for business owners. This will be passed on to customers making this sector less competitive.
In contrast, while the above ambiguities have been a cause of concern for business owners, the decline in pound, post the 2016 referendum, has given a boost to the travel and leisure industry.
The U.K. has become one of the most attractive destinations for travelers from EU and other countries. The three-month average of EU visitors to the U.K. was 2.3 million in 2017, as compared to 2 million in the quarter ending September 2016. There has been a 34 percent increase in the number of American tourists visiting the U.K. in June 2017 compared to June 2016. Naturally, this has resulted in increased room occupancy rates across the U.K., and this trend is expected to continue up to 2021. There was also an upsurge in the spend by tourists visiting the U.K. in 2017 as compared to the previous year.
While Brexit has had a positive impact on incoming tourists, many aspects of the travel and leisure industry in the U.K. are hinging on the outcomes of the discussions in phase II. Maintaining the symbiotic relationship between the U.K. and EU in this sector will be key to its continued growth.
For more detailed analysis, read the Brexit Series by WNS DecisionPoint™