Brexit Uncertainties in Aviation and Tourism Loom Large in 2018

The UK’s path to Brexit has been a slow and tortuous affair so far.

The initial referendum happened way back in June 2016, but 18 months later the country is only slightly closer to leaving the European Union.

Two significant milestones on the journey were reached in 2017. The first was the triggering of Article 50 – the mechanism within the Treaty of Lisbon by which a member state can leave the EU – and the second was an agreement between the UK and EU to move on to talks about a future trading deal.

The breakthrough followed “sufficient progress” made in three key areas: the border between the UK and the Republic of Ireland; EU citizens’ rights, and how much the UK is going to have to pay to leave.

While a little more clarity could be in the offing, there remains a huge amount of detail to be decided, some of which would have a huge impact on the travel and tourism industry.

The UK is the sixth largest tourism destination as well as being the number four outbound market. If Brexit does anything to inhibit travel, other countries will feel the effect.

With that in mind let’s take a look at two key areas.

Aviation

Few sectors have received as much scrutiny as the airline industry. That’s because unlike in other areas, should the UK leave the EU without a deal being struck there would be no World Trade Organization rules to fall back on.

The UK’s modern aviation agreements are so entwined with those of the EU, that as things stand no flights would be able to take off or land on March 30, 2019.

Now, the likelihood of this actually happening is pretty remote. It wouldn’t benefit either side. But that hasn’t done anything to assuage the concerns of some airlines.

Ryanair has been one of the most vocal critics of the UK government’s action so far. In March, CEO Michael O’Leary said there was the “distinct possibility” of no flights for a number of months after March 2019.

In April, chief financial officer Neil Sorahan was in a cheerier mood, saying that the penny was “starting to drop” among politicians although he did warn that “there could be a period of time where flights cannot get in or out of the UK to Europe and vice versa.”

O’Leary reiterated his warning in August, saying “It’s becoming more and more likely that there will be disruption to flights in April 2019 and again in October.”

While other airlines may share his concerns, few have chosen to express them so publicly. At the same time, UK’s Transport secretary has done his best to extinguish any concerns.

Following the referendum, then-new Prime Minister Theresa May elevated Chris Grayling to Transport Secretary. Since then he has done his best to put a positive spin on what Brexit can do for aviation.

Speaking at an industry event in October, Grayling said he wanted the negotiations with the EU to “achieve the best possible access to European markets for aviation.”

Despite what Grayling and the government may say, it seems likely that whatever deal the UK gets from the EU, it will be a step back from what the UK has already.

For Grayling, it remains inconceivable that flights will simply stop, especially because so many EU members rely on British tourists.

“I think it is a big leap, to believe, to take one example, that the Spanish government will not want planes to fly from the UK to Spain in the summer of 2019. If that happens the economic impact in the regions of Spain will be enormous,” he said.

The EU has also negotiated open skies agreements with third-party countries on behalf of member states, most notably with the U.S.

These deals would have to be replicated at some point in the near future to make sure flights could continue. Grayling said in October that the UK was making “rapid progess” on securing deals with these third-party countries.

On its part, the European Commission, the executive arm of the EU, has outlinedclearly what will happen to airlines on the date the UK leaves

“Subject to any transitional arrangement that may be contained in a possible withdrawal agreement, as of the withdrawal date, the EU rules in the field of aviation no longer apply to the United Kingdom,” it said in a notice to operators.

Tourism

As the UK government’s own sectoral assessment made clear, tourism is of huge
importance. In 2015 it contributed $83.5 billion (£62.4 billion) to the UK economy and “is predicted to grow at an annual rate of 3.8 per cent through to 2025.”

Although the British tourism industry is nervous about how Brexit might affect inbound visitation, so far it has been one of the chief beneficiaries of the depressed pound with overseas visitors keen to take advantage of cheaper travel.

“We make sure that we are keeping the doors open and that people want to come to England. Tourism has been a big success story since the referendum. I admit that is due in large part by the exchange rate, but it’s also driven by other factors and the way that we are putting our story and our position together,” Steve Ridgway, chairman of VisitBritain said earlier this month.

At this stage it still seems unlikely that the UK or EU would introduce tourism visas. The UK has suggested it would allow visa-free travel (as it does for a host of other countries), something the EU would probably reciprocate. UK citizens are likely, however, to lose the ability to live and work freely on the continent.

The one minor annoyance for UK travelers will be a new U.S. style electronic travel authorization system that the EU is gradually rolling out. As the UK will be classified as a third-party country, anyone from the UK raveling to Europe will have to fill out a form and pay a €5 fee for authorization.

Meanwhile, for the hospitality and restaurant industries the biggest concern is likely to be immigration. The British Hospitality Association estimates that around 15 percent of the sector’s workforce are EU migrants – equating to around 700,000 people.

The good news is that both the EU and UK have agreed to ensure migrant rights get protected. The problem for the industry is where will the new workers come from? Tourism work is seasonal and there is a high churn rate. If some form of deal on future immigration isn’t agreed upon, then there is the risk that the industry will be short of workers.