It’s been nearly a month since the British people voted to leave the EU. There has been no shortage of media speculation as to the impact of Brexit on Ireland, with much mention of unique trading relationships between the two islands and cross-border links with Northern Ireland. From a tourism industry perspective there are two leading questions.
Firstly, the extent to which Brexit will weigh heavily on demand for outbound travel from the UK for an extended period? And secondly, how should Ireland respond to the immediate consequences over the coming months into 2017?
Answering the first question is difficult, if not impossible, as any projections are essentially speculative and will be decided over time by the outcome of diplomatic and political negotiations. However, answering the second question is more pressing and prudence dictates that it needs to be addressed in a logical and coherent fashion based on available intelligence as travel and hospitality businesses plan for the year ahead.
There has been lots of comment about the common travel area, customs posts along the border and special bilateral relationships which may or may not be by addressed by “specials deals” in protracted negotiations after the UK presses the Article 50 button. The only certainty is that none of this will impact travel between the two countries in the short term.
The post Brexit outlook for travel
Over the past four weeks Brexit has resulted in market turbulence, the collapse of sterling and a sudden dip in consumer confidence. Airlines, ferry companies, hotels and travel firms have flagged a risk of a fall in sales and profits, with the mass holiday market most vulnerable to a steep downturn. There are already signs and anecdotal evidence that travel has taken a hit.
U.K. consumer confidence has fallen dramatically in the wake of the Brexit referendum result. In a one-off special GfK Consumer Confidence Barometer the core Index fell sharply, a drop of such magnitude not seen since December 1994. Overall, 60% of all respondents expected the economic situation to worsen over the next 12 months and 33% believe that prices will rise sharply over the same period.
Survey evidence suggests that UK shoppers nationwide are putting off buying big ticket items. Numbers from Visa showed consumers cutting back on discretionary spending, such as hotels, restaurants and bars, as well as new cars and foreign travel. Quarterly spending growth dropped to a 27-month low in June reflecting the uncertainty in the lead up to the referendum. The accountants BDO published a report suggesting there was an immediate drop-off in retail sales after the leave vote and that last month marked the weakest June performance for the high street for more than a decade, with the worst performance coming in the final week of June as the leave vote was confirmed. Marks & Spencer reported its biggest fall in clothing sales in more than a decade. Current data suggest that consumer spending is likely to remain muted at best over the second half of the year.
Of course the fall in the value of sterling has been grabbing the headlines. The pound hit a 31 year low against the US dollar and the value of the pound against the euro has dropped by up to 16% over the past 12 months. The British visitor to the Eurozone this week was getting less than €1.19 for his pound compared to €1.41 this time last year.
What does it all mean for Irish tourism?
The fall-out from Brexit poses a significant and immediate challenge for the Irish tourism industry, including
- A likely downturn in demand from Britain and Northern Ireland; and
- Keener competition for international tourists from UK destinations and businesses.
There are already signs of a dampening of demand, following many months of buoyant growth from Britain. Two of the drivers of the surge in demand from Britain – a strong currency advantage and consumer confidence – no longer pertain. The high frequency and capacity on access services between the two islands may become more dependent on Irish originating traffic – a fact that has been apparent in recent weeks by the range of last minute sales and special offers in the Ireland market. While airlines may moderate their short term capacity growth plans for cross- channel routes the prospect of any cull in the capacity on offer is unlikely in the short term.
Heading into the autumn and winter the short break market from Britain and Northern Ireland is likely to be depressed. This has significant implications for Dublin, a most popular destination for leisure breaks and events. The impact will be felt not only in hotels but in restaurants, pubs, retail and transport. In the current circumstances it is not unreasonable to expect a tightening of expenditure by sterling spending tourists in Ireland. Hospitality businesses in the border areas are also bracing for a downturn.
Looking ahead to 2017 the current outlook for the market is challenging and calls for a strategic approach to minimise the potential downturn from Ireland’s largest volume market. Pricing and overall perceived value for money will become critical in persuading visitors to travel.
In global market terms the UK, at least in the short term, will become a more significant competitor to Ireland offering a price advantage for leisure, coach tour and convention travel from Eurozone countries, the US, and selected long haul markets.
Some positives from Brexit could include an increase in business travel to Ireland should businesses relocate from London and elsewhere in the UK together with a boost to securing new FDI investment. The growing transatlantic transfer market being generated by Aer Lingus via Dublin offer an opportunity to promote a stop over to the increasing numbers of US and European passengers.
The Irish Tourist Industry Confederation (ITIC) will continue to work with Tourism Ireland in shaping the marketing priorities and resource allocations for 2017. The extensive impacts of Brexit demand a new response as the market environment in which Ireland competes has been radically altered.
On the longer term fallout from Brexit ITIC will work with IBEC and others to ensure that Ireland’s negotiating team are fully briefed on the potential impacts on the travel and tourism industry of a withdrawal of the UK from the EU. The industry will also seek to ensure that the role of Tourism Ireland in promoting the island of Ireland is not conflicted to the disadvantage of businesses in the Republic in any new arrangements between the two jurisdictions. ITIC calls upon Fáilte Ireland – the National Tourism Development Authority – to convene a working group comprising representatives of the principal businesses in travel and tourism to inform Ireland’s negotiating position.