Destinations Face Up to Travel Disruptions
By Caroline Bremner, Euromonitor International
The political sands have shifted greatly in the US and UK in less than 12 months. The Trump presidency and Brexit are expected to impact not just the forecast economic performance of both countries, but will also shape future tourism demand. So, where should destinations and travel brands seek out new sources of demand?
Myriad of demand drivers impact and shape travel
Euromonitor International has developed its Travel Forecast Model to measure the impact of different drivers — including macroeconomic forces, demographics, currency fluctuations and trade — on global travel flows. The travel landscape is also shaped, and often mercifully, at the will of extraneous factors such as populism, travel bans, trade boycotts, war, conflicts and terrorism. Throw into the mix black swan events such as natural disasters, pandemics or an unruly ash cloud, and the need for a strong handle on potential scenarios is a must.
Sound growth prospects for global travel flows thanks to Asia
Despite the threats and challenges faced, global arrivals have grown consistently over the last 20 years, with forecasts to 2020 and beyond showing very little signs of slowing. While global arrivals should continue to increase, it is also worth noting that Asia Pacific is expected to supplant Western Europe as the most popular region for international tourism demand by 2029. Asia’s growing strength is impressive, and outbound departures from the region are expected to usurp Western European departures by 2024, thanks to the burgeoning Asian middle-classes.
Brexit perpetuates uncertainty, dampening UK economic growth
Theresa May triggered Article 50 on 29 March 2017, with the UK’s withdrawal from Europe taking place within two years. Euromonitor’s Macro Model indicates that there will be an expected slowdown in baseline % GDP growth for the UK from 2% in 2016 to 1.02% in 2017 due to uncertainty.
A No-Deal Brexit scenario (run on Q1 2018) points to further economic slowdown in 2018, whereby the UK is unable to find agreement with the EU, and trade relations revert to the WTO as default. This scenario has a high probability of 40–50% over the next two years. A No-Deal Brexit will take nearly 10 years to recover to the baseline forecast.
UK Macro-Economic View in a No-Deal Brexit Scenario
UK inbound expects to reap the benefits of a “Brexit bounce”
Since the Brexit vote at the end of June 2016, pound sterling has lost 15% of its value, which has been a boon for inbound tourism, with Americans and Europeans taking advantage of the weak pound.
Under a No-Deal Brexit scenario, thanks to further currency depreciation making the UK more affordable, there could be a further 3.8 million arrivals, amounting to 7.1 million trips in total over the three year period, to reach 45 million total arrivals by 2021. To accommodate this potential, it will be essential for key questions about air capacity, connectivity and immigration to be cleared up, to ensure that travel to the UK is seamless and hassle-free.
UK Inbound Arrivals in a No-Deal Brexit Scenario 2018–2021
UK outbound slowdown to cause shockwaves
The UK is the world’s fourth largest outbound market, after the US, Germany and China, with 82 million departures, and so is an important source of tourism demand. With rising import prices, higher fuel prices and rising inflation, the latest ONS data shows that consumers are reining in their spending on non-essentials, because the prices of essentials such as food and fuel are becoming more expensive. The fall in the pound also means that UK consumers have less money in their pocket when travelling abroad.
European destinations braced for UK deceleration
By far the biggest impact of a No-Deal Brexit scenario will be felt in Europe, which is a popular region for UK travellers, especially France, Spain and the Mediterranean in general. It will be important for destinations to diversify their source markets to reduce their exposure to the constrained UK market. Conversely, new marketing campaigns will be required to focus on value and price, which will be increasingly front-of-mind for British travellers abroad. We are likely to see more flash sales and sales to encourage advance bookings, along with exclusive discounts.
Impact on UK Departures in a No-Deal Brexit Scenario 2018–2022
The US economy powers on, despite uncertainty
Travel and tourism is directly impacted by government policies, and the travel industry will be looking to ensure that the pro-tourism initiatives set in place in the US, such as establishing Brand USA and the Visa Waiver programme for select countries by the Obama administration, will continue to reap benefits in terms of increased international tourism demand.
There are downside risks to the US economy, due to uncertain trade tariffs and immigration restrictions following the Trump presidency and populist rhetoric. On the other hand, the travel industry will benefit from the investment in infrastructure from the USD1 trillion stimulus package announced by Trump.
Travel ban: Separating fact from fiction
The second iteration of the US travel ban that focuses on six Muslim countries sends a strong message about the country’s openness under the Trump administration. The ban is still under review by the judiciary, and its implementation is still under question.
Combined, the six countries affected by the ban — Iran, Somalia, Sudan, Yemen, Syria and Libya — account for less than 0.1% of inbound arrivals to the US, which was around 80,000 arrivals in 2016. Ultimately, any changes to the immigration policy towards Mexico will have the biggest effect, given that it is the second largest source of tourists after Canada.
In the event of a Trump Trade War scenario, where Mexican imports face a 35% increase in tariffs and the US pulls out of NAFTA, the negative impact on Mexico’s GDP would be significant, reducing GDP to -1.3% in 2017 and -3.1% in 2018, acting as a drag on Mexico-US travel flows.