Brexit will slow outbound travel

GENEVA IATA’s Preliminary estimates suggest that UK air passengers could drop by 3% to 5% by 2020, driven by the expected downturn in economic activity and the fall in the sterling exchange rate.

The International Air Transport Association released preliminary analysis of the financial and economic impact of the Brexit decision on the air transport industry over the weekend.

“The Brexit vote has triggered much uncertainty—financial and otherwise. As leaders in the UK and the EU work to establish a new framework for their relationship, one certainty to guide them is the need and desire of people on both sides of that relationship to travel and trade.

“There were 117 million air passenger journeys between the UK and the EU in 2015… It is critical that whatever form the new UK-EU relationship takes, it must continue to ensure the common interests of safe, secure, efficient and sustainable air connectivity,” said IATA’s director general and CEO, Tony Tyler.

A big issue is with aviation regulation. The UK faces a trade-off between accessing the European Single Aviation Market and having the policy freedom to set its own regulations.

IATA noted that the UK pound fell sharply in volatile trading conditions. Friday, following the result, broadly in line with expectations.

Nonetheless, the currency is expected to remain weaker than otherwise would have been the case under a no Brexit scenario (in the region of 10% to 15%). The impact that this would have on air travel is more clear-cut than the economic effects. The weaker pound has immediately made outbound trips for UK residents more expensive (because a given amount of GBP will now buy less goods and services overseas).

At the same time, for overseas visitors to the UK, their local-currency earnings will now stretch further than they did previously.

IATA predicts that the short-term movement in sterling will affect purchasing power immediately and, over time, will serve to discourage outbound travel by residents and to encourage inbound trips by foreigners.

Outbound travel could possibly decline by 7%. IATA believes the inbound elasticity is likely to be higher, as a weaker GBP has raised the attractiveness and affordability of the UK relative to other destinations.

However, UK air market is dominated by outbound traffic, with such traffic accounting for just over two-thirds of total flows (in 2015 there were 53.9 million visit overseas by air by UK residents, compared to 26.2 million visits to the UK by overseas residents).

sourced:ttrweekly.com