Theresa May recently announced at the Conservative Party Conference that she intends to trigger Article 50 of the Lisbon Treaty by the end of March 2017 and begin official UK-EU ‘divorce proceedings’. Whilst she is currently facing a legal battle to do so, should she be successful, Britain will be the first member state to leave the 28-state bloc. There’ll be two years or more of negotiations as we determine the terms of our exit and hopefully the fog will start to lift on what has been one of the biggest and most controversial political issues of the last decade.
No doubt the EU will drive a hard bargain and negotiations will indeed be long and arduous; and whether you chose to Remain or Leave, there will be continuous concern, uncertainty and debate around areas of trade, free movement and our sovereignty. Whilst the long-term implications of the UK-EU ‘divorce’ will most likely not be felt at this early stage, we are all able to speculate what the future may look like without our EU membership (and no doubt this speculation will be largely dependent on your own political views on the topic!).
Naturally, of particular importance to us at Business Travel Direct (and perhaps to you as a frequent traveller or key stakeholder in your organisations’ travel programme) are the long-term implications of the UK-EU split on the business travel industry.
Air travel is often the largest area of spend for corporates and an area that many find difficult to identify savings opportunities without the right assistance from industry professionals and bodies. According to Buying Business Travel Magazine, the aviation sector in the UK alone is worth £52 billion (approximately 3.4% of the whole UK economy) which is a remarkable figure in itself – and that doesn’t even begin to quantify the positive impact our competitive and vibrant aviation market has on our economy; connecting UK companies to new and existing markets overseas and the growing role it plays in stabilising our economy since the double-dip recession.
Whilst the terms of Brexit are unclear at this point, there are some key areas worth noting (even at this early stage of the divorce proceedings) that could impact your corporate air travel programme as and when the UK officially leaves the EU. It’s worth mentioning at this point that the effects of these particular areas may not be felt today or tomorrow and are of course subject to change as new policies and strategic relationships are built to ameliorate them where possible in time for our exit.
1. Short-term visas for travel?
Prior to the Brexit vote, it was made relatively clear (under the circumstances) that UK citizens would not need to apply for short-term visas for travel to EU member states. Even today, many politicians are adamant that only change for British passport holders will be the line we wait in at the airport – EU Members or Non-EU Citizens – and a more extensive security check at Passport Control. Whilst there’s been some grumbles that the non-EU queue is usually longer, there hasn’t been a great deal of discussion around the subject beyond that. Until recently, that is. There are many that feel that given our choice to exit, it’s an inevitability that we will have to operate EU borders in the same way as other non-EU-member countries and visa applications are part and parcel of that decision, although that has never been explicitly stated in official terms. There is the possibility that a visa system much like that operated in the US could be implemented in the years to follow Brexit and a proposal by the EU Commission is set to be presented this Autumn. However, this is subject to change of course under the terms of negotiation after Article 50 is triggered.
Furthermore, amidst mounting uncertainty between the UK and the EU governing bodies, there is now talk that a ‘hard Brexit’ could lead to a more radical disintegration of the Union as we know it today, with many of its key pillars losing authority. Thus, the Schengen Arrangement under which the terms of borderless travel for EU states are negotiated, could cease to exist entirely. Whilst this is unlikely to happen (at least for many, many years), there is a possibility that that all EU countries would have to apply for short-term visas for EU visits to both member and non-member states. Time will tell.
2. Tighter Travel Budgets?
The morning of the Brexit result saw the pound fall to a value not seen since 1985; stock markets opened with a 7% drop and share values fell for many high profile UK-based organisations in financial and trading sectors. Since then, there has been controversy from both sides of the Remain and Leave camps as to the pressure the pound is facing amidst continuous uncertainty – for many, an expected repercussion and necessary turbulence given the momentous circumstances. Having said that, it’s important to note that there has been a boost in UK exports in the face of the low-value pound, as organisations within the trade industries are able to compete for foreign buyers who now need less currency to buy UK goods. It’s quite possible that a weak pound is an enabler for many trade/manufacturing SMEs to increase their profit margins in the face of Brexit and help the UK’s overall trade balance as exports become relatively more attractive than imports. There is of course, another side to that particular argument, with many claiming that UK trade is inelastic compared to goods sold within other EU and international markets; that is to say, that UK goods and services tend to be higher value and are therefore less sensitive to great price changes. It’s perhaps too early to tell how the pound will affect the economy in the long-term, but we do know there are bound to be highs and lows during this turbulent period.
Earlier this week, travellers reported exchange rates at less than a euro to the pound, a low for the Sterling in over six and a half years. It’s likely that this fluctuating pattern will continue until, and possibly during, the negotiation period as the UK faces mounting pressure to understand its place in the EU.
In the short-term, there may be many organisations who, in the face of economic uncertainty, seek to reduce their travel spend whilst ‘they weather the financial storm’. This could impact travel policies to reduce their maximum ceiling spend and deter all non-essential travel. From our perspective as a Business Travel Partner, this will provide greater opportunity to assist with strategic account management and proactivity in sourcing and maximise all opportunities to make significant savings. Particularly for private and public organisations who currently receive EU funding there’s bound to be a great deal of uncertainty and apprehension, so a partnership with an experienced and well-connected TMC will be more important than ever.
3. More Expensive Air Fares?
Whether you sit firmly with Team Remain or Team Leave (or you’re still sat somewhere in the middle), there’s no denying that the EU is largely responsible for the success of no-frills airlines such as EasyJet and Ryanair. The EU’s removal of bi-lateral restrictions on air service agreements enabled cost-effective no-frills carriers to dominate a significant portion of the UK-Euro aviation market, consisting over 100 low-budget carriers. Research demonstrates that fares have fallen by around 40 per cent and competition on routes increased by 80 per cent since the introduction of no-frills airlines.
This in turn has had a quantifiable, positive impact on UK businesses, affording them the opportunity to expand their place in the market at relatively low cost. The liberation of UK aviation has transformed the short-haul market place and the European business travel landscape, as ‘Saturday night stay’ rules are a thing of the past (in fact, many millennial business travellers of today will likely not know what this is!) and cheap flights can be sourced with little effort.
Given the decision to leave the EU, there is concern that new arrangements will have to be made for new air service agreements if UK based airlines like EasyJet and Ryanair are to continue to operate freely over the EU and if European airlines will be able to move in and out of UK airspace without restrictions. We hope that, the best case scenario for the UK to enable continued access to low-budget air fares, is that we remain a member of European Common Aviation Area (ECAA) – which is still possible despite triggering Article 50 – and maintain a strong UK-Euro internal aviation relationship. There is also the possibility that bespoke bi-lateral arrangements could be made between member and non-member states to continue aviation business as usual with hopefully as little disruption to our wallets as possible.
4. Greater Emphasis on Live Auditing?
With the pound at its lowest value for decades and the prospect of a period of economic uncertainty, there’s bound to be a greater emphasis on maximising savings opportunities on the biggest areas of your travel spend. A way that we do this at Business Travel Direct is by using live rate and fare audit technology such as Fairfly and TripBAM (click for more information). Contrary to popular belief, air fares are extremely volatile and are subject to change up to 90 times during the time of publication. By using live monitoring technology, we’ll take your air booking and automatically watch it for any reductions on the same or similar routes, taking into account travel policy and cancellation fees. Our clients are currently seeing savings on one in five of their air fares and we believe this figure will continue to rise as Brexit negotiations take place and the aviation market becomes more competitive under the pressure.
Whether you voted Remain or Leave, the effects of Brexit at this point are all mere speculation and nothing has been confirmed or denied at this early stage. There are certainly areas for concern, but only time will tell just how impactful this decision will be on the business travel sector. From our perspective, we are, as always, prepared to assist our clients wherever possible with policy modelling, live auditing and strategic account management to identify cost savings wherever possible… for now, it’s business as usual.