UK as an investor and source market: Opportunities and Threats for the Spanish Tourism Industry after Brexit.
We are happy to share some of the insights from the Brexit event Deloitte organised with the collaboration of JSF Travel & Tourism School. The session counted with a select group of attendees in Travel and Tourism. Experts discussed the implications and possible consequences of Brexit for Spanish Tourism
1. A macroeconomic perspective
Mr. Alejandro González de Aguilar, Deloitte Partner gave a macroeconomic perspective, stating the main indicators that impact the sector:
- Slight increase of global economic growth, although it remains weak due to uncertainty in emerging markets, for instance, the decrease of commodity prices in China. Most economies have witnessed weaker GDP growth compared to the growth levels experienced before the financial and economic crisis
- Global inflation continues relatively low. Inflation is considered to be high in 12 developing countries, whereas a growing number of developed countries may be in the susceptible of experiencing deflation
- A significant weakness in the global macroeconomic landscape is still the high unemployment rate and unfortunately, GDP growth is still too slow to generate enough employment
- Commodity prices have been decreasing for the last couple of years. Oil prices have decreased sharply since 2014; but OPEP members’ agreement to limit oil production in December 2016, has risen oil prices by 15%
- Important political events have brought instability to the financial markets: Brexit, Donald Trump victory, constitutional referendum in Italy, elections in Austria, new government in Spain etc.
Moving on to UK, the current situation is the following:
- UK’s GDP is falling and might enter in a recession.
- Consumer confidence indicator has dropped
- Now 20% more expensive for Brits to travel abroad.
- The bank has lowered interest rates and Europe has also lost currency strength vs dollar.
Taking all this into account, what will happen with the EU and its member countries?
For Deloitte's full powerpoint presentation on Brexit including a short video on future scenarios click on:
2. Insider's View: The market seen from the UK
Interview with Mr. Nick Van Markeen, Deloitte Partner UK, Travel.
The mood over the last 6 months, particularly in London is of schism. It is like if the city of London was sitting in somewhat of a bubble and the rest of the country was feeling disconnected. I suspect many of the people protesting were not aware of the consequences, but the reality now is that there is a general feeling of being resigned to it.
What is the economic outlook?
- Treasury consensus forecasts for GDP range from -1% to 2.7% with the net point being around 1.5%.
- The most visible impact of Brexit is on the exchange rate, so travelling for us now costs more money.
- The private sector is getting on with it because highly motivated people populate it that have a financial incentive to make it work.
- The expected outflow of companies has not yet taken place, in fact, several companies have announced they’re coming in. Business is nothing if not nimble and there is no book that explains what to expect and how this is going to go. I would however like to share the following facts:
- We have experienced 15 quarters of consecutive positive GDP growth
- Unemployment is very low (Employment in the UK is 75%)
- Consumer confidence is stronger than expected
- Interest rates are at a record low, meaning that if you get a mortgage is almost for free.
The challenge ahead which is inflation, will increase and people will notice it but it will not be a significant increase. We can expect a slowdown in capital spending and in hiring. CFOs will take a cautious look at P&L statement with a tight cost control. The rise of uncertainty has unchained a risk averse environment where decision makers are taking all case scenarios into account.
What will be the outcome of the conversations between UK and EU?
Nobody has the answer to that question. The current view is that even Forex traders are out of control and algorithms are driving decisions.
But there are other economies we should be worried about: Greece still owes 350 billion euros and Spain has a very high unemployment rate, so you can conclude the British economy is not in such a bad shape after all. I can’t help but remember how WWII ended...it might be time for Europeans to show a bit of reciprocity.
How will this affect Spain as a destination for Brits?
Those in the hospitality business should be optimistic as many countries such as Egypt or Turkey are off the travel agenda. I don’t think the love affair between Brits and Spain will be ending. People now see holidays as sacrosanct, as a right. Prices are obviously going to go up, but Spain is very tuned in the current situation, adjusting to demand. Now, with the wide offer and huge air capacity, UK tourists will continue travelling to Spain.
3. What can we observe in terms of bookings?
Air Traffic Insights by Mr. Juan Jesús García, Head of Industry Affairs Europe of AMADEUS
- Consumers are not going to give up holidays and new technologies are going to favour the travel demand.
- Travelling is perceived as increasingly attractive because of wider offer, travelling is easier to access, more relevant and customized.
- It has not yet impacted air traffic
- People continue travelling but we should now monitor average total spending
- There is a possible variation in geographic mix terms of destination origin. We might have to target stronger markets like China, for instance.
- UK as a source market continues to be attractive
- We are a resilient sector despite market uncertainty.
Hospitality Insights by Mr. Aurelio Vázquez, Consejero Delegado EMEA at IBEROSTAR HOTELS & RESORTS
No one knows how it is going to end, but I am extremely optimistic!
We are experiencing a great increase of demand in UK. The market is growing between 12% – 15% so perspectives are good. Spain has the strongest competitive advantage nowadays as it is almost the only feasible destination due to the geopolitical situation of competing destinations. Spain currently receives 15 million British tourists from a total of 75 million every year and we expect from 6 to 8 prosperous upcoming years so the challenge is to think strategically in order to maintain it afterwards.
Although the Brexit consequences are nothing but unpredictable, it seems the Spanish Tourism has not yet been impacted nor will it be in the upcoming years since it has been a preferred destination for UK travellers for a very long time. With the wide travel and accomodation offer, Spain will continue to receive a great inflow of British tourists, although these may vary their average stay and spending. We will have to wait and see...