UK Votes To Leave EU: How It Impacts Travelers

The world is reeling today with the news that the UK has voted to leave the European Union. If you follow the news and markets you’re likely already well-informed about the situation. We’ve received several questions from people wondering how the Brexit impacts travelers, however, so I thought I’d address those in one place.

First of all, the value of the British currency plummeted against the dollar last night, representing the largest contraction in wealth in the UK since 1921. That means the dollar will go further if you’re purchasing goods and services in the UK at the moment, which is the most significant of the immediate impacts. This is not really something to celebrate though, which I’ll get into a bit later.

Does this impact my summer travel plans?

For those outside the UK, yes and no.

Yes, in that if you’re planning on traveling to the UK, your vacation will be quite a bit less expensive now due to the drop in sterling. Beyond that, this is unprecedented, and is creating a tremendous amount of uncertainty. Markets are clearly concerned. People will be concerned. But there’s no immediate UK withdrawl currently planned, so there are no changes to borders or regulations otherwise. It will take at least two years to figure those things out if everything goes according to plan.

For those in the UK… oh goodness yes. The pound doesn’t buy as much as it did yesterday, which will have an immediate and costly impact — both at home, and for travel abroad. You are going to have a rough time of it in the near future, and I’m sorry.

What kinds of future impact will Brexit have on travel?

We don’t know. No one really knows, which is partly why the markets have responded so dramatically. Essentially, nearly every international agreement since 1971 factored in the UK’s membership in the European Union. Those will all need to be addressed with a separate UK.

Edinburgh-sunset

The process for exiting the EU will take at least two years, and all these things will be negotiated and discussed. (If you’ve ever aspired to work in policy, now might be a good time to move to Europe).

The impacts will be most significant for UK and EU citizens — they have to figure out everything related to the current freedom of movement within the EU, such as:

  • Drivers licenses and passports
  • Work restrictions and visas
  • Taxation of expats
  • Healthcare reimbursements
  • Study abroad programs

And many, many, other things. This will be a massive undertaking. It is estimated to take an additional five or more years to negotiate and implement the assorted agreements once the UK is “out” of the EU.

For non-EU and UK citizens, these negotiations will determine things like:

  • If the UK matches/keeps EU regulations for air passenger rights
  • Duty-free allowances between the UK and EU (bringing that case of wine on the Chunnel may be a thing of the past)
  • If the EU and UK don’t agree on a collective passport/border policy, expect immigration queues to be much longer (as those travelers will be joining the general line rather than using the eGates)

So we’re looking at 5-10 years for getting everything in order legally, but the market impacts will be more immediate, as we’re already seeing today.

Even if the UK airlines get everything they are hoping to with the new trade agreements, there will still be a bit of volatility in the interim. Travelers should be aware of the potential for:

  • Increased costs for airfare within and from Europe
  • Network volatility — massive route shifts are likely with Ryanair and easyJet in particular, so a flight you book for next Spring may not even be operating by then

Why are UK airline stocks plummeting?

This is obviously a complicated question. The high-level answer is that markets and investors don’t like uncertainty, and the consequences to the UK aviation industry are particularly uncertain. There are a few key concerns (and again, we’re keeping this very high-level, because I am not an economist, and this is a travel blog):

The single aviation market

At present, the EU countries have a single aviation market. This lets airlines from all member-states fly freely within and throughout Europe. This type of competition and deregulation has historically reduced the costs of air travel, and is credited with much of the success and expansion of the European airlines.

The UK-based airlines will be campaigning heavily to preserve the market and the various open skies agreements. Without it, UK airlines may have to reduce their capacity to Europe, or make other changes that disrupt their current operations. A worst-case situation would be akin to the number of slots allocated to U.S. airlines at Haneda, and the subsequent challenges that poses.

Ryanair

Irish carrier Ryanair, for example (which actively campaigned for the UK to Remain), suggested they would stop investing in the UK if it were no longer part of Europe. The UK is the largest market for the airline, and they employ thousands of workers, so they will clearly not be shuttling operations entirely (or immediately), but they have expressed concern about whether even their current operations will be economically viable, much less any expansion.

Foreign investment restrictions

European Union laws cap foreign investment in European airlines at 49%. At present, this limits Etihad from taking a majority stake in airlines like Alitalia, airberlin, and Air Serbia, for example. Foreign-owned airlines have more restrictions imposed upon them than EU airlines, such as the number of airports they can service in a given country, or the routes they have approval for, and so forth.

British-Airways-A380-Business-Class - 79

If the UK is no longer in Europe, ownership has an impact. easyJet is based in the UK, but is the second-largest carrier in Europe by passenger volume, with operations spread across Europe. According to reports, easyJet was exploring the possibility of establishing a holding company or otherwise preserving their European status during the campaign. For now, the airline is of course committed to finding ways to preserve the current agreements.

Everything just got more expensive for the UK

Even aggressive monetary action will take time, and it may be years (or longer, if ever) before the British pound is back where it was on Thursday.

Edinburgh

There will be numerous economic impacts to every aspect of life in the UK, so it seems trite to discuss airlines specifically. But the UK-based airlines have just seen an huge reduction in their purchasing power. Orders for aircraft may be delayed — even replacement parts from Airbus and Boeing will now be more costly than was budgeted for. Fuel is now more expensive. Every purchase — especially in foreign markets — will eat up a greater amount of operating capital.

This will slow growth, which of course makes investors nervous.

Beyond travel

As someone who tries to be a global citizen, I think it’s important to consider the impact Brexit has on everyday people in the UK. Yes, this is democracy in action, and no, I don’t intend to comment on anyone else’s political choices (particularly as an American in 2016, because my gosh).

Keep in mind, however, how close this referendum was, and how vitriolic the campaign was. Regardless of the outcome, there was already going to be social upheaval in the UK, as this had become such an emotional situation. The fall of the pound will exacerbate this. Many things will be much harder for a great many people now. We are starting to collectively shrug off some of the effects of our recent recessions in the U.S., and it’s perhaps difficult to remember how much fear and uncertainty gripped the country during the housing crisis, for example. If someone in the UK had chortled at how delightfully cheap the U.S. was to visit thanks to the economic downturn, you would likely not have been thrilled.

London-student

So yes, it’s less expensive to travel to the UK at this very moment. If you have the means to visit, I highly recommend it, and tourism revenue will certainly help while they figure out the other issues. But there is always a human cost to our “great travel values,” and a bit of sensitivity would likely be appreciated as well.

Bottom line

This will be a difficult period of time for the UK, no question. For now, the weaker sterling does lead to some discount opportunities for those purchasing travel in other currencies. Everything else is very much in question at the moment.

Many thanks to @thatjohn for glancing over this, and generally sharing information. Anything horrifically incorrect or insulting is my error, not his.

Comments

  1. Great post Tiffany. For someone who isn’t an economist, you did a splendid job of explaining the financial impacts.

  2. Arbitrage – buy airfare from UK based OTA. Just checked some future travel — all were lower on the .uk site, some significantly like MIA-DXB in J — over $400 less…

    Get in while the pound is pounded!

  3. Welcome to our my world UK residents. When George W. Dumbass was president the exchange Euro/USD exchange rate got to 1.65. That’s unprecedented! Considering I was studying in Germany at the time and all of my money was in US dollars, life was hell, but I survived and UK residents who want to come to Europe, I think you can muster a couple of weeks.

  4. I love you, Tiffany. Ever time you post, it’s an absolute gem – packed with useful information and so well written.

  5. What a way to wipe 100 billion British Pounds off the British markets and lose the value of your currency. And for what useful gain? Britain will now stagnate economically for years to come. Great way to waste a generation of people

  6. @David no, that’s not what I said. In my blog post I wrote “Ignore the Pundits” because we don’t actually know how brexit will play out and it will take a long time to do so.

    Although I’m not sure I agree that summer travel to europe will be *much* less expensive. We’ve already seen great airfare deals, those probably don’t get cheaper. The pound dropped to US1.37 today. But it was US$1.40 ten days ago. And also in early April.

    Not sure what exchange rates will look like on a given trip, but the pound has already depreciated quite a bit against the dollar. It ran back UP in recent days on the expectation that ‘remain’ would be victorious. And then it fell again when the vote went the other way.

    Prepaid hotels aren’t going to get cheaper, airfare may not, there may be some currency benefit. That makes eating out nicer for those spending US$.

    In the medium term hotels could get less expensive if there’s a reduction in foreign visitors (and lots of empty housing if the UK were to lose $3mm non-UK EU citizens currently living in the country, but that seems unlikely). At the same time less intra-European travel may mean a trimming of airline schedules. How lower demand and fewer flights will play out in price depends on a number of things we don’t yet know. Of course anything that increases the difficulty to cross borders isn’t great for travel businesses generally.

    We’re in for an interesting discovery process over these next few (many) years!

  7. Not everyone in the world is “reeling” today. I imagine some folks, like the working class folks in Sunderland who voted 61-39% to exit, are rejoicing. If only those dumb, ungrateful wankers appreciated how great they’ve had it by handing over their sovereignty to unelected, globalist bureaucrats and ex-Goldman Sachs blood suckers in Brussels.

    I did laugh out loud at the request for “sensitivity” if traveling to the UK. Not too long ago I lived in NYC and I didn’t see much “sensitivity” when every store was full of Brits and Europeans taking advantage of a dirt cheap USD (the USD had to be sacrificed so that our US corporations could book more profit abroad). Even today it is still ridiculous that you need $1.12 for one Euro. There is no good reason that those two currencies are not at least at par.

  8. Aren’t oil and aircraft priced in dollars? The Pound plummeting can’t be good news for BA.

  9. Forecasts on market troughs are already under way as investors (myself included) try to take advantage of the low prices. The question is when will the market reach its rock bottom so one can invest at the lowest purchase cost…

    A good thing that my company relocated last year to the continent last year with a shift in 11000 jobs.

  10. Well, this is how the population voted:
    Age 18-24: 75% Remain
    Age 25-49: 56% Remain
    Age 50-64: 44% Remain
    Age 65+: 39% Remain

    Make you own opinion on what the older guys decided to leave as a legacy to the younger generation.

  11. I was reading this and thinking “wow, ben wrote this?”….then i saw who the author was and i lol’ed at myself

  12. Aside from the airfare, the major cost of travel to the UK is the hotel. As everyone knows , they are expensive: NYC +++ expensive. In the likely event that more people choose to visit the UK on the basis of the lower £, hotel prices will likely increase. Doubt that there will be much saving , all things considered ( some shopping, eating out…but most of the retail goods and food is sourced from outside the UK anyway, with possible price hikes given the lower £).
    BTW, Obama’s gratuitous advice ( and oblique threats about back of the queue) went down like a lead balloon. But that must have been at Cameron’s behest.

  13. Careful what you put down the kitchen drain in your airbnb rental. It might suddenly become a lot harder to find a plumber.

  14. Hmmm Tiffany! Oh dear……

    “Even aggressive monetary action will take time, and it may be years (or longer, if ever) before the British Pound is back where it was on Thursday”.

    Thursday £1.00 = $1.48
    Friday £1.00 = $1.36

    0.12c difference in one day (huge, yes) …since the daily movement is usually in the 0.2c – 0.3c range as an extreme.

    Lowest in February 2016 £1.00 = $1.38
    End of December 2015 £1.00 = $1.48

    0.10c movement over a 6-7 week period.

    The statement above either by yourself or whomever you consulted with is gravely erroneous “it may be years (or longer, if ever)” if ever?…really!!

    IF and when the pound slides below $1.20 ….at that point the above might start to apply depending upon the global shakeout of this new world we are now in! Don’t get me wrong, historically anything below $1.50 was considered an awful exchange rate, so to be siting in the $1.30s really alarms me as a Brit living in the US. Of course, the bigger the slide, the more it works for me…but still, I do not bet against my birth country and so hope for the best.

    With that said, maybe we truly are heading towards a global currency since the pound has been on the slide for over 2 decades now. How I miss the good ole days (1990) when it was around $2 to the pound…and everything in the USA was half the price it is today. 🙂

    I cannot help but wonder if today was just a taste of the crazy to come (not this post haha) but events globally.

  15. Concerning the 49% rule for foreign airlines, yo mentioned Easyjet, but there might be a much bigger problem (for BA). IAG, the mother company of BA, owns Iberia, too and just bought AerLingus. Both are EU airlines (from Spain and Ireland), so IAG will have to drop their investment to 49% and is loosing control of both airlines…

  16. Tiffany the economist what next ?
    Its alittle like luckys butt plug bf becoming a travel advisor or something to that effect.
    Whats next for lucky queen of england

  17. Long term I don’t see an impact. I never viewed UK as part of Europe anyway. Pound versus Euro and you have to throw border control going between UK and Mainland Europe anyway.

    From a US citizen perspective I don’t see any changes in travel to the UK. Better cause the Pound will be cheaper. I always thought the Pound should be one-to-one to the Dollar anyway. Several years ago it was almost one-to-one. The Pound and the Euro should be one-to-one anyway.

    I tend to value a country’s currency on what a pint of Beer cost relative to the US anyway.

  18. it’s been 24 hours guys. i know as a generation you can’t help but react. but really.

    i shorted the pound betting on public stupidity and made some miles-buying cash.

    cheerio.

  19. @Tiffany @ Donna

    I expect BA would be somewhat quarantined from the fall in exchange rates by its existing fuel hedging & any Contracts it already has in place with Airbus &/or Boeing

  20. Hi Tiffany,

    Great post! I would like to mention, though, that policy states the exit from the EU should take no longer than 24 months after the utilization go Article 50. German politicians and members of the European Parliament have made statements that all dealings and negotiations with the U.K. will be completed within those 24 months. If no agreements can be reached in that span of time, the U.K. will be removed from the EU and all treaties and agreements will revert to the standard set by other organizations in which the U.K. and EU states are members of (UN, NATO, WTO, etc.).

    Just thought I’d set straight the “everything will take at least two years,” since legally speaking it will be done and over with within two years.

  21. Yeah I agree with the statement earlier about the exchange rate. Don’t forget the FX guys were foolishly and artificially pushing the value of the pound up in the few days leading up to the vote. They believed the polls which incorrectly predicted remain. So for it to drop back down to the pre hype levels (minus a few points) is to be expected. I think the problem for the dollar is although this will be a momentary increase compared to the pound until the price of a barrel of oil goes about say 75 a barrel that the USD will also be kept artificially impacted. Anyways the news outlets are pumping up something that to be honest will take more then two years to sort.

    Being based here in Amsterdam NL I think this might be one of the best things to encourage business here, as I assume USA companies will reconsider the easy access to Europe via the UK and English is definitely not a problem here. Considering schiphol is about to build a new terminal (and the tons of renovations over the past two years) I think we are well suited to take over the best foothold in Europe position. Don’t forget the clever low taxes for business relative to the rest of Europe (royalties are tax free for example) and other pro business environment laws here.

    So although there will be a momentary impact to the markets long term it might be the best thing to ever happen to the Dutch!

  22. For a truly international traveler, a tremendous impact is the JPY which has now appreciated for 20% in half a year thanks to Brexit. That is really the worst impact especially for those based in Asia.

  23. Please correct the use of Europe/European and EU/European Union in this article. They are not the same thing.

    The UK is not leaving Europe. Not all countries in Europe are in the EU.

  24. I haven’t heard anyone mention it yet, but the rules under which US carriers got free access to Heathrow Airport (vs. the old Bermuda II system, where only AA and UA could fly to Heathrow) were an EU-US Open Skies treaty — so it is not clear what US airline access to Heathrow might look like in an independent UK.

  25. The short term price to pay for Brexit is worth it.

    US citizens would never accept NAFTA evolving into a North American Federal Union, where the laws and court of that union reign supreme over the United States.

    If anything Americans should understand where the British are coming from. American exceptionalism has its roots in British exceptionalism and liberal (Whig) values.

  26. What is the impact on those traveling from the US to continental Europe this summer with prices?

  27. You wrote ‘if UK is no longer in Europe’. The U.K. will always a part of Europe, unless the land mass moves away. I think you meant to say European Union.

  28. It’s “the pound” (not capitalized) or “pound sterling,” as in sterling silver. I’ve never seen it referred to as “the sterling,” except above.

  29. @therealbabushka excellent point. Tiffany hit on it in her article but this is all speculation. This is why the markets have such high volatility. It will take some time for things to settle and then we will better understand the long term impact. People who are complaining about the vote, are starting to drive me crazy. The voters choose what they wanted to do. This is not some vote on a social issue like gay marriage. This was a vote where the electorate got to select what direction they wanted to take their country. Sorry for those who lost but my advice would be to buy into leave and make the best of the situation.

  30. Thank you Tiffany. Great article as always and as a Brit utterly reeling by what’s happened, I appreciate your insightful, practical and emphatic words. It is a sad, shameful and ignorant time.

  31. As much as the older generation of Brits (and the uneducated segment of the younger generations) pretty much just bent over and grabbed their ankles economically, I am actually kind of interested to see how quickly this will bring about a second Scottish referendum for independence. It would definitely be interesting to potentially be over there- I am heading over for graduate school within the next year or two- as they become a sovereign nation.

    So….if Northern Ireland and Scotland secede does that mean that England will have to stop calling itself the *United* Kingdom? LOL

  32. Go UK! Glad to see you standing up to take back control of your sovereignty. I can really appreciate that your PM bowed out gracefully when this didn’t go his way. What a huge difference from politics in the US.

  33. Time to get some popcorn and watch the drama unfold over the summer – since there is nothing good old europe can do until the UK sorts out if they want to honor the brexit referendum and pull the Clause 50 or not. And then we have two years to enjoy the benefits of the good old EU in the UK before its time to reconsider, will free roaming still work for me outside the UK for the UK? Will I need an international driver licence if I want to get a rental? Pulling cash from the ATM could be more expensive and maybe I won’t be able to fly to every british city I can fly now. Free medical insurance? Who doesn’t have a travel insurance?

    It will be more of an impact how business is effected, if there is a single market (so not much changes) or not to see how much money it will cost me as a person living in a EU country or what it will cost the people in the UK..it could be true its a VW Polo – or it could be a Porsche? Or just a few hundert euro’s I dont’ mind “paying” 😉

  34. A very good summary overall.

    @Kevin – the two-year timeframe for the Article 50 negotiations can be extended by mutual agreement. Difficult, because all the EU member state governments would have to agree, but if an overall agreement is close, not impossible.

    It’s also possible that there won’t be a single overall trade treaty, but a series of sector-specific treaties, some of which could be surprisingly liberal in sectors where EU member states and the UK have the most common ground. For example, in the auto industry, BMW and VW both have large investments in the UK, and the French export a lot of cheap small cars to the UK. What we could see here is an industry-specific agreement similar to the pre-NAFTA “Autopact” between the US and Canada.

    In aviation, the EU will have a vested interest in doing nothing that will reduce British travelers from Continental holidays, especially since the countries they visit are some of the weakest economically (Spain and Greece particularly.).

  35. Excellent article, Tiffany. Well written, especially considering how much as changed in the last couple of days, but nobody knows where the change is going. I am so glad you wrote and published it, even though several people are peeved that you didn’t use the exact terminology they would have liked, but where are their analytic articles since they seem to be EU and UK and monetary policy experts.
    Jolly good show.

  36. England ran their own country for over a thousand years. I am sure they are still able
    to make decisions that are best for THEIR country.
    Politicians always think they know what is best for other people.
    There is no American who would let their state or country be ruled by another people or country.
    And the EU is not the United States. Would British young men fight and die on Poland soil for their “united euro.? ” I think not.
    Would Estonians fight and die for French people, I think not.
    Democracy is working. Even if Owama did not like it.
    The framers of the Constitution said it was government OF the people, BY the people and FOR the people.

  37. A Prime Minister resigned. The £ plummeted. The FTSE 100 lost significant ground. But then the £ rallied past February levels, and the FTSE closed on a weekly high: 2.4% up on last Friday, its best performance in 4 months. President Obama decided we wouldn’t be at the ‘back of the queue’ after all and that our ‘special relationship’ was still strong. The French President confirmed the Le Touquet agreement would stay in place. The President of the European Commission stated Brexit negations would be ‘orderly’ and stressed the UK would continue to be a ‘close partner’ of the EU. A big bank denied reports it would shift 2,000 staff overseas. The CBI, vehemently anti-Brexit during the referendum campaign, stated British business was resilient and would adapt. Several countries outside the EU stated they wished to begin bi-lateral trade talks with the UK immediately. If this was the predicted apocalypse, well, it was a very British one. It was all over by teatime. Not a bad first day of freedom.

  38. Rob,

    In case you haven’t noticed the world is drastically different now than it has been over the past thousand years.
    In case you didn’t know, the EU does not and did not “rule” the “British.”
    In case you don’t remember, under Republican and Democratic presidents, young American men (and women) fought and died on Korean, Vietnamese, Afghani, Iraqi, and Nicaraguan (to name a few) soil.
    In case you have not read about World War II, there are circumstances under which men and women would gladly fight an enemy on foreign soil.
    In case I had not heard, since when does “Owama” not like democracy?
    In case you don’t already know (and you are a US citizen) , there’s a dangerous man who’s is running for US president.
    In case you vote, don’t vote for that man.

  39. So much to counter in what was written both in the original piece & the comments which followed, as it’s either utter bollocks or just prophseying. Most has been addressed. The rest I’ll just let lie there to highlight the ignorance of the authors, I can’t be arsed now.

    One thing though: it’s easyJet not EasyJet

  40. Long over due. London was enjoying others wealth and it got into Brits head they are rich. Without EU and Scotland, now everyone knows rest of the UK is poor and London will not be so rich anymore.

    Oh, please sign Article 50 quickly.

  41. @tiffany the housewfe/ ecoonomists wow what a totally bullshit article. What was your source Wikipedia?
    Please stop commenting on complex economic matters that you dont understand. The occasional recipe and review of an airport luggage trolley would suffice!

  42. @ Utah Saints / Lady Carnavon von villy / cinti lingus / baltia all the way / whatever you are calling yourself today — Thanks for reading!

  43. Although not directly linked to Brexit, one consequence of the referendum and political fallout to bear in mind is that while it was looking likely that Cameron would green light expansion of Heathrow, that is now almost certain to be vetoed by Boris Johnson if/when he becomes the next Prime Minister. IAG have been clear that without expansion at LHR, they’ll begin to look towards shifting some of their hub operations away from there towards MAD or DUB, rather than to Gatwick. So over the longer term, this could have significant implications for Heathrow as a global hub and how BA operates as an airline.

  44. @Rob:
    To follow on the excellent response by @James Pointer

    “OF the people, BY the people and FOR the people.” was part of Lincoln’s Gettysburg address, not any utterance by the nations founding fathers.

    I know from your post that facts are an issue for you but they are important.

    Regards

  45. At least two years? You mean at MOST two years. Done or not with the negotiations, two years AT MOST after the UK presents their letter under Article 50, they have no privileges afford to EU members.

    Para 3 of Article 50 of the Lisbon Treaty:

    3. The Treaties shall cease to apply to the State in question from the date of entry into force of the withdrawal agreement or, failing that, two years after the notification referred to in paragraph 2, unless the European Council, in agreement with the Member State concerned, unanimously decides to extend this period.

    I live in France and the mood here is not something that will lead to an extension to the two-year period.

    The British have a problem with immigration? The treaty called “Le Touquet” isn’t going to last two-years. Then the “jungle” will be moving from Calais to Dover. When that happens, they will really have a problem with immigration.

    Talk about be selfish and dumb.

  46. @Gary – Yeah that’s if the European Communities Act 1972 is repealed in Parliament by vote of the MPs & then Article 50 invoked.

    If the MPs don’t vote in favour then it ain’t happening. If whichever PM is charge doesn’t invoke Article 50 then de facto the UK remains in the EU – it *cannot* be kicked out by the Commission.

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