A perfect storm for tourism
● Off all the problems on horizon, uncertainty is the major concern for the travel and leisure industry
The recent strong performance of Scottish tourism might lead some to believe that the decision to leave the European Union following the Referendum on 23 June 2016 was beneficial to the sector.
There is no doubt that 2017 showed improvement and international visitors and domestic visitors combined to make this a bumper year for tourism. Accommodation room rates, room occupancy and attraction numbers all indicate visitation was up.
For the first time according to Moffat data two attractions achieved more than 2 million visitors and a further five achieved more than 1 million.
Falling pound
However, the reality is that much of this demand has been driven by the decline in the value of Sterling against the Euro and other major currencies. The UK long seen as an expensive destination with one of the highest VAT rates in Europe has suddenly emerged as a value proposition that international tourists are keen to take advantage of.
Increases in US, EU and Canadian inbound are accompanied by growth in tourism from South East Asia and South Asia.
This fall in currency has also discouraged outbound tourism as Scots and other UK residents see their currency buying approximately 20 per cent less than in previous years.
As a consequence domestic tourism and trips to Scotland from the rest of the UK enjoys a boost.
However, hoteliers are already bemoaning the low spend on areas like food and beverage as UK guests opt for take away foods, Deliveroo and supermarket purchases rather than spending in hotel restaurants. Food and beverage has become a further problem for the sector as inflation in this area outstrips an already less than competitive position compared to the rest of the European Union.
The UK as a net food importer is finding its currency is purchasing less and these costs either have to be passed on to a cash strapped UK holiday maker or the food sector takes a major hit on margins whilst attempting to look price competitive.
The UK consumer now has sophisticated demands for Mediterranean and international vegetables, fruits and a range of products that simply cannot be cultivated in the UK.
The issue here is that this situation is not going to improve we are still the best part of a year away from leaving the EU and international confidence in our currency, economy and government is unlikely to improve before then or following the date of departure.
Labour shortage
A further related issue is the shortage of labour that is already impacting on the tourism sector particularly the accommodation, food and beverage sectors. The increase in migration of EU nationals, either returning home or to seeking employment in more lucrative Euro zone nations and the fall in immigration has created labour shortages in sectors as diverse as airlines, agriculture, engineering and food production. At a UK level unemployment has fallen to record levels as employers struggle to source labour. This has the potential to create the perfect tourism storm of increased demand, increasing direct costs and labour shortages.
Better or worse for the consumer?
This unfortunately is not the end of it. There is a pending air access issue which could have enormous consequences on the UK tourism sector and the economy more generally.
The UK has to agree approximately 65 separate international transport agreements as a consequence of departure from the European Union. This includes air access to all EU countries as well as the USA and Canada. To date no single agreement has been finalised. The implications are considerable for inbound tourism to Scotland.
The EU nations of ; Germany, France, Poland, Italy, Netherlands, Ireland, Spain and Sweden account for 41 per cent of international tourism to Scotland and 32 per cent of international tourism expenditure. The US and Canada account for a further 21 per cent of our international visitors and 35 per cent of expenditure. Air remains the primary form of access to Scotland (87 per cent of visitors) and the relative cost of flights decreased thanks to the end of restrictive air-service agreements within the EU. The single aviation area and the open skies policy allows any American or EU airline to bid for all transatlantic routes.
This has helped with low cost fares and has liberalised access. After Brexit air access is likely to be more expensive and access less liberal. Earlier this year negotiations with Washington offered the UK no more than standard bilateral agreements; that will restrict access to majority owned and controlled airlines from their country of origin. It is certainly a worse deal than the access enjoyed within the EU, at a time when negotiation with the US has never been harder.
Check your policies
This means anyone booking holidays after Brexit should check cancellation and refund policies for every aspect of the trip, particularly in the event of “airspace closures”. Indeed there will be a need for UK level renegotiations over the arrangements and subsequent compensation for when tour operators collapse.
However, Pan-european compensation arrangements predate EU membership, though until Brexit UK travellers-benefit from EU directives and legislation improving consumers’ rights to compensation for delays. Post Brexit Scottish outbound tourists would no longer be covered and would not benefit from the enhanced protection contained in the Package Travel Directive of 2018.
There are also unanswered questions on the rules for British owners of holiday homes elsewhere in the EU in relation to asset protection and taxation. These home owners currently benefit from levels of protection derived from EU membership that is a situation that will alter with Brexit.
The access Scottish tourists to the rest of the EU enjoy in the form of European Health Insurance will also need to be renegotiated for travel cover post 29 March 2019.
Furthermore, the current EU’S environmental regulations specifically water quality and sewage as well as imported foods will have to be replaced and enforced at a UK Level. Then there are mobile phone roaming fees which we saw abolished in 2017 benefitting tourists inbound and outbound. After the UK leaves the EU, such charges may well reoccur.
Border charges?
Finally, the EU has hinted that there are proposals to introduce a border charge for non-eu tourists and travellers to help cover a shortfall of €15 million in the common EU budget following Britain’s departure. This combined with a potentially longer wait to access EU countries borders after Brexit and possible additional paperwork will leave outbound Scots to contemplate what price a blue passport?
There is little doubt that 2018 will see another positive year for Scottish tourism and that our value offer will continue to attract more visitors from overseas.
However, as we move to March 2019 and a regulatory vacuum, it is the uncertainty which is the major concern for leisure and indeed business travel. Uncertainty, which is not good for exchange rates, is also not good for business and business locations.
Brexit continues to catalyse relocation of some corporate headquarters and is diluting our positioning in a number of key economic sectors. It is quite possible, given some of the travel hurdles discussed earlier, that business and conference traffic to Scotland (and the UK) could diminish post Brexit.
29 March 2019 could have an overall negative effect on EU visitors coming to the UK – a feeder market that is just too important to antagonise.
Outbound UK holidaymakers will inevitably face cost rises and issues of access over a period of transition and uncertainty, which is not good for leisure or business.