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Brexit and the possible implications for aviation

Several months have passed since the U.K. voted to leave the European Union. However, it is still not clear what implications this may have, especially since negotiations with the E.U. have not even started yet, and are unlikely to begin before the end of 2016, according to Britain’s Prime Minister, Theresa May. 

It is therefore almost impossible to predict the actual consequences of the U.K. decision for the British, European and also the global aviation industry as there is no blueprint for Brexit. Nevertheless, it is already clear that the decision will have a negative impact on U.K. leisure traveler demands as well as on the volumes of migrant workers in the U.K., leading to lower volumes in lower-yield business travel as well in the related ethnic travel segment. 

If you are an airline or airport that depends on incoming tourists from the U.K. or on migrant workers and the resulting travel volumes, you need to act immediately to compensate for the likely reduction in passenger numbers and ensure your long-term sustainability.

To help you to prepare better for the impact that the Brexit decision could have on your business, Lufthansa Consulting has summarized the expected consequences in this article, and outlines ways to limit the negative impact on your business. 

Impact on demand levels in leisure travel from the U.K.

Considerable uncertainty exists about the exact impact that the Brexit decision may have on the U.K. GDP as well as on the pound sterling because much depends on the exit terms exist and the timescale for unwinding. However, all analysts agree that the decision will cause shifts in travel demand. While the weak pound is already having a positive impact on incoming demand, both in European and in overseas source markets, there is almost a guarantee that the numbers of outbound leisure travelers will decrease. Due to the longer-term planning of vacation trips, the effects of the latter will probably not be felt in 2016. Nonetheless, airlines and airports should expect a significant decrease in outbound leisure travelers from the U.K. in 2017 and beyond due to reduced economic confidence and the impact of the devaluation of sterling. 

Besides U.K.-based airlines, E.U. destination carriers as well as airports at warm-water destinations with a high share of British tourists will mostly suffer from the expected decrease in demand. If you are an airline, you may be able to partly compensate for the decrease in U.K. passengers by shifting capacity to other source markets. As an airport, however, you will almost certainly be affected by a drop in passenger arrivals.

Whatever happens, the best strategy for compensating for the reduced demand in leisure travel from the U.K. is to join forces with other businesses that will likewise be affected by the decrease in U.K. visitors. A fall in U.K. leisure travelers will impact not only your company, but basically any business dependent on tourism in your market. A joint strategy by the Ministry of Tourism, the local airline(s) and airport(s) as well as local hotels and leisure providers to attract visitors from other source markets therefore has the best prospects of success. Promising measures could include marketing campaigns that target alternative source markets with special package deals, extra services or price discounts for recreational activities. In addition, new visitors could be attracted by exploring web or mobile distribution channels more effectively. Besides targeted SEO (Search Engine Optimization) and SEM (Search Engine Marketing) activities, potential visitors need to have the opportunity to book special packages in a convenient manner.  This can be ensured not only by cooperating with (online) travel intermediaries, but also by offering an own booking channel with a dynamic packaging feature, which specifically promotes your airline or airport as well as your cooperation partners’ products. 

Impact on the demand in migrant worker and ethnic travel

The U.K. has already indicated that it would prefer to negotiate exit terms with the E.U. that would preserve British access to European markets without having to allow unrestricted immigration. However, it is unlikely that the E.U. will make any compromises with regard to freedom of movement. On the contrary, it is to be expected that the E.U. will make acceptance of the freedom of movement principle a pre-condition for allowing the U.K. to join the European Common Aviation Area (ECAA) and thus remain in the Single Aviation Market. Whether and how this conflict can be solved will be key to the future demand in business travel to and from the U.K.

Nevertheless, it is almost certain that demand for business travel will be impacted more negatively than demand for travel – especially since both the incoming as well as the outgoing market will suffer. 

Irrespective of the final exit conditions, the volume of migrant workers seeking jobs in the U.K. will decrease sustainably. This is especially true since the number of hate crimes against foreigners has already risen sharply since the Brexit vote, which might lead to migrant workers to focus more on other countries to find employment. In addition, several (international) companies can be expected to shift production volumes to other E.U. countries, which will negatively impact the need for migrant workers. 

As an airport strongly depending on migrant workers and their families, as well as on the airlines serving this clientele, you will experience a decrease in passenger numbers, which may eventually even endanger your sustainability. You should thus immediately focus on attracting airlines that serve other target customers in order to expand your customer portfolio. While a professional Air Service Development (ASD) strategy may help to achieve this goal, it needs to be developed and implemented immediately due to the time required to attract new airlines. In addition, the decreasing revenues resulting from a reduction in passenger numbers may partly be compensated for by an increase in non-aeronautical revenues. It could thus be an option to positon your airport as a retailing alternative, which may not only be attractive for passengers, but also for residents living in your catchment area. 

How can Lufthansa Consulting support you in addressing the challenges that the Brexit brings for your business

Lufthansa Consulting offers solutions for identifying and successfully attracting new customer segments for both airlines and airports. We support you in developing strategies that promise almost immediate results and help you to ensure the sustainability of your business. If you already face challenges caused by the Brexit decision or expect to do so in the near future and you are interested in learning more from our experience, please contact Lufthansa Consulting at mail@lhconsulting.com.