Lacking Brexit deal, industry insiders ponder future scenarios

A no-deal Brexit could cause a recession in Britain, insiders say. Photo credit: Pixabay / moritz320 (EU flag torn)

Following the British Parliament's rejection of Prime Minister Theresa May's Brexit proposal, the travel and hospitality industries remain in the dark about the future of tourism-related businesses in Europe.

"We don’t know what Brexit will look like," Michael Grove, director of hotel intelligence and customer solutions, EMEA at HotStats, told Hotel Management. While the various alternatives are all theoretical, Grove examined three "extreme" next steps that could come to pass. The first scenario: If the March 29 deadline for the withdrawal comes with no deal in place, the UK will leave the European Union and will have to form its own deals with other nations and organizations that once were covered by EU agreements. The country, he explained, will have to trade with the EU and the rest of the world on what are known as World Trade Organization terms, which means much higher barriers to trade compared to the EU single market. 

The next option is a variation of the plan that was just rejected by the House of Commons, which Grove acknowledges is unlikely. Lastly, the country could hold another referendum on leaving the EU, which—should UK citizens vote to remain this time—would end the entire process. "It means we stay as we are," Grove said. "In theory, it means there won’t be much of an impact for anyone."

Still, he emphasized, all of these extremes are mere conjecture at this point. "When we know what [the deal] will look like, we can have an opinion and see how it will affect hotels," he said. 

Deal or No Deal

In a statement, the International Air Transport Association, which  represents 290 airlines, said that a no-deal Brexit could lead to a cap on flights that will stunt economic opportunities and may lead to higher prices for consumers. "The proposed guidance from the EU Commission in the event of ‘no deal’ calls for the current level of flights between the UK and the EU to be maintained, but does not allow for an increase in flight numbers in 2019 compared to 2018," the statement read.

In the worst-case scenario, financial content service Seeking Alpha claimed, forecasters believe that a no-deal Brexit could cause a recession in Britain. "And even if the eventual outcome is more benign, continued uncertainty could lead to investments being postponed and consumer sentiment depressed. Banks and consumer companies operating primarily in the UK are most vulnerable to these risks."

With no deal in place, Seeking Alpha predicts that the March 29 deadline for Britain's withdrawal from the EU will be pushed back—which also could delay the next Bank of England interest rate hike "until the shape of Brexit is more clearly known." Developers with BOE loans therefore might have some breathing room.

One Company's Caution

British hotel companies also are waiting to see what happens next. Announcing the company's Q3 figures, Alison Brittain, CEO of London-based Whitbread, the parent company of Premier Inn, noted that business beyond London was "weak" during the quarter, impacted by lower consumer and business confidence, along with sustained levels of inflation. "The UK environment remains subdued and sustained inflation continues to be a significant challenge," the report said. "As a result, Whitbread expects underlying profit before tax in the February 2020 financial year to be consistent with the February 2019 financial year." That inflation, Brittain added, leaves the company "cautious" about the macro-environment for the next fiscal year.

Nick Wyatt, head of tourism at GlobalData, explained why the company should be cautious. 

"Like-for-like and total [revenue per available room] both fell by 1 percent and 1.1 percent, respectively, meaning that occupancy is either lower than anticipated or prices have had to be dropped," Wyatt said in a statement. "Occupancy at Premier Inns for the UK as a whole is down 1.4 percent to 80.9 percent year-to-date, while average room rate has actually grown 0.6 percent to £65.30."

The hotels, he explained, need heads in beds to prevent more RevPAR losses. "Management has done the right thing by confronting the issue head-on in its results announcement, but Whitbread should be able to ride out any post-Brexit storm as Premier Inn enjoys excellent brand recognition, and its value proposition is strong in what is a packed budget and midscale UK market."

If the company can effectively market its London properties, Wyatt continued, it can boost RevPAR as pricing improves.