UK EU exit

Hard Brexit could hit travel and tourism across Europe

TUI, Thomas Cook, international airlines and European destinations could all be impacted if the UK leaves the EU next March without an agreement covering key issues for the travel and tourism industry.

November 14, 2018
The Brexit clock is ticking for the travel and tourism industry
Photo: (M) Gettyimages

What kind of Brexit will there be? Hard, soft or something in-between? This question remains unclear despite yesterday’s agreement between London and Brussels, which requires political approval by the British Parliament and EU states in the coming weeks.

Fears remain that the UK’s exit from the European Union on March 29, 2019 will have major economic consequences across many industries. These could include the aviation industry and pan-European tourism groups such as TUI and Thomas Cook in particular. Many vital questions remain open, according to an article in the latest issue of fvw.

What about tourism group employees working abroad?

“We are preparing for all imaginable scenarios, including a hard Brexit,” says TUI CEO Fritz Joussen. Europe’s largest tourism group has had a Brexit working group since summer 2016 tasked with planning measures to keep business going normally.

Both TUI and Thomas Cook will be directly impacted by Brexit due to their corporate ownership structures, according to experts. TUI is a German company but is listed on the London Stock Exchange and does not have a majority of EU shareholders. It has a significant number of UK-based shareholders who along with Russian billionaire Alexey Mordashov (with a 24.9% stake) own a combined majority of shares. Thomas Cook, a British company but with many senior managers from Germany or other European countries, is listed on the London Stock Exchange and with a majority of UK-based shareholders.

One vital question is what happens to citizens of EU states working for the two groups in the UK if their status is not clarified by a Brexit deal. Similarly, what about the hundreds of British nationals who work as tour guides for TUI and Thomas Cook (or other British tour operators) in EU destinations such as Spain and Greece, or who have jobs in other EU countries?

Fewer British tourists on European beaches?

Another issue is the impact of Brexit on TUI’s and Thomas Cook’s UK businesses. Neither group wants to put any figures on the potential cost of Brexit on business. But the falling pound has already made foreign holidays more expensive for British citizens this year. Fewer bookings next year could easily result in lower revenues and margins in the UK for the two market leaders.

Moreover, TUI has already warned about the potential impact of Brexit on EU destinations in view of the importance of British tourist numbers. “Britons take five out of six foreign holidays in EU countries. In Spain or Portugal, nearly every fourth holidaymaker comes from the UK,” the group wrote in the October issue of its ‘Policy Agenda’. Southern European countries are the top destinations from the UK, led by Spain (14.3 million arrivals last year), followed by France (7.2m), Italy (3.1m), Portugal (2.4m), Netherlands (2.2m), Germany (2.1m) and Greece (2.1m), according to the UK Office for National Statistics.

In other words, fewer British tourists could leave sizeable gaps in hotel occupancy levels and lead to lower tourism receipts in countries such as Spain, Portugal and Greece, which are still struggling to recover from the financial crisis.

Chaos for airlines next March?

The biggest immediate risk, however, surrounds aviation. Little over four months before Brexit, issues such as UK – EU traffic rights and airline ownership rules remain unresolved. Airlines are particularly worried as they are already selling tickets for flights between the UK and EU states in summer 2019 despite this legal uncertainty.

Some experts have warned that flights between the UK and the EU might even be halted in the immediate aftermath of the March 29 withdrawal date. For example, Christoph Debus, CEO of Thomas Cook Group Airlines, recently cautioned: “It cannot be excluded that flights will stop for a day or a week.”

Gerd Pontius, CEO of airline consultancy Prologis, says: “Even if Brussels and London still agree a political deal, everything has to be legally regulated in detail. It won’t be possible to settle the contractual formalities overnight.” Similarly, IATA chief Alexandre de Juniac points out: “Not only permitted flight connections but also licences and safety rules will have to be agreed.” Mutual acceptance of existing standards could be the simplest solution but would need to be legally watertight, which could take time, he added.

Both Debus and Pontius want to see a transitional period of one or two years to gain sufficient time for these issues. “If that doesn’t come, then the complaints will be very, very loud,” predicts the experienced consultant. Other executives are more optimistic, however. Stefanie Berk, head of Thomas Cook Germany, says: “We expect there will be a solution and that our guests will not have to suffer any adverse effects.”

British or EU airline?

In terms of future traffic rights for flights between the UK and other EU countries, either there needs to be a new multilateral UK – EU air agreement or bilateral agreements between the UK and the other 27 EU states. Another question is whether EU travellers will be allowed to fly with British airlines to the UK and then onwards to overseas destinations (such as the USA) under the so-called ‘6th freedom’.

The ownership question is perhaps the trickiest of all. Under existing rules, an airline must be at least 50% owned by EU shareholders in order to benefit from full Single Market traffic rights. Irish carrier Ryanair aims to reduce its current 54% British shareholder structure down to 49% to legally remain an EU carrier. Yet it also wants a British AOC that would allow it to continue domestic flights within the UK and could potentially be used for UK-EU flights in future as well.

Easyjet has already set up a separate Vienna-based European subsidiary with an Austrian AOC so that it can continue to fly between EU states. IAG, the holding company of British Airways and EU carriers Iberia, Vueling and Aer Lingus, faces the particularly complex problem of how to structure the ownership of the different operational airlines.

But German airlines Condor and TUIfly are also affected as subsidiaries of British-owned companies. Neither carrier wanted to disclose details of their ‘worst case scenario’ planning to fvw but both are working intensively on potential solutions. Ideas apparently include relocating company head offices and staff, as well as partial sales to ensure EU ownership. One model could be to cooperate with German-based foundations, in a similar way as Lufthansa did when acquiring non-EU carrier Swiss several years ago.

Regardless of political developments over the next few weeks, observers believe that many of these questions may not be resolved for quite some time, leaving the European travel and tourism industry in ‘emergency planning’ mode right up to next March.

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