The Brexit Effect
Now that the citizens of the United Kingdom have decided to exit the European Union (EU), the team at FareCompare is analyzing several issues that could affect air travel between the US and the UK as well as implications for passengers in the rest of Europe.
The Brexit Effect: The immediate impact on the travel industry created by the United Kingdom’s referendum of June 23, 2016 in which British voters opted to leave the European Union, a decision commonly referred to as the British exit or Brexit.
Analysis: FareCompare has analyzed fluctuations in airfare prices for flights between the U.S. and the U.K. as well as other major markets to determine consumer reaction, or, the Brexit Effect.
- A sudden spike in consumer searches for flights to London was seen, with an increase of +28 indexed-points on FareCompare.com and +27 indexed-points for online organic searches as indicated by Google Trends. Media coverage and low fares continued to drive the conversation.
- Airfare prices for flights London from major U.S. airline hubs dropped an average of 43% for the first seven days after the Brexit vote. After the 8th day, however, airfares jumped an average of 7.21%.
- A comparison of similar market airfare-types and lengths-of-stay for 2015 and 2016 show airfares to the U.K. and the rest of Europe had already been trending lower year-over-year before the Brexit vote.
- The British pound dropped 20% in value compared to the U.S. dollar from June 23, 2016 to July 5, 2016.
- After higher than expected demand for flights between the U.S. and the U.K. in the aftermath of the Brexit vote, most airlines then drove prices upward.
- Demand for information about flights from the U.S. to the U.K. remains strong, but whether that will translate into more bookings and higher airfares may not be clear until the end of July.
- Also unclear is the Brexit Effect on the U.S. tourism industry. According to Brand USA, 4.9 million Brits visited the USA in 2015. Will the weaker pound keep more at home this summer?
UPDATED: July 8, 2016
Brexit: The Good (maybe)
Airfares: We have been seeing some trans-Atlantic airfare bargains between the US and London, the UK’s main gateway to Europe. Sample fare found June 24 for travel in August: Boston-London, $615 round-trip. However, exiting the EU will apparently ultimately mean no access to the European Common Aviation Area (ECAA) which helps make flights between the UK and the rest of Europe cheaper. Until a new treaty or agreement is worked out, fares could rise though nothing is certain.
Exchange rates: In the meantime, tourism from the US could increase thanks to an even more favorable currency exchange rate between the dollar and the British pound (but keep your eye on those financial markets). Finally, fares are expected to drop even more in late August as the traditional peak summer season for airlines ends and demand for travel drops.
Brexit: The Bad (maybe)
Airfares: For U.S. travelers, plane ticket prices could rise (but that can happen due to a wide range of factors anyway). As for European travelers, it remains unclear what will happen with the Schengen agreement which lifts border-crossing controls making much of Europe a passport free zone. It’s important to note the UK never signed this agreement so flying into London or Glasgow from another European nation does not change much since a passport was and is required. As for intra-Europe crossing changes, it remains to be seen what will happen and whether travelers will accept any new inconvenience as they move from place to place.
Tourism: Another potential change could be in store for people living and working throughout the EU; a longtime benefit for these employees has been the ability work throughout much of Europe without a lot of regulations and/or paperwork. Whether or not this will change and how it might affect airlines, hotels, bus and rail, even cruise ships will be closely watched by tourism-related industries.
Brexit: The Unknown
So many questions: Once things begin to settle down, the biggest question is – how will consumers react? Watch for any changes in demand for flights and other travel services. Another question is whether a weaker pound becomes an enticement to travel or a prompts hesitation due to uncertainty. FareCompare will be watching the situation and will keep you informed.