Brexit Impact on Pound Could Cut U.S. Travel Revenue

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By Stephanie Beasley

June 27 — The U.S. travel industry could see a significant slip in revenue from travelers from the United Kingdom—its largest overseas market—as the British wait for the pound to stabilize following last week's Brexit vote.

The United States might need to ramp up its promotion efforts in London and other key cities in the U.K. now that the country's currency is in free fall, according to the U.S. Travel Association, which promotes policies that increase travel to and within the United States. Given that the majority of overseas visitors come from the U.K., the group is keeping a close eye on market changes in the wake of the U.K decision to split from the European Union, Patricia Rojas-Ungar, U.S. Travel's vice president of government relations, told Bloomberg BNA.

Bloomberg reported that, as of 6:20 p.m. in London on June 27, the pound had dropped 3.3 percent to $1.32, a three-decade low.

“Our hope is that the pound will rebound,” Rojas-Ungar said. “What we believe is that if the pound stays low, people might still come, but what we could potentially see is that they spend less on goods and services.”

Increasing U.S. Travel Promotion

Hotels and transportation services in major tourist destinations, such as New York City, are an example of industries that could take big hits with a reduction in British travelers, U.S. Travel said.

It is expected to take at least two years for Britain to negotiate its exit from the EU. During that time, U.S. Travel is planning to conduct an in-depth economic analysis of the long-term impacts of Brexit, Rojas-Ungar said. But for now, the group anticipates that the U.S. will need to ramp up its travel promotions in the U.K. through billboards, commercials and other advertisements.

Brand USA, established by the Travel Promotion Act of 2009, is the marketing organization for the United States. Its 2015 annual report listed the U.K. as one of the 12 countries where it focused the majority of its consumer marketing. That list also includes Australia, Brazil, Canada, Chile, China, France, Germany, India, Japan, South Korea and Mexico. Combined, they generate more than 80 percent of international visitation to the U.S., according to Brand USA. Brand USA did not respond to a comment request from Bloomberg BNA by deadline.

Airlines Brace for Open-Skies Changes

Meanwhile, airlines are bracing for the possibility that the U.K. will need to negotiate new Open Skies deals with the European Union and the Department of Transportation that would allow it direct access to EU and U.S. cities.

The current Open Skies agreement between the U.S. and EU includes the United Kingdom.

The U.K. could follow in the footsteps of non-EU member countries like Norway, Switzerland and Iceland that have negotiated agreements with the EU and are covered by the union's Open Skies agreement with the U.S., said Rui Neiva, a policy analyst at the Eno Center for Transportation. But he said those negotiations could be lengthy. While the U.K. works that out, U.S. air carriers whose operations aren't tied to the U.K. could have an advantage.

For instance, American Airlines would be disproportionately affected by the U.K.'s uncertain fate because it has an antitrust immunity alliance with British Airways, Neiva said. The two airlines share revenue and coordinate on schedules and capacity, among other things.

“We will learn more as the exit process unfolds and as any effects of that exit become clear,” an American Airlines spokesman told Bloomberg BNA.

Too Soon to Speculate: A4A

Global airlines stocks continued to fall on June 27. Still, Airlines for America (A4A), which represents most major U.S. air carriers, said it was too soon to forecast how the U.K. split from the EU would ultimately affect the airline industry.

“As the U.K.’s exit from the EU is expected to take two years, it’s premature for us to speculate on the intricacies of what will be a negotiated process,” an A4A spokeswoman told Bloomberg BNA. “Travel, trade and tourism is critical to the U.S., U.K. and EU, and transatlantic travel between the U.S. and those markets is extraordinarily strong and will remain so irrespective of the change in the political relationship between the U.K. and the EU.”

To contact the reporter on this story: Stephanie Beasley in Washington sbeasley@bna.com

To contact the editor responsible for this story: Heather Rothman at hrothman@bna.com

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