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No-deal? No problem: How travel marketers can weather a no-deal Brexit

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Propellernet anticipate the impact of a no-deal Brexit on the travel industry.

Today the odds of a no-deal Brexit are 15% and the financial impact of a no-deal in terms of customer demand for holidays is seemingly uncertain. Luckily, we’ve seen similar situations before in the fallout of the Brexit referendum. There’s no reason for holiday brands not to be drafting a playbook for how to roll with the punches in the case a deal is not struck before the 12th April deadline.

A no-deal Brexit would be similar to the Brexit referendum in three key ways;

  • The public expects a smooth continuance of the status quo with slow changes
  • But a shift occurs that first limits the ability to travel to Europe
  • And this shift kills the value of the pound relative to the Euro

Thus, we can use the impact observed in the immediate aftermath of the 2016 referendum to derive valuable insights into consumer behaviour to inform predictions around a no-deal Brexit.

As a digital marketing travel specialist with luxury brands, discount brands and cruising brands as clients, Propellernet has some interesting data to draw on to help travel marketers navigate the volatile Brexit waters.

It’s no secret that demand for holidays varies seasonally, if a travel marketer doesn’t know what turn-of-year is then they have bigger problems than a no-deal Brexit (and that’s saying something). Propellernet’s favoured method for quantifying impact leverages this predictability.

If we build a traditional forecast from the period just before the results of the Brexit referendum then we can approximate where we’d be if the status quo had continued as everyone had expected. So the difference between our forecast and what actually happened is likely to be the impact that the Brexit referendum result had. This method is called interrupted time series analysis, and is thoroughly studied and respected in terms of both reliability and results. This method is superior to traditional methods because of its accuracy, reliability and specificity. Plus, it allows us to zero in on impacts that we can’t separate into a traditional A/B test.

Understanding the past can help us benefit from similar situations in the future. In this case, understanding how the Brexit referendum should influence our playbook to prevent being sunk by the fallout of a no-deal Brexit.

The graphs below provide an overview of the Brexit referendum on both the domestic and overseas tourism markets in order to help anticipate the likely tremors that a no deal exit could incite. The green line isn't referring to overall demand, but rather the demand that was caused by the fall-out of the Brexit referendum on the travel industry.

Domestic Tourism

Initially, the referendum benefitted internal tourism as Brits chose staycations in the context of uncertainty. This boom ended abruptly just before holiday and turn of year buying behaviour began. It is likely that travellers took domestic holidays out of worry about currency and international movement. The research shows that the referendum continued to impact expected levels of demand for 18 months. Furthermore, a boom of foreign tourism coming to the UK due to the better exchange rate was experienced.

So the question then is, how do we benefit if the same behaviour re-occurs?

Domestic should expect a temporary increase in demand, avoiding offers and discounting in the period is the easiest move.

The first year of change may not reflect future demand (as the first graph below shows) so strategic business decisions should be evaluated thoroughly.

After this period, the impact of a no-deal Brexit is likely to dwindle relative to more immediate changes so this trend should not be part of a long term strategy.

Overseas Tourism

Overseas tourism, on the other hand, experienced an initial spike (seen in ONS data), followed by temporary stability while providers maintained static prices based on previously negotiated exchange rates before having to increase prices, which spurred a drop in sales.

In the longer term, however, the referendum hurt overseas tourism, particularly luxury tourism where consumers opted for cheaper options. Indeed, some discount European brands saw a small increase in sales as consumers intent to go to Europe, but priced out of more expensive packages, chose cheaper providers. Within the same time frame, foreign tourism to the UK dried up and the growth in local tourism stabilised.

So the question then is, how do we benefit if the same behaviour re-occurs?

  • Overseas travel can expect a similar panic demand as with the referendum, offers such as pinned holiday costs with guaranteed exchange rates for spending money while away might lessen the decline seen in the second graph.
  • Re-enforcing the value proposition of a luxury product will shore up consumers that might opt otherwise for a more cost effective product.
  • Luxury providers might also offer more tuning options for customers to adapt the package to the budget they have.
  • Hard times are likely for all overseas holiday providers so strengthening internal costs (such as supplier prices and currency exchanges) is a must.

Looking forward

In conclusion, a no-deal Brexit will undoubtedly cause shifts to consumer behaviour, strategists beware! These domestic shifts will likely be short term positive, long term mild positive. For overseas (particularly European tourism) it’s suggested to be exceptionally short term positive with panic buyers and long term negative. These shifts are based on the impact of the EU referendum that is the closest proxy to a no-deal Brexit that we have.

Joe Mountford is a data scientist at Propellernet.

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