Few people seriously expected Brexit to happen. Even Nigel Farage, a man who spent his entire political life pushing for the UK to leave the EU, admitted on the day of the vote that Remain would probably “edge it”.
In the early hours of 24 June, however, as the results began rolling in from the big cities in the north of England, it became clear that one of the most significant political shifts in a generation had taken place.
Defying almost all expectations, against (or perhaps because of) the advice of the City of London, the Confederation of British Industry (CBI), and a seemingly endless cavalcade of nervous former prime ministers, the UK’s public voted to sever a 43-year economic and political union in one fell swoop.
The response from the world of finance was predictable. $2 trillion was lost by investors in global stock markets, and the value of the pound slumped against the dollar to a 31-year low; as of the time of writing, it shows little sign of rebounding to its former strength.
The prime minister resigned while the opposition fell into infighting. In all, everything seemed a little apocalyptic, and for a week no one was really sure who was even running the country at a time when leadership and clear thinking was most needed.
Cooler heads prevail
Amid all the chaos, hospitality was keeping it (comparatively) cool, at least in the weeks immediately following the vote. While the future was undoubtedly unclear, the message coming out of the industry was simple: what was crucial was to remain upbeat and carry on with business, not follow the approach taken by most politicians and panic.
The hospitality industry also required strong and effective leadership, and as the country’s fourth largest employer, supporting 4.5 million jobs, it’s certainly true that much was at stake.
The decision also came at a good time for the British hotel industry, as STR Global reported in May that amid a European market experiencing a 9% increase in rooms under contract, the UK led the pack, with 15,481 rooms in 154 hotels in the pipeline, which more than 5,000 more than its nearest competitor, Germany. Could the fallout from Brexit jeopardise all this?
Months later, and not much has changed: even the experts are stumped about what’s next. The response from operators and analysts to Hotel Management International’s interview requests was uniform: no one was sure what was going to happen, and they were reluctant to speculate as to what might.
This reticence is understandable: the hotel industry’s future in a UK outside the EU is contingent on a whole range of agreements between the Brexit negotiators and the European Union, from freedom of movement to the continued state of the pound. Until the government formally starts the process by triggering Article 50 and negotiations begin in earnest, it’s impossible to make accurate predictions.
“We’ve not progressed much since the day after the referendum,” says Sandra Thiel, a partner at Clifford Chance, the UK’s largest multinational law firm, and a specialist in the hospitality business. “It all depends on how the UK will prepare itself after it exits… if it leaves at all.”
“We’re in a bit of a phoney-war situation right now,” agrees Phillip Souta, the firm’s head of public policy. “There’s a lot of press coverage, but nothing’s actually happened yet.”
The future really depends on how much European legislation stays in place in a post-Brexit landscape, and how many of these laws are reinterpreted into UK statute. For one thing, there’s likely to be a tangible impact on many pieces of Brussels legislation intended to protect consumers, something that is almost certainly going to mean that tourism takes a hit, and one that would have to be balanced by new policies to lure business and travel back.
“They could try to have new incentives for business, new incentives for airlines,” suggests Thiel, “and maybe attempt to counter some of the negative effects that people are afraid of at the moment.”
Apart from the obvious effect that the loss of free movement could have, and the new bureaucratic hurdles incurred by European tourists needing visas, a pre-referendum Deloitte report argued there were several more consumer protection laws that would have an impact. Everything from an end to the cap on roaming fees, to the Package Handling Directive, the European Health Insurance Card and the Passenger Rights Directive, it contended, could make visiting the UK more expensive – for business and pleasure – and take a toll on the hotel industry.
“In the event of Brexit, it is likely that EU-originating regulations that benefit and protect travelling consumers would need to be replaced with parallel UK-originated regulations to ensure that consumer confidence is maintained,” the report said.
Millions visit UK from mainland Europe every year, an estimated 63% of inbound visitors to the UK in 2014 were from the EU (some 8.8 million). An end to the protections and privileges available to them could, understandably, put many off.
Reasons to be cheerful
It’s not all doom and gloom, however, and some of the UK’s economic misfortune, while not great news for the country in a broader sense, might even encourage tourism and, some have suggested, investment in new properties.
“From a tourism perspective, clearly the biggest benefit is a cheap pound,” says Souta. “If you look at all the economic data, apart from the sterling, all of it seems neutral, or even slightly positive. Consumer and tourism spending are both up, so there’s everything to play for.
“A semi-permanent shift in the value of sterling is no bad thing for the tourism industry, and the business hospitality sector will closely follow the performance of the UK economy as a whole.”
But what will affect the hotel industry the most, of course, is what much of the press coverage has focused upon: how the UK Government is going to negotiate the end of freedom of movement. At the moment, this is unclear, and the Cabinet contains everyone from hardliners who insist on a points-based immigration system to pragmatists who believe that a Switzerland-style approach, with some freedom of movement, could work.
In many ways, the hotel industry had one critical reason to be seriously concerned about the vote. A central tenet of the European project has been freedom of movement of people between member states. For the last decade, this has been a boon to hospitality, particularly in terms of supplying its workforce. The UK’s exit from the common market could end all this and require millions of work visas to be issued.
“It’s going to be very difficult for the UK hotel industry to find a completely British staff,” Aron Harilela, CEO of Hong Kong-based Harilela Hotels told CNBC in the days leading up the referendum. “In my opinion, for my industry, [Brexit] would be a disaster.”
A pre-referendum report by Deloitte, for example, estimated that 70% of workers in London hotels were a product of free movement. The UK leaving the European Union would have a dramatic effect on this workforce, and hotels are going to have to rework how they employ individuals from abroad. While it seems unlikely that the millions of EU-national workers in the UK will be deported come 2018, it is certain that free movement won’t be the same.
“If there is no longer a uniform market with free circulation of goods and employees, a much more sophisticated scheme will need to be found for sending employees across the borders,” says Thiel. “I think the hospitality industry is well placed, because it does this with other countries outside the EU, but all of this will have to be revised.”
Waiting game
In many ways, the hotel industry has to play a game of wait and see. Speculation can be useful, and tracking the minutiae of the negotiations will certainly help preparations, but ultimately no one is really sure how it’s all going to work. The best that people can do, argue analysts, is to monitor business trends and keep everything running smoothly.
“It’s too early to prepare,” insists Thiel. “You have to watch the market and you have to see how things develop. We need to watch developments, follow the debate and see how the time frames work, and how business and tourism travel are affected.”
At the time of writing, Prime Minister Theresa May was gathering her cabinet at the official residence at Chequers, where the government was beginning to flesh out a plan for how the UK would leave the EU and a strategy for the negotiations.
With European leaders already insisting that ‘Brexit means Brexit’, and that the UK cannot enjoy the benefits of membership while avoiding the costs, it’s clear the next few months – and the next two years – will be interesting times. How the British hotel industry looks once it’s all over is another story.
