Britain’s historic “Brexit” referendum Thursday ended with a mostly unexpected result as the United Kingdom voted to sever ties with the European Union after 43 years locked in an unhappy marriage. The decision to depart the 28-member bloc sets the stage for messy and prolonged divorce proceedings that will play out on the world stage over several years.
On the far side of the pond, many Americans woke up to the news Friday morning with little clue what effect, if any, the Brexit would have on them. But it soon became clear that, with the pound sterling hitting a low not seen since 1985, Brexit could become an unanticipated boon for American travelers longing for a European vacation.
Mike Stitt, North American president at travel deals company Travelzoo, said “there are going to be a lot of unsettled unknowns” in the next weeks and months. “It’s really difficult to predict what exactly will happen with tourism, but in the short term we do know there are currency fluctuations, and we think it will probably be a great time for Americans to visit the U.K."
The U.K. will likely remain a member of the E.U. for a least two more years, so while some effects of the Brexit (like the preferential exchange rates) will be felt immediately, others won’t happen for many more months to come. But if you’re considering a trip to Europe in the next year, here are a few things you’ll want to keep in mind:
The British pound sterling plummeted 10 percent overnight Thursday to a 31-year low against the dollar, while the euro fell by nearly 4 percent over the same period. It remains uncertain whether these reactionary drops will stick in the long run, but it’s quite likely that ongoing turmoil in Europe over the Brexit will continue to strengthen the value of the dollar. “What that effectively means for U.S. travelers,” Stitt said, “is that all of the U.K. is on sale right now.”
To put this into perspective, the pound sterling was worth $1.50 against the U.S. dollar Thursday evening. By Friday morning, it was worth $1.32. And it could dip even further. Investment bank Goldman Sachs predicted that a vote to leave the E.U. could send the pound dropping to as much as $1.15 against the dollar, and €1.05 against the euro. That’s why Stitt said that right now is a “pretty good time to keep your eye on sales and discounts to Europe.” While he hasn’t seen any travel companies launching promotions just yet, he said “it could certainly happen in the coming weeks to encourage Americans to visit.”
Foreign exchange may be the main driver making Europe more attractive for Americans, but market demand could come into play, too. Travelzoo found in a recent survey that one in three Europeans would be less inclined to travel to the U.K. if it voted to leave the E.U. If travel does become sluggish in the coming months, hotels may lower prices in order to keep occupancy high.
Higher Airfares in Europe
Favorable exchange rates may make travel to Europe cheaper for Americans in the short term, but the price of flights between the U.K. and E.U. countries is expected to rise. Why? Low-cost airlines like Britain’s easyJet and Ireland’s Ryanair dominate the inter-European market and have not only driven prices down on the “legacy” carriers like British Airways and Air France, but also unlocked a variety of new routes within Europe. All of this is thanks to the opening of competition between E.U. countries and the removal of old bi-lateral restrictions on air service agreements. But with the U.K. primed to leave the E.U., it will likely have to renegotiate more restrictive air service agreements to access the European Common Aviation Area, which could ultimately increase the cost of flights and decrease the number of routes.
Oxera, a global economic consultancy, has predicted that Brexit could drive up airfares by as much as 30 percent and increase restrictions on competition. For its part, easyJet said in a statement Friday that its initial focus “will be to accelerate discussions with U.K. and E.U. governments and regulators to ensure that the U.K. remains part of the single E.U. aviation market. This would enable E.U. airlines to fly freely within the U.K. and between the U.K. and E.U., allow U.K. airlines to fly freely across Europe, and would ensure that consumers continue to benefit from low fares.”
Crossing the Border
Because Britain was never part of Schengen — the joint travel area within Europe — border controls are unlikely to change or become stricter than they are now. In fact, travel between the U.K. and E.U. will essentially be the same today as it was before the vote. Travelers may, however, lose the right over time to bring unlimited amounts of goods from E.U. countries across the border into the U.K. Instead, the U.K. is likely to revert to the duty-free system it had prior to 1999, with an allowance of 200 cigarettes, 16 liters of beer, and four liters of wine. That means your suitcase full of French wine would incur a £2.00 per bottle surcharge at the U.K. border once you reach the four-liter limit.
Once the U.K. officially leaves the E.U., there could be major delays at U.K. airports and ports of entry, as E.U. citizens would no longer be able to enter through a separate customs line without restrictions. They would likely join the same lines as Americans and other foreigners, which Charlie Leocha, president of consumer advocacy group Travelers United, told Bloomberg News would be “absolute horror show.”