Just last week, on the very day that we published the last issue of the Inbound Report, the news from the UK was positive—despite any after-effects of the June 23, 2016 “Brexit” vote by UK residents to pull out of the European Union (EU)—with the latest data for July showing that outbound departures by British travelers suffering little and other sources indicating that the market was headed for an all-time high in outbound travel.
Now, with the annual World Travel Market, which is the principal event on the global travel industry calendar for marketing and promoting product to the UK, less than a month away (it convenes Nov. 7-9 in London), tour operators will find themselves in a situation in which USA product is about 20 percent more expensive than it was at last year’s World Travel Market.
What Happened? As the tables below indicate, the pound seemed to be holding its own against the U.S. dollar, after declining nearly 10 percent in the first full week following the Brexit vote, By the end of last month, it had declined only two percentage points more.
Then, something happened as the currency exchange markets went from Oct. 6 to Oct. 7. Within minutes of early morning trading, the pound fell six percent in two minutes.
As reported by The Economist, “The best explanation seems to lie in the world of algorithmic trading—the computer programs that automatically generate transactions. Such programs have been blamed for “flash crashes” in the equity markets, particularly the May 2010 event which saw the Dow plunge nearly 1000 points in minutes before recovering. The problem seems to be that programs feed off each other. Each may have a trigger point which requires the program to sell an asset (currency, bond or share) when it falls below a certain point, in order to limit losses. These sales drive the price down, which triggers the selling points of other program and so on. Eventually, the fall is large enough that other elements of the algorithm generate a buy signal. Hence the whole event can be over very quickly.”
There was also speculation that traders were influenced by the Oct. 6 remarks of French President Francois Hollande who, according to the Financial Times, used unusually blunt language in discussing what he believes the UK must face as a consequence of its Brexit vote: “The U.K. has decided to do a Brexit … Well, then we must go all the way through the U.K.’s willingness to leave the EU. We have to have this firmness,” Hollande said, adding, “”There must be a threat, there must be a risk, there must be a price,” Hollande asserted.
Finally, to view an up-to-date chart displaying the value of the pound vs. the dollar over the past year, visit
Scott C. Johnson says
Concern for the exchange rate is valid. Perhaps concern should be put on the volatility of the exchange rate. Will the rate continue to be volatile or find a new normal. Volatility in the exchange rate creates an unstable pricing environment for travel products for B2B and ultimately for the consumer. A new norm will allow buyers and sellers confidence to establish strong value driven experiences.
Another consideration is total cost of travel. Airfare cost has declined due to fuel and other factors which has kept demand high. Lower airfare may be a stronger motivator than exchange rate is a deterrent for some – at least to a point when the exchange rate is prohibiting a value driven experience.
In the current environment package travel is likely to rise – which is all about total cost, security and reassurance, and convenience. Suppliers that adjust to a value-focused product and market to the travelers concerns will likely gain market share – and potentially growth in a potentially down market.