How will Brexit affect business travel and expenses?

The Brexit vote put UK businesses in unchartered territory. The uncertainty that Brexit created was immediately felt by the pound which plummeted to its lowest level for 31 years. Some businesses were prepared for a leave vote, with firms such as Dunelm Mill reportedly buying stock ahead of the referendum to side-step any impact caused by fluctuations to Sterling, while many others were taken by surprise by the result. But even the most prepared firms aren’t immune from the impact on currency.

So what does Brexit mean for small and medium-sized businesses who need to trade and travel both in the EU and internationally? And what impact could it have on travel costs?

If you’re travelling overseas or doing business internationally, the decline in the pound against major currencies made everything more expensive overnight – and not just in Europe. FairFX’s currency tracker demonstrates that the pound dropped 2.6% against the euro, 4.2% against the US dollar and 6.0% against the Japanese yen immediately following the Referendum. In real terms today, for every £1,000 you spend in Europe, you’re now getting €250.37 less, equivalent to £181.99, in a 2015 to 2016 comparison. Scaling up, for every £10,000 you spend, you’re losing £1,819.90 and this rings true whether you’re buying goods and services or travelling for business.

Financial directors will increasingly come under pressure to skim the financial fat and retain control of company spending in the wake of Brexit. Trade strategies will need re-examining while corporate travel and expenses will inevitably come under the microscope. However, robust risk management and acting financially smart will help firms minimise the Brexit effect and even usher in a new era of profitable globe-trotting.

The impact on trade
Those who import may need to factor in price hikes until trade deals are cemented with countries both in and out of the EU. In the meantime, we may see a knock-on effect across UK industries. For example, the UK imports 3.5 percent of India’s exports, with hundreds of UK manufacturers buying-up affordable fabrics, electrical components and horticultural products to sell on competitively. With every transaction costing more, UK manufacturers may not be able to keep up the momentum.

However, the good news is that the under-performing pound doesn’t necessarily spell financial doom and gloom for all firms in the UK. In parallel to importer woes, reports suggest that exporters are riding the profit wave, with a particular influx of business from the United States. UK businesses are in a strong position to maximise opportunities to sell British products after suddenly becoming more affordable to overseas buyers.

Discovering new places to do business
FairFX has seen that even amidst the volatility of the pound, there are hotspots where Sterling still goes further, such as South America, several African countries, Turkey, Norway and Sweden. Looking at consumer travel, currency analysis puts Argentina at the top of the world’s best value destination list, with the pound still going 149% further today than it did three years ago. For every £500 exchanged, you receive £300, or 6,000 Argentine Pesos, more than in 2013, so it’s worth considering new destinations that may be fruitful for your business.

Will flight paths stay open and fare costs low?
Ahead of Brexit, businesses assumed flights would become more expensive but British Airways soothed concerns, saying a UK exit from the EU would not affect its business. Willie Walsh, chief executive of International Airlines Group, said: “I don’t think it will lead to higher prices… The issue is with airlines that operate within Europe.”

One week after Leave’s success, easyJet was the first airline carrier to roll out a Brexit contingency plan, applying for a European air operator certificate (OAC) license to keep its airline routes open, affordable and flexible.

Under the EU’s Single European Sky system, British-based airlines such as easyJet, were able to increase the routes on offer by 170 percent, and lowered the price of fares by as much as 40 percent.

When Theresa May triggers Article 50, financial directors need to consider getting behind negotiations that secure these privileges, because airlines could no longer be free to make fare and route choices without prior authorisation.

Use home ground advantage and invite international partners to Britain
A fall in the value of the pound has made travelling to the EU more expensive. Business travellers are paying more for accommodation priced in euros, but many travellers are taking advantage of cheap inbound travel to the UK. Ramsgate hotel owner, James Thomas, has reported a surge in new booking enquiries following the Leave result. Perhaps travelling abroad to meet new business partners isn’t essential if a business can arrange a meeting on home soil.

Employees may not have enough salary spare to pay expenses upfront
The Treasury anticipates employee salaries could dip to between 2.8% and 4%, leaving workers at least £780 a year worse off.
Businesses should be mindful that wages may not stretch to accommodate business-related costs upfront. Tweaking the policy the either to pay expenses back faster, or offer a prepaid corporate card so employees do not have to pay expenses up-front, should be considered.

Nobody really knows exactly what impact Britain’s withdrawal from the European Union will have in the short or long-term but we do know that accounting for and monitoring currency fluctuations has never been more important for businesses.

How to manage currency fluctuations
If you have flexibility, consider holding business meetings or attending conferences in destinations where the Pound goes further by looking at currencies that have favourable long-term exchange rates.

If you know the countries your business needs to visit this year, set up a currency alert with an online currency provider so that you are alerted to the best time to buy currency when the rate moves in your favour.

Whatever you do, don’t leave sorting out your travel money until the last minute as you could be left severely out of pocket. Exchange rates at the airport can be up to 15 percent more expensive than elsewhere meaning that you could lose £150 for every £1,000 you exchange.

Top five tips for business spending while abroad

1 - Remind your employees to pay in local currency
Paying in Sterling overseas allows the vendor to decide the exchange rate and it’s never in your favour, so make sure your employees travels abroad with the currency they need.
2 - Prepaid currency cards give you the best deal
A FairFX prepaid currency card has the best rate, wherever you need to travel (even if Brexit decides to give the economy another surprise headache that day!)
3 - Rate Alerts afford you hindsight
Get a notification every time the rates are in your favour through FairFX’s email Rate Alerts.
4 - Help employees to be organised
If employees exchange cash at the airport there’s a sting in the tail: exchange rates at airports can be over 10% more expensive meaning you could lose £100 for every £1,000 you change.
5 - Don’t worry about leftover currency when you get home
If you return home to the UK with currency left on your card, either leave it on your card for your next trip, or use it in the UK fee-free.

Calculations based on rates collected on July 28th 2016.

 
Read our latest articles, commentary and currency updates on the affect of Brexit.
FairFX Brexit Hub