NEVADA GOVERNORS CONFERENCE 2019 UK MARKET UPDATE & FY19 ACTIVITY MMGY HILLS BALFOUR COMPANY BACKGROUND Hills Balfour President Amanda Hills with MMGY Global CEO Clayton Reid MMGY Hills Balfour is Europe’s leading integrated marketing and communications agency specialising in tourism. Based in central London with network offices across Europe and the Middle East, we are a next generation, full-service agency for the travel sector that knows how to help travel brands grow. For more than 20 years, we have worked with a diverse range of clients including cities, regions and countries, as well as tour operators, hotel groups and travel services companies. As a result, we know travel and tourism better than anyone else in the market, evidenced by our world-class client list, deep- rooted relationships and solid industry reputation. We are also proud strategic industry partners for the World Travel & Tourism Council (WTTC), whose role it is to quantify the economic contribution of the travel and tourism sector to governments around the world. As a creative solutions, media and marketing specialist agency, we have unparalleled experience in executing stand-out campaigns for travel brands using the latest targeting, data and creative technology. We are completely results-focused, and we take our role as brand protectors very seriously. Our PR, marketing, design, development, creative, social, research, and media planning teams have extensive knowledge in bringing outstanding, results-driven campaigns to market, integrated across all channels. Hills Balfour was created in 1998 by Amanda Hills-Balfour as a specialist tourism and marketing representation company to promote destinations in the UK and Ireland. Today we work across every continent in the world, with a drive to promote every facet of travel whether it be a destination, airline, global hotel brand or ancillary product. In 2016, Hills Balfour opened its first international footprint, Hills Balfour Dubai. Its creative media agency background and brand architecture work for clients including Jumeirah Hotels and the Executive Council of Dubai is second to none. In 2018, Hills Balfour was acquired by U.S. company MMGY Global, the world’s largest integrated marketing company specializing in the travel, hospitality and entertainment industries. 2 QUICK FACTS ON THE UK MARKET Demography of the United Kingdom, according to the Office of National Statistics (ONS) ● Total population: 66.4 million ● Area: 242,514 sq. km ● Currency: Pound sterling ● Population growth: 0.6% from mid-2017 to mid-2018, slower than any year since mid-2004 ● Unemployment rate: 3.8% ● Employment rate: 76.1% ● Average weekly earnings: £542 ● The median age in the United Kingdom is 40.1 years ● Life expectancy: 79.2 years for men and 82.9 years for women (ONS, 2019a) United Kingdom outbound tourism overview ● Britons are still firmly committed to their holidays, with 88% of people saying that they took a holiday (in the UK or abroad) in the past 12 months ● In the 12 months to July 2019, almost two thirds of UK residents took a foreign holiday (64%), an increase of 4% year-on-year and 11% more than five years ago ● During these visits, UK residents spent £45.4 billion, an increase of 1% or £595 million ● UK nationals have cut back on what they spend before they go on holiday and while they are away. Compared to 2017, people are spending a combined £98 less before and whilst away on a short overseas break and £94 less on a longer overseas break ● Last year, there was a slight dip in UK holiday-taking, after two strong years of growth for domestic holidays, and the figures for 2019 show a return to pre-2018 figures (ABTA, 2019a) Average number of holidays taken by UK nationals 2017 – 2019 (Source: ABTA, 2019a) 3 THE UK ECONOMY & TRAVEL INDUSTRY Economic Summary ● UK interest rates at 0.75% - the highest level since March 2009 ● GST/VAT: remains at 20% ● The Consumer Prices Index including owner occupiers’ housing costs (CPIH) 12-month inflation rate was 1.7% in August 2019, down from 2.0% in July 2019 ● The average house price in England increased by 0.3% over the year to July 2019, down from 1.1% in the year to June 2019, with the average house price in England now £249,000 ● PricewaterhouseCoopers (PwC) predicts 1.4% GDP growth for 2019, 1.3% in 2020 ● Household spending grew by 1.1% in Quarter 2 2019, when compared with Quarter 2 2018 Economic Review UK gross domestic product (GDP) in volume terms was estimated to have fallen by 0.2% in Quarter 2 (April to June) 2019, having grown by 0.5% in the first quarter (January to March) of the year. When compared with the same quarter a year ago, UK GDP increased by 1.2% in Quarter 2 2019; a slowing from 1.8% in Quarter 1 (January to March) 2019. Services sector output provided a positive contribution to GDP growth, although growth in this sector slowed to 0.1% in Quarter 2 2019. The production sector contracted by 1.4% in Quarter 2 2019; reflective of increased volatility in the first half of 2019. Nominal GDP increased by 0.4% in Quarter 2 2019, down from 0.9% in Quarter 1 2019. The WTTC reports that UK travel and tourism industry plays a vastly important role in the UK economy, contributing around 9% of total economic activity. Britain will have a tourism industry worth over £257 billion by 2025 – just under 10% of UK GDP and supporting almost 3.8 million jobs, which is around 11% of the total UK number. Outbound travel’s economic contribution to the UK totals £37.1 billion in Gross Value Added (GVA), which amounts to around 1.8% of UK Gross Domestic Product (GDP). This includes a direct contribution of £15.9 billion (GVA), which is equivalent to around 1% of GDP. The sector directly sustains 221,000 UK jobs. Key research from the WTTC’s ‘Travel & Tourism Economic Impact 2019’ report highlights the below: ● While the global economy grew by 3.2%, Travel & Tourism grew by 3.9% ● One in five new jobs were created by Travel & Tourism over the last five years ● Travel and Tourism contributes 11% of total UK economy ● Travel and Tourism contributes to 11.9% of total UK employment (ONS, 2019a; ONS, 2019b; WTTC, 2019a) 4 UK POLITICS, BREXIT & OUTBOUND UK TOURISM Summary of UK politics ● Government type: Constitutional Monarchy ● Ruling party: Conservative government ● Prime Minister: Boris Johnson MP (leader of the Conservative Party) ● Chancellor of The Exchequer (Finance Ministry): Sajid Javid MP ● Secretary of State for Foreign and Commonwealth Affairs: Dominic Raab MP ● Secretary of State for Exiting the European Union: Steve Barclay MP ● Secretary of State for International Trade & President of the Board of Trade: Elizabeth Truss MP ● Secretary of State at the Department for Digital, Culture, Media and Sport: Nicky Morgan MP ● Minister for Arts, Heritage and Tourism: Helen Whately MP (sits within Department for Digital, Culture, Media and Sport) ● Leader of Opposition: Jeremy Corbyn MP (leader of the Labour Party) ● Mayor of London: Sadiq Khan (member of the Labour Party) ● Head of State: HM Queen Elizabeth II (1952) Brexit background and conservative Party leadership 2019 Brexit (Great Britain’s exit from the European Union) has remained at the forefront of UK politics for the past five years. On 23rd June 2016, 52% of the UK public voted to leave the UK in an ‘in-or-out’ European Union (EU) referendum. This event saw David Cameron stand down after six years as Prime Minister. Theresa May took over as Leader of the Conservative Party on 13th July 2016 and served for three years. Boris Johnson, former Mayor of London and Foreign Secretary, became the new leader of the Conservatives on 24th July after being voted in by 66.4% of party members over rival Jeremy Hunt. Johnson backed the Brexit campaign and vowed to leave the EU with or without a deal on 31st October 2019. For the UK to leave the EU, Article 50 of the Lisbon Treaty was evoked on 29th March 2017 giving both the UK and EU two years to agree to the terms outlined in the split. A Brexit deal was agreed between the UK and the EU in early 2019, but the deal was not effectively passed through the UK parliament. Brexit was extended to 12th April 2019, before the UK and the EU agreed on the later date of 31st October 2019. As at 21st October 2019, parliament has voted to rule out the possibility of the UK leaving the European Union without a prior agreed deal. MMGY Hills Balfour will be producing a stand-alone Brexit update by 1st November 2019 to provide the very latest political updates ahead of WTM. (The Guardian, 2019a; Institute for Government, 2019; BBC News, 2019a) WHAT BREXIT MEANS FOR THE TOURISM INDUSTRY 5 Performance of the UK travel sector Despite some concerns about Brexit, the UK travel sector performed well in 2018. Consumers continue to prioritise their holiday spending and remain confident about travelling amid other world events. Looking ahead to 2019, the overall intention to take holidays will remain strong, despite economic uncertainty, not least relating to the UK’s EU exit. Changing demand for travel, and airlines and other travel companies will have to deal with simultaneous pressure on margins through increasing competition, excess capacity and rising fuel costs. ABTA reconfirms advice for travellers According to ABTA’s most recent Advice for Travellers update, “the Brexit extension to 31st October 2019 has provided absolute certainty that all current arrangements for travel will remain as they are today”.