In this week’s Commercial Awareness update, we discuss Merkel’s re-election, May’s Brexit strategy, Uber’s London ban, Ryanair’s flight cancellation and Manchester United’s record revenues.
Angela Merkel is set to win a fourth term as German Chancellor after the German people went to the polls over the weekend. Despite her triumph, it wasn’t a particularly good result for her conservative CDU/CSU bloc, who recorded their worst result in almost 70 years. They are still the largest party in the Bundestag (German Parliament), with 33% of the vote, but the far right AfD party made significant gains to become the third largest party, with 13% of the vote. This is the first time in 60 years an openly nationalist party will enter the Bundestag. Merkel’s open door policy towards refugees, combined with the recent terrorist attacks across Europe appear to have lost her support to the anti-Islamist nationalists - in a statement yesterday she has vowed to listen to the worries of the people to regain votes from the far-right.
The CDU/CSU bloc were in coalition with the second largest party - the SPD - but after the latter also polled badly (5% down on last election) they seemed to have ruled out another coalition with Merkel. This could limit the leader’s options, with the so-called “Jamaica” coalition looking the most likely - a coalition between the CDU/CSU, the liberal Free Democrats (FDP) and the Green Party, whose colours make up the Jamaica flag. On news of the result and the potential difficulties with forming a coalition, the Euro dropped 0.4% against the dollar. The coalition could take weeks to form, while a completely new deal is negotiated, which brings uncertainty in the short-term.
Questions to ask yourself… What can centre parties do to deal with the rise in popularity of right-wing parties? How will this election impact Germany’s position in the EU?
May’s Brexit strategy
After a turbulent week for Theresa May’s Brexit plans, the PM outlined her desire for a transitional period after the UK leaves the EU in March 2019, which would continue to give Britain the same access to the single market for a further two years. During a speech in Florence, May called for giving businesses in the UK and the rest of Europe the time they need to transition to new trading relationships. Michel Barnier, the European Commission’s lead Brexit negotiator, welcomed the speech as progress and said the EU would consider May’s proposal for a transition period. Talks have stuttered between both parties to this point, but this new openness and desire to compromise from the UK is likely to encourage advancement.
Critics of the speech have claimed it didn’t add any clarity to London’s position on the Brexit Bill. French president Emmanuel Macron suggested he was no clearer on Britain’s negotiating position when it came to the exit bill, the questions over the Irish border or EU citizens’ rights. It also remains unclear how united the Conservative party is behind Theresa May’s plan. Boris Johnson last week caused controversy after outlining his vision for Brexit in a newspaper article, which was very different from Chancellor Philip Hammond’s ideas, which are to ensure business interests are put first. Johnson is publicly backing May’s new position over Brexit, but the same can’t be said for many Brexit-backing Conservative MPs, including potential leadership rival Jacob Rees-Mogg.
The FTSE 100 rose slightly, by 0.5%, after the speech was made, but it was widely speculated May was about to announce a desire for the transitional period, so it was already factored into market prices. The pound continued its strong performance against the dollar last week and also rose against the euro after May’s speech and the German election results.
Questions to ask yourself… Does the desire for a transition period mean there is any chance Britain will never leave the single market? How important to Theresa May is having the whole of the Conservative party on board with her Brexit plan?
Companies to watch
On Friday, Transport for London (TfL) announced it would revoke Uber’s licence to operate in London, as they claim the ride-hailing app doesn’t carry out the correct security checks on their drivers and needs to improve reporting of criminal offences. The decision has caused widespread dissatisfaction and as of Monday morning 680,000 people have signed the Save Your Uber in London petition in response to the decision. London Mayor Sadiq Khan has backed TfL’s decision due to safety concerns, but may look to soften his stance depending on the backlash from consumers and Uber’s response.
Some commentators have accused TfL of a politically motivated decision and an attack on free market innovation, suggesting the reasons for banning the app were unfair. Uber’s London boss Tom Elvidge has committed to work with the TfL and changing the company’s practices to ensure Uber continues operating in London. They have also appealed the decision, which means Uber will continue to operate for the next 21 days while the appeal is considered. If the appeal is unsuccessful, the app will have to stop operating from mid-October in one of its most lucrative markets.
Ryanair has announced it will cancel 50 flights every day for the next six weeks, after the budget airline realised they would have staff shortages, especially among its pilots. It’s believed 700 pilots have quit the airline this year and a backlog of holiday allocation amongst the remaining employees has led to the cancellations - which will impact 315,000 passengers.
Ryanair’s brand isn’t built on being a premium service, but on its ability to get people from A to B on time for a low cost. This “mess-up” - as CEO Michael O’Leary admitted - is likely to affect customer confidence. The airline has already slashed prices for flights over the winter, encouraging sceptical customers to continue using its services. The airline’s share price fell 3% on the announcement of the cancellations, but it had already started to recover towards the end of last week.
Football club Manchester United reported record revenues of £581 million for 2017. The increase can be attributed to three key factors - signing 12 sponsorship deals, a boost for matchday revenues and a hike in TV revenues. 2016-17 was the first football season of the new three-year domestic broadcasting deal, which saw Manchester United’s TV revenue jump 38% to £194.1 million. Matchday revenues rose 4.7% and commercial revenues from sponsorships totalled £275.5 million (2.7% up). The club returned to the top of Deloitte’s football club rich list earlier this year, but the increased revenue has come at a cost. The club’s wage bill rose 13% in 2017, and this was largely due to increasing wages in the first team.
Questions to ask yourself… Should TfL ban a service which is so popular with consumers? What can Ryanair do to rebuild its brand after the cancelled flights? Do the revenues justify high wages in football?