Liberated from pandemic restrictions, travel firms finally looked through the worst. Yet as industry leaders jetted in for a “survivor’s celebration” in Marrakech this week, fresh storm clouds were gathering.
With their customers facing the biggest cost of living crisis in a generation, two articles of faith are sustaining the UK travel industry. One, a holiday remains sacrosanct. And two, no economic turmoil can be as bad as Covid-19.
Even with widespread airport disruption, it has been a relatively bumper year. There were double the trips of 2021, according to the travel association Abta, putting the number of people taking foreign holidays back towards 70% of 2019 levels, with tills ringing for fulfilled bookings rather than refunds or credit notes.
At the return of Abta’s annual convention, hosted by Morocco after a three-year hiatus of virtual or hybrid meetings, its chief executive, Mark Tanzer, said firms were facing a “double squeeze”. Higher interest rates and a weak pound were hiking up costs, while consumers were cutting back – and firms loaded up with debt during the pandemic could not borrow more.
Both optimism and uncertainty abound in the sector. Few want to talk down their own prospects – a snap poll of delegates at the convention suggested most still expect higher revenues in 2023 than in 2022. Dame Irene Hays, the chair of Hays Travel, said “people were returning in droves” to her company’s high street stores, while others talked of a buoyant market – at least relatively, for now.
“It has been a pretty terrible last two years,” said Tanzer. Between 30 and 40 of about 1,000 firms he represented went bust, “tragic, but numerically I would have thought more would have struggled.
“So I think there’s certainly a sense of not just relief, but almost a survivor’s celebration that we’ve come through it and it doesn’t destroy you.”
Yet anger at the government after the disastrous mini-budget was palpable, in an industry still raw from perceived neglect during the pandemic, and the UK’straffic-light system, where weekly changes to permitted destinations, and borders suddenly closed and reopened, played particular havoc.
Politically, the sector was “screwed”, according to Giles Hawke, the chief executive of Cosmos Tours. “There’s no trust in the government from travel leaders,” he said. “We’re living through uncertainty.”
Rory Stewart, a former Tory minister who was in Marrakech as a guest speaker, gently explained to delegates why they should not expect much help from “professional bluffers” in government, not least “Jacob Rees-Mogg, who is unfortunately now responsible for your industry” as business secretary.
Chris Wright, the managing director of Greece specialist Sunvil Group, said even though their customers were predominantly older people with savings and no mortgages, “we’re still concerned that with the uncertainty that’s around, people will hunker down”.
Consumer confidence is at its lowest point since the 2008 financial crisis – and the full economic-effect usually lags behind by about six months, according to Eleanor Scott, a director at PricewaterhouseCoopers’ UK travel and leisure strategy practice Strategy&. She added that while inflation may have has less of an impact on higher income groups and a significant minority of holidaymakers who were still to get away, “I would expect that consumer sentiment would filter through”.
The start of January is peak booking season for annual holidays – and firms are holding their breath. Garry Wilson, the chief executive of easyJet holidays, said bookings for 2023 have yet to slow – but that could be because customers who normally book then were locking in the price of next year’s trip now, while they could still afford it. All-inclusive holidays have been in demand with people fearful quite what sterling would be worth.
Cruise holidays have made a steady revival after ships were initially marooned by coronavirus. But Ben Bouldin, a vice-president for Europe, the Middle East and Africa at Royal Caribbean, said he was doubtful cruises could keep selling in the UK, because soaring mortgage interest rates would drain disposable incomes. “The mortgage situation really worries me,” he added.
People with a £300,000 mortgage up for renewal face a £600 a month increase on their repayments, he said, “which adds up to a pretty decent family holiday. We’re facing a real problem.”
The collapsing pound and strong dollar means his firm can adjust, because it could help inbound tourism, he said: “US customers will fill our ships. But if you’re reliant on tourists going to the US, it’s going to be quite a challenge.”
Choosing a destination with even more rampant inflation has been another option, and Turkey’s rate is 83%. “Just now Turkey’s accounting for 30% of all bookings next year. It’s massive– the pound still has some value there,” said Richard Singer, the chief executive of Ice Travel Group, which includes he price comparison website TravelSupermarket. The average value of bookings the group has seen fell by 40% over the year, he said, from £3,500 to £2,000, after an initial rush from people desperate to travel in 2022.
Airlines including British Airways’ owner, IAG, as well as Ryanair and easyJet, say bookings and revenues remain surprisingly strong. The mantra repeated by Hays, Wilson and numerous others was that Britons who can afford it would still prioritise their holiday. While 35% of people expect to cut back on holidays next year, according to Abta research, that compares well with other discretionary spending, such as new clothes, leisure or eating out, where 40-55% predict a reduction.
Alistair Rowland, the chair of Abta and chief executive of Blue Bay Travel, a luxury long-haul specialist, described his situation as “fine, but painful”. He would normally sell into 2024 for those such as honeymooners who book long ahead – but any firm booking inventory and putting a price on holidays after next summer would be taking a gamble. “I’d have to add £200 per flight to be safe, and that wouldn’t look like value,” he said.
People will still travel,but the financial turmoil has made many pause for thought.