UK travel and tourism industry in 2009 and outlook for 2010
TravelMole Guest Comment by M Cruz del Barrio - UK Travel and Tourism senior analyst for Euromonitor International
The British travel and tourism industry was one of the worst affected globally by what is now regarded as the most damaging economic crisis since World War II.
British GDP fell by almost 5% in 2009 whilst at the same time inflation was erratic, closing the year with an increase of 2.2%.
The unemployment rate has also been growing, ending the year at 7.7%, more than two percentage points higher than in 2008.
Performance of outbound travel
It is hardly surprising, then, that Euromonitor International figures show a decline of almost 12% in 2009 for outbound tourism from the UK.
Also, the fluctuation of the pound did not help matters. The British currency almost reached one-to-one parity with the euro at the beginning of 2009 and remained almost level throughout the year.
The pound picked up against the dollar by June, but lost ground overall against the dollar over the year as a whole.
The weakness of the pound against the euro and the dollar played an important role for Britons when deciding where to spend their holidays. As the pound did not stretch as far as it had in the past, eurozone countries and the US became destinations to avoid.
Departures to France experienced a fall of 19%, while those to Spain declined by 16% and to Greece by 13%. The situation was even worse for outbound travel to the US, with departures falling by 30% in 2009.
Nevertheless, there were also winners during this turbulent period, with medium-haul destinations being the main beneficiaries.
Departures to countries such as Egypt and Turkey reported positive growth, with the former posting a double-digit increase. Both countries" performances were helped by local currencies not being as strong as the euro or the dollar against the pound.
In this context of economic contraction, providers quickly adapted to the new circumstances not only by reducing capacity but also by increasing prices.
However, not even this proactive strategy helped them to mitigate the losses from the fall in number of passengers as the sector registered a negative performance in 2009, decreasing by 7%.
At the same time, pound-conscious British tourists were not only actively looking for the best offers but they were also ready to trade down, for example by choosing a 3-star over a 4-star hotel.
They actively sought out good value-for-money options such as those offered by package holidays. By choosing a package holiday, consumers felt that they had greater control of their budget as additional expenditures - such as airport-hotel transfers, meals, spa and gym facilities or sport and leisure activities - were often included in the price.
Nonetheless, even package holidays were affected by the overall economic situation and registered a 7% decline in 2009 - equating to a fall of £10.3 billion. Although, they also managed to remain the most popular type of British holiday, accounting for 40% of total travel retail products.
Package holidays also offer greater protection to consumers, something many started to consider to be important following the collapse of several airlines in Europe, including Flyglobespan in the UK.
Another beneficiary of the economic crisis in 2009 was low-cost carriers. Although air transportation decreased by almost 10% in value terms, Ryanair, for example, managed to increase not only its market share but also its number of passengers - the Irish company carried 65.3 million passengers across its route network in 2009, a 13% increase on the previous year.
The 12% decline in departures from the UK has important implications for the travel and tourism industry.
Britons consider their holidays not to be a luxury but a necessity and the steep decline experienced last year offers a good idea of how badly the British economy was affected by the global financial crisis. British travellers decided not only to choose destinations where their pound could buy more days or better hotels, but also reduced their overall number of trips taken.
As a weak pound meant that travelling abroad became more expensive, especially to the eurozone, more Britons opted to spend their holidays in the UK.
Although domestic tourism decreased again in 2009, the fall was lower than that of the previous year. And more importantly, this decline was lower than declines during the years of economic boom.
Nevertheless, many Britons believe that spending their summer holiday at home can be a risky option because of the volatile weather.
However, the forecast from the Met Office in spring 2009 announcing a "barbecue summer" was the final push many of them needed not to travel abroad. Unfortunately, the prediction proved to be inaccurate and the 2009 summer was rainy and pretty miserable to say the least.
Although the Met Office has decided not to provide any more seasonal forecasts after repetitive failures to provide accurate predictions, domestic tourism in 2010 could benefit from other unexpected events.
For example, the recent eruption of the Eyjafjallajoekull volcano in Iceland led to the total closure of British airspace, causing the biggest disruption to air travel since World War II.
This could prove beneficial to the domestic industry as consumers are likely to have second thoughts when booking a holiday overseas if they are not sure they will be able to take off or, even worse, return home.
As the global crisis worsened in Q4 2008, arrivals declined worldwide as travellers felt financially constrained and decided to stay closer to home.
While the weak pound helped to minimise the decline, arrivals to the UK still fell by 5%. Passenger numbers from countries such as the US fell by more than 20%, while many other European countries also reported negative growth.
Future outlook for travel and tourism industry
The prospects for 2010 do not look too promising either.
Departures are expected to repeat the negative performance of the previous year as British consumers remain cautious, particularly due to rising unemployment.
The trends seen in 2009 will largely remain in place; for example, British consumers will continue to choose package holidays over the short and medium term and budget will be a key issue when planning a break.
In addition, there is uncertainty surrounding the forthcoming election in the UK and the subsequent economic policies of the next government.
For UK inbound travel, the tourism industry is likely to recover only by 2012 when the Olympic Games effect will have a positive impact on arrivals to London.
London, already the most visited city in the world with over 15 million visitors annually, will reinforce its image internationally and benefit from the presence of the world"s media for four weeks in the summer 2012.
The economic unrest currently experienced by countries such as Greece could have an influence on the destinations chosen by British tourists, who are looking for more stable and calm environments for their holidays.
Therefore, medium-haul destinations outside the eurozone are likely to benefit.
Emerging destinations that are currently less firmly-fixed on the tourist map, such as Lebanon, are already being targeted by hotel chains building new resorts and could benefit from this trend. Although currently only Bmi and MEA offer direct flights to Beirut from London, other carriers, particularly low-cost carriers, could enter the market in order to take advantage of rising demand.
Tuesday, May 4, 2010