Storm brewing for 2009
Comment by Jeremy SKidmore (www.jeremyskidmore.com)
Credit crunch? What credit crunch? The word around the campfire is that the industry is heading for a happy summer.
Of course, with the peak season yet to come, nobody is taking anything for granted. But the signs from several sectors of the industry – bucket and spade, luxury holidays and domestic trips – are positive.
It may have something to do with how people’s perceptions of a holiday have changed. According to any number of surveys, the holiday is now a necessity, rather than a luxury.
And in the words of Global Travel Group, which has reported a healthy increase in sales in recent weeks, people have a ‘sod it’ mentality. Every conceivable household bill is rising, but people think ‘sod it, I’m still having my holiday’.
Mainstream packages would seem to be most vulnerable in a worsening economy, but so far that isn’t borne out by the facts. The big two, TUI and Thomas Cook, are already well sold for the summer, which is something you couldn’t often say during early July in recent boom years.
Of course, they are reaping the benefits of cost-cutting and capacity cutting. They must be thanking their lucky stars that the takeovers and mergers happened when they did, rather than now, so they could get their houses in order during periods of relative prosperity. It might have been a very different, and far uglier, picture if capacity was at the same level as last year.
But no-one can afford to be complacent, because the conventional wisdom is that the pain for the travel industry is only just around the corner.
By next year many people will be on new fixed rate mortgages and find themselves paying more for their house, their petrol, their food and other things beside.
On top of that, tour operators hit by higher fuel bills will have to put their prices up to stand still. Advantage managing director John McEwan expects average rises or around 10 per cent, but plenty of others are saying it could be nearer 20 per cent.
Will that change the mindset that a holiday is a necessity rather than a luxury? I think it might, particularly for second, third and fourth holidays. A lot of those short breaks to Europe will have to go by the wayside, which is why the no-frills airlines are bracing themselves for a particularly tough time.
But with every loser there’s a winner.
Hopefully the big two will resist the temptation to pile capacity back on after a good year (as has happened in the past) and keep it tight for 2009. That may well help them ride out the storm.
However, it’s those upmarket companies catering for the over-50s, who have savings rather than mortgages, who are likely to fair the best in 2009.
Cruising and tailor-made long haul holidays will continue to be popular. And among those who are feeling the pinch, value-for-money UK breaks will do well, particularly if people don’t have to drive far to reach their destination.
As for the rest of the market – enjoy this year, a storm is brewing.
Jeremy Skidmore
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