It pays to keep a close eye on the performance of sterling, says Liam Hodge, head of insight for First Rate Exchange Services
Concerns about sterling being weak and worries about the impact that Brexit negotiations may have on holiday destinations prices do not seem to be deterring Britons from planning trips abroad.
Our latest Holiday Confidence Index has revealed that almost two-thirds of people planning overseas holidays in the coming months will visit Eurozone destinations – a healthy 2% increase over the same period 12 months previously.
At the same time the latest 12 month rolling data from the ONS International Passenger Survey has supported the HCI findings by showing a year-on-year increase in trips to Europe and the Eurozone between November 2016 and October 2017.
The bigger question is where not whether holidaymakers will travel in the eurozone, especially given reports of a squeeze on capacity in the Western Med and the resort price rises revealed in the latest Post Office Holiday Costs Barometer.
Portugal and Spain may have emerged as cheapest in the Eurozone but prices in the Algarve and Costa del Sol have spiralled by over a third in the space of a year, according to the Post Office research. Could this encourage bargain hunters to turn to the Eastern Med for the best value solution? Cyprus has been closing the price gap for some time and could give Spain and Portugal a run for their money while Greece could benefit from its long established reputation for value. 2018 could be a good year for Malta because Valletta’s status as European Capital of Culture could prove a draw for culture vultures.
Equally, it may be worth suggesting to customers that they swap the Eurozone for another European resort. 8% of the consumers who took part in our HCI survey and are planning overseas travel said they would be going to a European destination outside the Eurozone. The obvious candidate is Turkey. After a lean couple of years, green shoots have been springing up in recent months. Last autumn the GfK Travel Leisure Monitor showed a 69% year-on-year rise in Turkey bookings for summer 2018 and the rising exchange rate for British holidaymakers can only help to stimulate more demand.
Sterling is currently over 14% stronger against the Turkish lira than last February and is worth almost twice as much as it was just five years ago. On a purchase of £500 worth of lira, holidaymakers will therefore have around £62 more cash in hand than last year, which is a big incentive for those on a limited budget.
The news for North America is not quite so positive: fewer of our survey respondents told us they are planning transatlantic trips. The so-called ‘Trump Effect’, which has included tighter entry restrictions into the USA, is likely to be responsible, at least in part, for the drop in demand. However, the US dollar has dropped in value against sterling by over 7% in the past three months alone and is now 12% weaker than a year ago. That could be a big factor in rekindling enthusiasm.
The benefit will stretch well beyond the USA too. Not only will US honeypots like Florida and New York be far cheaper than in recent years, but the same applies to a number of countries whose currencies are pegged to the dollar. Among these are Antigua, St Lucia and Barbados in the Caribbean; Dubai and Oman in the Middle East, and Hong Kong.
All things considered, it may pay travel agents and holidaymakers to keep a close eye on the performance of the pound in the coming weeks!
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