Recent press reports have thrown up conflicting information about how the package holiday market and dynamic packaging will fare next year.
Of the two, it would seem that dynamic packaging is better placed to handle in the current economic climate.
For starters, January has not been a great month for most, which would exacerbate the trend towards late booking. Consumer confidence is low at best, with people concerned about their jobs and their ability to pay their bills.
Other factors including fuel prices and currency fluctuation have conspired to worsen the situation, and industry feedback indicates the market is down 25%.
Hays Travel managing director John Hays said: “People want value for money. Price has become even more important and they are booking closer to departure. If you’re not sure you’re going to have a job in July you’re loath to commit to pay for a holiday in January.”
Sales of all-inclusive properties are doing well, however, as holidaymakers seek to control their budgets as much as possible.
Lowcost Travel Group director Lawrence Hunt said: “We’re seeing a huge polarisation between self-catering and all-inclusive. We’re also seeing growth in Turkey, Morocco, Egypt and Tunisia. It’s not that people are staying away from traditional destinations, but that those are growing faster.”
Non-eurozone countries are not the only ones to be benefit from dynamic packaging as a trend towards domestic holidays is also taking hold. VisitBritain plans to push the UK as a value destination in the coming year, with chairman Christopher Rodrigues claiming 2009 is 'a defining moment' for British tourism.
Superbreak has seen an increase in UK dynamic packaging, with bookings for Edinburgh, York, Chester and Bournemouth up 21% for the four months from October 2008 to January, while Paris, Dublin, Barcelona and Rome are down 26%.
The short break specialist said agents were dynamically packaging more UK trips with elements such as concerts, exhibitions and rail travel being added on.
Sales director Ian Mounser said: “There may be some non-euro destinations that do quite well, but they will not fully compensate for the likely lower volumes for the major European cities and Mediterranean beach resorts.
"The shortening booking lead times, together with consumers perhaps looking more at two-night breaks rather than three, is likely to drive more customers towards UK destinations for practical reasons.”
Experts hold that dynamic packaging suits a late booking market and, in addition, it stacks up well against package holidays in terms of price.
Hunt said: “Our research shows that a dynamic package is on average 15% cheaper than a package. You don’t have all the overheads you get within traditional tour operating. We think dynamic packaging will continue to do well.”
Other major players also maintain the dynamic packaging market is holding its own, especially with low-cost carrier seat promotions creating the perception among consumers that there are cheap seats available.
Youtravel sales and marketing director Paul Riches said: “January was okay and February will hold up well. After that we may be in for a deeper lull than normal. People are holding back, but our position in a lates market is strong because we have access to stock which is served by scheduled or no-frills carriers.”
However, dynamic packaging players are facing their own set of challenges such as consumer protection concerns, thin margins and access to airline seats.
Most agree that more bed bank consolidation in some form is likely. Thomas Cook’s acquisition of hotels4u.com a year ago and of Med Hotels in January has helped, but there are still too many players in the sector.
On Holiday Group chief executive Steve Endacott said: “The market needs to operate on higher margins and it is still very price competitive. The easiest way to solve that is consolidation.”
Hunt supported this view and said that many players are already struggling because of the low margins and high marketing costs.
“I don’t think they will all survive or remain independent,” he said.
Following capacity cuts from the major tour operators, the issue of seat capacity is causing some concern for dynamic packaging companies. Access to the non-euro countries, including Turkey and Egypt, which are currently more attractive to holidaymakers, is going to be key. However, route expansion from the low-cost arena will go some way to fill the gap left by the collapse of XL Leisure Group in September last year.
Traveltek managing director Kenny Picken said: “Cutting capacity was the only thing operators could do to protect their margin but that will be taken up by the dynamic packaging brigade. Consumers are controlling demand and I really don’t believe there is a buoyant future for anything other than dynamic packaging.”
Hays believes agents are going to have to go down the dynamic packaging route this summer simply to fulfil consumer demand.
However, according to Endacott, that will depend on whether the major tour operators hold their nerve and maintain prices and capacity cuts.
“Any capacity that comes back on will be people using their air capacity harder. If routes start selling well you will start to see capacity flood back on because they have got aircraft sitting around and it’s too attractive not to use them.”
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