In a week marred by negative news, the travel industry offers a glimmer of hope to the economy with the latest ONS travel figures showing international travel to and from the UK on the rise.
In the three months to June the number of UK travellers taking overseas holidays increased 5 per cent, while inbound visits to the UK have 6 per cent compared with the previous three months.
These figures show an industry pulling out all the stops to keeping consumers holidaying, but they must be viewed with caution. Consumers are navigating both rising utility prices and inflation, and news of the Bank of England revising growth forecasts downwards means confidence is unlikely to bounce back anytime soon.
That said, year-on-year outbound travel numbers have increased. Being time-bankrupt in their usual day-to-day lives, consumers are simply unwilling to forgo what is seen as an essential escape. Certainly, there has been a shift in the types of holidays sought, with bargain-hunters looking to the eurozone, particularly to the likes of Greece and Portugal for perceived value holidays, but they are not being sacrificed altogether.
This is good news for a sector balancing a fine line of tight margins, rising costs and increasingly prudent customers. We have seen encouraging news from Tui Travel with the announcement of its underlying profits for Q3 up 57%. Virgin Atlantic also posted good results with its return to profit including a 13% rise in revenues.
The Virgin brand also plans to expand its retail offering by doubling the number of Virgin Holidays stores across the UK, creating an extra 200 jobs. This will do a lot to boost confidence in the sector.
We are not out of woods, however. Thomas Cook has announced three profit warnings this year, and earlier this month we saw Holidays 4U fall over. Whilst both businesses have (or had) specific challenges which may not be typical of the whole industry, it is clear that many of the issues facing the sector extend right across the board, from well-known high street brands to low-cost operators.
As we look ahead and begin to plan for 2012, with many businesses now building their packages and brochures and beginning to set prices for the spring and summer seasons, there will naturally be an increased focus on how to protect cost lines. Operators are burdened with unpredictable markets, oil price volatility, and muted trading to regions impacted by APD, such as the Caribbean. Managing risk, for example currency exposure – particularly to non-core currencies – will have to become an area of increased focus.
We have a challenging autumn ahead of us and there is a real risk that more outbound operators could fail, especially after the summer when cash flows are under greater pressure. Whilst there is no panacea beyond prudent financial and forward planning, the industry has consistently demonstrated its resilience in adapting to what consumers want and need. As long as it continues to respond in this way, I am hopeful that outbound travel figures will continue to trend upwards.
Mike Saul is head of hospitality and leisure at Barclays Corporate
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