Analysis: 2012 will be tough, but there are opportunities

Analysis: 2012 will be tough, but there are opportunities
by Mike Saul, head of hospitality and leisure at Barclays Corporate.

The scene has been set for 2012; it’s not pretty, but it’s not a disaster. Warning bells were set off again this week when the British Chambers of Commerce issued a report highlighting how fine a line the economy is towing, with the UK economy running the risk of contraction in the first half of the year. News from the ONS yesterday that year-on-year outbound travel figures are stagnating crystallise the challenge ahead.

The headwinds that are bearing down on both the economy and the travel industry have become all too familiar. Consumer spending remains under pressure, and this is unlikely to let up in the immediate future. Even those who are seeking holidays abroad are spending less – with expenditure down three per cent.

The expected rise in APD will cast a further shadow across the sector. Add to that the prospect that the new EU Emissions Trading Scheme could see some businesses passing some of the additional cost onto the consumer, and the chances of a significant uptick in consumer spending seem unlikely.

The silver lining in this seemingly perpetual cloud is that the longer-term outlook is beginning to ease. Operators are fully aware of the pressures and as a result businesses are thinking more strategically and are preparing to navigate these challenges as best they can.

Fortunately, the public has consistently demonstrated its reluctance to give up its annual holiday; after almost four years of financial stress there is a growing sense of acceptance of long-term austerity and for many an annual break is the only escape. With indications that inflation is heading in the right direction, and confidence across the pond expected to gather pace, the industry may see positive data yet – if only towards the end of the year.

Certainly, anecdotal evidence suggests that early bookings are starting to pick up; whether this continues is another question, but with recent snowfall exceeding many weather forecasters’ predictions, there may be a boost in last minute ski bookings when the roads open up once again.

The strength of sterling against the euro may provide an added bonus for bargain hunters – indeed the ONS figures indicate that visits to Europe are up, which strikes against the six per cent decline in travel to the rest of the world. Just how far the strength of sterling will go in making a meaningful impact in the short term, however, remains to be seen.

The shift in how the UK holidays will be of key importance. The rise of independent bookings is not going unnoticed, but the value-add that operators and agents can provide will be a crucial factor. While consumers are reducing the number of main holidays they take, they do not want to cut corners when it comes to quality – strong service-led initiatives offer a real edge, and do a lot to explain the success of luxury initiatives which are expected to continue in 2012.

As this week’s data highlights, the industry is going to have to work hard to keep the UK public travelling, but in this Olympic year there is much to help it along its way. The Royal frenzy we saw around the Duke and Duchess of Cambridge’s wedding last year may once again gather pace with the Queen’s Jubilee boosting inbound numbers, which are currently also stagnating.

For those who would prefer to escape the festivities, the extra bank holiday offers an opportunity to capitalise on the extra-long weekend – the budget sector, in particular, may benefit from this as travellers look to take advantage of what the short haul sector can offer.

2012 is going to be tough, but it’s not all doom and gloom. There are opportunities to be had, and those operators that take advantage of these and consistently seek to protect any financial downside will have the best chance of navigating their way through the year.

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