Opinion: Spring is in the air but for consumers big challenges remain

Opinion: Spring is in the air but for consumers big challenges remain

Mike Saul, head of hospitality & leisure at Barclays Corporate

Having seen a fair bit of sunshine this month, the depths of January seem far away. 

Those long, dark days are traditionally the bread and butter of the travel industry as consumers look to escape the January blues.  However, figures out from the ONS yesterday show that the start to the year did not see the usual hoards of people heading off to exotic destinations; instead outbound travel appears to be stagnating.

In the past 12 months there was a 1% increase in outbound travel numbers, and a drop of 4% in the three months to January 2012.  UK-bound tourists seem to be faring better however, benefitting from a weaker sterling to see inbound visits rise 4% in the past 12 months.

While there is talk of the economy starting to turn a corner, this is taking its time to filter through to the consumer, and what we’re seeing is a tale of two halves.  At an industry level spring is in the air and there is a distinctly more upbeat feeling beginning to permeate the travel sector, but there remain some fundamental issues at a consumer level that will continue to cloud the industry for some time.

This week’s rising unemployment figures crystallise a deeper challenge for the industry.  Whilst the rate of unemployment is stabilising, it remains at a near 17 year high.  It should not come as a great surprise then that even those who are venturing abroad are spending less – total expenditure is down 2%. 

Discretionary spend continues to come under pressure, and all eyes will be on next week’s Budget and the impact it will have on not only the consumer purse, but, importantly, consumer confidence.  As we are all too aware, confidence breeds confidence, and it is key that we support good news to encourage this momentum. 

Fortunately we don’t have to look too hard for such stories – we’re starting to see an encouraging flow.

Earlier this week finance ministers put their stamp of approval on Greece’s second bailout package, providing a more stable outlook for the Eurozone, for now at least.  As we head towards the summer months this level of certainty will offer consumers increased confidence as they look to plan their summer holidays.

We’re also seeing promising signs from operators.  In the past month we’ve seen Virgin Atlantic announce plans to hire 500 new cabin staff to operate new routes, and China Southern is launching a new direct service from Heathrow to Guangzhou, China’s third largest city, in June. 

Institutional activity is clearly shifting gears, and alongside this, M&A activity is starting to gather pace.  Last year the industry polarised between the luxury and budget ends of the market, and this polarisation is now giving way to consolidation. We expect to see some strategic plays as the year progresses.   This momentum is grounded in a belief around the strength of the market.

There is a definite sense of optimism, albeit cautious.  How our collective purses fare after the Chancellor’s Budget next week will give a fairer indication of whether this mood will filter through to consumers any time soon. 

With improving economic data from the US, and UK trade figures narrowing, hopes of a real recovery this year seem to be firming up. 

Of course, there is no denying that the environment remains challenging, but as enthusiasm builds ahead of this summer’s festivities, we are hopeful that the consumer psyche will be able to join the industry and turn the proverbial corner before the year is out.

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