All eyes on Greece this morning and no wonder, with one of two paths likely: a fracture and widening ripple effect as Greece leaves the euro or a bodge by Europe’s decision makers and a muddle through to the next crisis.
Either way lies uncertainty, and as Bank of England governor Mervyn King warned last month: “The idea the UK could sail serenely through is wholly unrealistic.”
Greek voters were battered by apocalyptic visions of life outside the euro ahead of the election, but currency blocs have broken up before so don’t bet against it.
The impact on tourism to Greece is uncertain. The Greek hoteliers’ group the Hellenic Chamber of Hotels estimates 500,000 bookings normally taken in June have been lost.
Both Tui Travel and Thomas Cook have cut UK capacity to Greece, with Cook reporting sales ahead of this reduction - mainly based on price - and Tui reporting unsold capacity up on last year.
There seems little point in speculating at this stage: we will know soon enough. Let’s turn instead to the state of the UK market regardless of Greece.
Thomas Cook UK mainstream head Ian Ailles told the Institute of Travel and Tourism (ITT) conference last week he saw “signs of confidence returning”.
Ailles didn’t duck the fact that the current market is a dog, declaring: “The UK economy is unbelievably challenging for the majority of consumers.” But he insisted: “Underlying demand will not change.”
That is a reasonable assumption. However, what level of demand “will not change”?
Ailles talked of growth returning, saying: “We expect to see fairly stable 3%-5% growth in the next three to five years. Businesses need to plan on that horizon.”
I checked to ensure I had not misheard this. He said: “I see 3%-5% a year growth for the market as a whole. It's not stellar, but the projections are for a return to the [market] level of 2008 by 2015.
"That feels quite a long way away, but it feels like we are starting to bottom out and once you bottom out it is easier to gain momentum.”
I’m afraid I don’t agree, and here is why: there is no evidence to support that view.
Confirmation of the difficulties consumers face came at the end of last week.
The Institute of Fiscal Studies reported median (the mid-point of) take-home incomes fell 3.1% in 2010-11 and fell again in 2011-12 (the IFS doesn’t have the numbers yet). Average household income fell by 5.7% in 2010-11.
There is no evidence this loss is about to be reversed. On the contrary, inflation continues to outpace average earnings.
In April inflation was at 3% or 3.5%, depending on your choice of index, against a 1.6% rise in average earnings, and consumer research suggests about half of UK households expect their financial situation to deteriorate over the next 12 months.
We can all probably accept Ailles’s assertion that “people prioritise taking a break”, but is that enough?
The UK outbound holiday market declined 20% between 2008 and 2011, according to the Office for National Statistics (ONS), from 45.5 million holidays a year to 36.3 million.
That figure includes everything, trade and independent: packages, dynamic packages, seat only, the low cost carriers, Eurostar, Eurotunnel, the lot.
The bulk of that 20% decline came between 2008 and 2009 following the banking crisis and recession. However, the number of holiday trips from the UK has fallen every quarter bar one since mid-2008, including the first quarter of this year.
That is a decline spread over 14 of 15 quarters (or 45 months). The only exception came in the second quarter of 2011 when the year-on-year comparison was with the period in 2010 when volcanic ash grounded all flights.
What evidence is there that this prolonged decline has bottomed out?
Outbound trips from the UK during last summer’s peak, July to September 2011, were 5% down on 2010, which was 1% down on 2009 which, in turn, was 11% down on 2008 - yielding a 19% decline overall.
The ONS figures show the first and fourth quarters of the year have been hardest hit, with the second quarter - the bank-holiday bonanza period of April to June - least affected.
How does this year look? The ONS just reported a 5% year-on-year decline in outbound holidays in April and a 3% fall for the year to date.
Bear in mind Easter fell in mid-April last year compared with early in the month this and that last April also saw a Royal wedding. That said, it does not look like growth to me.
The reason is simple. The gap between where the UK economy is and where it would have been without the crisis is now greater than at the same stage in the depression of the 1930s.
In the words of Financial Times chief economics commentator Martin Wolf: “The west is in a contained depression.” Worse: “The forces for another downswing are building.”
One final point: the billions suddenly made available to banks for lending to business and households marks an attempt to head off a Lehman-style collapse sparked by Greece.
It may temporarily please the markets. Yet the Institute of Directors economist Graeme Leach, who had been due to speak at the ITT last week, dismissed it as “limited”. We can leave why till another time, but I can’t see any prospects for growth. Can you?
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