Comment: Travel is a sector of strength as long as you embrace risk and change

Comment: Travel is a sector of strength as long as you embrace risk and change

While opportunities for travel and tourism are widespread there could be turbulence along the way, says Andrew Taylor, head of leisure, retail and franchise at Natwest

The UK’s travel sector appears to be going from strength to strength, and its value to the domestic – and global – economy is clear.

Tourism, including the outbound sector, is a huge contributor to the UK economy and plays a critical role in creating jobs and encouraging sustainable growth.

According to the World Travel and Tourism Council’s November 2015 statistics, the travel and tourism sector will continue to outperform the wider economy, as it has done for several years.

Globally it is estimated that the sector’s total contribution will be US$7.8 trillion, supporting 284 million jobs across the world, and the direct contribution of travel and tourism is expected to continue to rise in the UK by 3.2% per annum between 2015-2025 to £88.2 billion.

Employment from the sector is also estimated to account for 6.4% of all UK employment by 2025.

The steady increase could be put down, in part, to consumers continuing to find themselves with more disposable income thanks to historically low interest rates and falling utility and food and fuel bills.

This positivity tends to be reflected in the market, and we have seen a good number of transactions so far this year.

This should, however, be taken with a sense of caution, with Thomas Cook’s Q2 trading update reporting market conditions as remaining challenging, with consumer confidence affected by continued disruption in certain key destinations.

Other challenges to be faced include the implementation of the revised EU Package Travel Directive, as well as the economic climate, weather and natural disasters.

These are huge factors that are often out of control of businesses – but can have a major impact on business and customers.

Planning and investment is vital. The more prepared you are to face the unexpected the better. Geopolitical issues are a worry and currency rates can also have an impact.

The impact of terrorism, for example, can be enormous on the travel and tourism industry. It can lead to unemployment, homelessness, deflation, and many other social and economic issues.

Following the devastating shootings in Paris in November, many would-be visitors cancelled their plans to go to Paris or Brussels.

According to the Brussels Chamber of Commerce, 40% of hotel bookings were cancelled in Brussels over the weekend of the security clampdown, and it was a similar story in Paris.

The Paris Convention and Visitors Bureau reports that hotels had a sharp fall in the number of visitors, though the trend has begun to reverse.

Wider than cancellations, fewer tourists also means lost business for restaurants, shops, tourist attractions and taxis.

Another key issue for travel companies is fraud. The use of fake credit cards or creation of fake travel sites can have a massive impact on a company’s reputation.

Again, investment is key. Ensuring IT systems are up to scratch, and measures are in place to ensure your customers and businesses are protected.

Technology is particularly important given the way the travel industry operates today – significantly different compared with ten, or even five years ago.

While Boxing Day used to be the busiest day for holiday bookings, travellers are now waiting later and later to organise their annual trips.

Thanks to the internet, consumers can research, book and review their holiday all from the comfort of their homes, and evolving technology and consumer habits are pushing that further than ever as well.

In 2014, we saw increasing consolidation in the online travel agency (OTA) sector, with Expedia and Priceline dominating following organic growth and acquisitions.

Hotels are additionally strengthening their online proposition, with Accor launching a new platform in July last year allowing consumers to book independent hotels.

In addition, new concepts coming to market such as Airbnb also pose a different kind of risk to travel businesses with consumers able to liaise directly with the owner.

Peer-to-peer travel bookings are still only a small part of the industry at the moment. But many will be watching with interest as they develop.

The key for companies like Airbnb is the experience of the property owner. If they’re positive they’ll get more properties on the site. The more properties the more choice, the more choice, the more attractive it is for potential visitors.

Finally, legislation is another key driver in the sector.

Following cuts to the Air Passenger Duty (APD), which took effect in May 2015, families may be more inclined to take a trip abroad – particularly a long haul flight. The changes mean children under 12 are exempt from APD (while travelling in economy class) and the same will be true for under 16s come in March this year.

Elsewhere, the Civil Aviation Authority (CAA) seems to be having an impact on businesses, the way they enter into debt agreements and the level of debt they take on. This could have an effect on how businesses look at finance and investment with an increasing interest by the regulator in activities, deals and debt structures.

The revised Package Travel directive which requires to be implemented by 2018, extends the protection for package holidays to also include other forms of combined travel, beyond traditional pre-arranged packages.

So I think it’s fair to say that travel companies are facing interesting times ahead, with further consolidation potentially on the cards in the future.

While opportunities are widespread, with consumers finding themselves with more disposable income than in recent years; challenges from increased competition, technology and regulation have the possibility of creating turbulence along the way.

But by embracing change and adapting to industry and economical demands, businesses have the opportunity to thrive.

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