Steeper holiday prices due to higher VAT from January will hurt the travel sector as the cost of budget flights rise.

The warning of a dent in future travel sector sales growth comes today in a detailed report by market research firm Mintel.

Mintel’s British Lifestyles report predicts that it will take up to five years for the market to return to a more ‘normal’ balance.

It warns: “Recovery is a not a word which can be applied to the holiday market in the coming five years.”

Overseas holidays and short breaks are predicted to grow at the expense of domestic trips and longer holidays, but the market overall is anticipated to experience declining expenditure in real terms.

The main impact of the recession has been on consumers spending between £1,000 and £3,000 on their holidays. Those spending above £3,000 have been less affected by the recession. They are most likely to be ABC1 families or third agers living in London or the south, according to Mintel.

“Holidays are now seen as a ‘luxury’ item of spending by almost half of adults, which compares to just 38% having this view before the recession in 2007,” the report says.

“Today, less than one in five adults see holidays as a ‘necessary spend’ or a ‘right’.”

The holiday sector was worth £32.3 billion in 2009, equivalent to just over £10 per person per week. The recession brought to end a period of strong growth and reversed the trend towards taking more holidays overseas, especially short breaks, according to Mintel.

Consumer expenditure on holidays is forecast to rise by 17% between 2010 and 2015, a significantly better rate than between 2005 and 2010.

But in constant price terms, expenditure on holidays will decline by 1.6% between 2010 and 2015, indicating that all of the value sales growth will be driven by higher holiday costs.

“Changing exchange rates and higher fuel costs will play a major role in holiday prices in the coming years and higher prices will limit volume growth,” the report warns.

While beach and family holidays will continue to dominate in future years, more diversification will be seen in holiday types with niche products and destinations seeing the fastest growth.

At the same time, self-packaging will move from mainstream to speciality holidays, with the internet and mobile technology driving innovation.

The use of collaborative online social media will also increase, which will challenge traditional notions of brand authority and marketing, the report says.

The latest study follows exclusive consumer research for the Holidays – Attitudes and the Impact of Recession – UK, January 2010 report which suggested that if low cost flights disappeared those most likely to travel less would be the ABC1 pre-/no family group.

The two markets that would be most affected would be overseas city breaks and holiday homes.

The report found that the majority of consumers are ‘very cautious’ about spending on non-essential items, and this is not only restricted to those worst hit. 

Mintel research director Richard Perks said: “It seems that consumers have moved from being fearful to being doubtful and doubt – like fear – is not a strong foundation on which to make major purchase decisions.”