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Analysis: Demand for travel persists despite the economic gloom

The Chancellor’s Autumn Statement contained few surprises and considerably less joy.

Indeed, it is hard to see anything but gloom in the government’s message as far as outbound travel is concerned. Apologies to those readers who don’t like it – I don’t like it much myself – but here is pretty much what the Chancellor said is in prospect.

First, the chance of another recession is increasing. If the eurozone goes backwards economically, Britain won’t avoid doing the same – and the European Central Bank believes a recession is on the cards. (The Organisation for Economic Cooperation and Development, the OECD, has put it rather more starkly – warning of the possibility of “a deep depression”. But let’s not go there.)

Second, on the upside, if we avoid recession UK GDP will grow just 0.7% next year. That is a revision down from a previous forecast of 2.5% growth and is as close to stagnation over the course of 12 months as makes little difference.

The Office for Budget responsibility forecasts the annual growth rate this year will come in at 0.9%, about half of what was predicted previously.

So the economy won’t have recovered the ground lost in the recession of 2008-09, when GDP fell by 7.1%, even by the end of 2012. Third, an additional 300,000 public sector workers will lose their jobs, taking the total above 700,000. This will, of course, have an impact on the spending of many households.

Fourth, a fresh public-sector wage cap will peg the pay and depress the living standards of the six million or so public sector workers who do not lose their jobs.  It will follow the current two-year public sector pay freeze and make for five years of falling living standards amounting to a 16% pay cut (according to the TUC).

Many public sector workers take holidays, of course. In some parts of the country they comprise a good deal more than 20% of the workforce.

Fifth, government austerity measures currently biting hard into household budgets will continue into 2016-17 – that is five more years – meaning eight years of austerity in all or, in the opinion of the Financial Times: “A lost decade”.

Sixth, to counter the pain for ordinary households we have: a freeze on fuel duty for motorists, when petrol is already sky high in price; and a reduction in the January increase in rail fares from 8% to 6%, which will hardly relieve the pressure on commuters.

Seventh, having offered a sop to the road and rail lobbies, Osborne had only a slap in the face for the travel sector.

Air Passenger Duty will rise by more than 8%, with no concession to the industry’s pleas for relief. The existing bands and the penal APD rates they impose on the Caribbean, in particular, will continue for another year.

What is more it appears carriers must chase passengers who have already booked to fly from April 2012 for the extra money – or pay it themselves (again).

The Treasury appeared reluctant to make this point clear on Tuesday, releasing the APD rates overnight without clarification on whether the tax would be collected retrospectively. But Treasury officials responded to a query from Virgin Atlantic by making clear it would.

The Financial Times’ assessment of Osborne’s statement is worth repeating: “Britain faces another five years of austerity . . . of stalling growth, public sector pay restraint, painful cuts and rising borrowing. Even this dark outlook could be optimistic . . .”

It’s not much to go on. I would not go making growth plans. However, there is life in the old travel sector yet.

We know this anyway, but the annual Family Spending survey from the Office for National Statistics – published this week – makes it clear. The statistics can be difficult to unravel and so broad ranging as to offer little of value, certainly without serious analysis.

Yet there is a headline figure of interest to the industry: the average weekly ‘family’ (i.e. household) spend on holidays abroad in 2010 was down 70p on 2009 at £11.60 – a fall of about 5.7%.

The reduction in spending is not good, but not disastrous. It is an average across all households, remember, not individual adults – more than half of whom won’t have gone on holiday abroad last year.

It is an exceedingly broad figure, but is an indication of the order of decline in spending. It was not uniform among those who did go away.

The ONS notes “a significant fall in expenditure on package holidays abroad” (unhelpfully, the only category of overseas holiday it recognises) among groups described as “the Prospering Suburbs” and “City Living”. These were the two biggest spending groups in 2009 on overseas holidays.

The biggest plunge was among the ‘City Living’ group. However, holiday spending increased in other ‘family’ groups. There isn’t time to go into this in detail here. The important point is twofold. First, the ONS report stresses there was “surprisingly little change in average household expenditure between 2007 and 2010, given the scope of the recession”.

Second: “Different groups show different changes. It’s difficult to define the impact of the recession on the typical household, the effect depending greatly on household circumstances and preferences.”

There remains a market out there. It’s not all doom and gloom.

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