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Opinion: Consumer squeeze is easing but business is all about survival

by Graham Pickett, lead partner travel hospitality and leisure, Deloitte


There are signs that the squeeze on the UK consumer is easing as falling inflation helps to improve spending power.


Over the past eight months, inflation fell from 3.6% in January 2012 to 2% in September.


According to the latest Deloitte Consumer Tracker, consumer sentiments around their financial circumstances continued to improve in Q3 2012.


With interest rates still comparatively low for mortgages, disposable incomes are also in reasonable shape.


However, static earnings and the threat of further rises in fuel and energy bills mean consumer confidence stays fragile.


The question is whether households are still prepared to spend the same share of their budget on travel.


The Deloitte Consumer Tracker shows that the spending outlook on big-ticket items remains contained, although there is an exception for spending on holidays.


However, UK consumers refuse to compromise and wait to book last minute, which has a direct impact on the lates market.


There has been a shift in travel consumption, with fewer UK travellers looking to travel long-haul, preferring instead to take ‘staycations’ or travel to European destinations that are perceived as cheaper.


The popularity of all-inclusive tours is increasing too; consumers like the convenience as well as the cost certainty.


Air Passenger Duty (APD) increases, rising fuel costs and concerns about airport congestion are all influencing this shift.


And with a relatively weak euro against sterling this year, British travellers to the eurozone are getting 10% more for their money than a year ago.


Recent strong financial results from airlines such as easyJet corroborate this trend.


Passenger traffic through the five London airports in August was down 2% on last year, and visitors arriving for the London 2012 Olympic and Paralympic Games could not compensate for those who stayed away due to concern over disruption.


In addition, many UK visitors avoided hotspots unless they held tickets.


Outbound figures show a similar decline as people chose either not to spend or to delay their holidays.


Figures recorded by tour operators and travel agents showed an increase in the number of bookings for September and October 2012, but yields in many cases remained challenged.


UK travellers are engaging in increasing levels of research, with reviews and social media conversations particularly influential.


Online travel agents (OTAs) have already adapted their offering. By tracking purchasing habits, OTAs can provide consumers with more tailored packages, offering relevant products and creating efficiencies by avoiding having to discount unsold stock.


The traditional operator with committed inventory is at the mercy of the market.


Changes in consumer behaviour influenced by the uncertain economic climate – such as a focus on discounts and late bargains – are putting pressures on balance sheets and business models.


Rises in costs from Flight-Plus, fuel and APD, allied to negative press about failing travel businesses and global unrest, compound the issue.


With a tough summer for many mid-sized operators, business is about survival rather than commercial freedom in the market.


Travel companies need to address cost control and ensure that yield management is tightly controlled with the best CRM tools possible.


The most successful businesses will be the ones that keep their product commitments to a minimum and can switch focus with minimal cost implications.

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