A sudden fall in the value of the pound this week cast a cloud over the bright start to the year for bookings, with financial experts warning there will be losers as well as winners in the trade.
All-inclusive and package sales can expect a boost and major companies should benefit from hedging, as they have fixed exchange rates for the season. The losers are likely to be dynamic packagers, those dependent on late sales, and consumers who will have less holiday cash.
Sterling is currently (Wednesday) at €1.16 and $1.52, close to 10% down on last summer’s euro rate.
Yet there were fears the pound would fall further after a string of bad news, with the Bank of England admitting inflation won’t come down and the UK losing its AAA-credit rating. Only new uncertainty about the eurozone prevented the pound falling further.
Andrew Burnham of industry accountant MacIntyre Hudson warned: “This could severely affect the outbound market. The decline in sterling will put pressure on the margins of SMEs [small and medium-sized firms] and destroy the spending power of customers in-resort. A lack of hedging will expose operators with commitments in euros or dollars.”
He added: “The dollar is the bigger worry since it affects the long-haul market. We won’t see the same value in dynamic packaging and it will be more difficult for consumers to get value in the lates market. Consumers would be wise to buy holidays off the shelf.
“Having a programme that is hedged is going to be a tremendous advantage.”
Graham Pickett, travel sector finance specialist at Deloitte, agreed, adding: “The dynamic packagers are screwed on this. But the big players will have locked-in rates for the season.
“The dollar-sterling rate is serious, but I don’t see a massive depreciation against the euro. It’s baloney that the eurozone has fixed its problems. A lager in Spain will cost more than last summer and that has a knock-on effect. It will cost people more on holiday.”