Parliamentary debate concludes that holiday pricing is a reflection of market forces rather than market abuse, reports Lee Hayhurst
“Government is not convinced that higher prices in the school holidays are the result of market abuse by the travel industry, rather that they reflect market forces in a competitive sector.”
With that assessment of the travel industry, Jenny Willott, government minister for employment relations and consumer affairs in the Department for Business, Innovation and Skills (BIS), closed last night’s Parliamentary debate on holiday prices outside of term time.
She added that, in fact, the issue of hiked prices in school holidays was made worse in the foreign holiday sector precisely because of the nature of international competition with other countries whose populations also value their annual two weeks in the sun.
Earlier she had offered evidence of competition in the UK holiday market by pointing to the existence of the Atol scheme which she said was “protection above and beyond the normal consumer protection law” because firms are considered to be “so at risk of insolvency”.
“It’s further evidence of the extent of competition in the market. Businesses are forced to price as competitively as they can and there is a high risk of insolvency because the margins are so thin and the market is so competitive,” she said.
Earlier, George Mudie MP said the debate, prompted by an e-petition signed by over 160,000 people which called for government to stop “firms cashing in” on school holidays, reminded him of government price-setting under Shirley Williams in the 1970s.
And he pointed out what was quickly becoming clear, even at the early stages of the two-and-a-half hour debate – that the wrong government department was in the room to respond to the concerns about holiday prices that MPs said they were receiving from their constituents.
“This has been seen as a BIS problem. I do not believe it is a business problem,” the Labour member for East Leeds said. “I believe this is an educational problem. It’s a problem caused, and forces us here tonight, by that great Department for Education.
“If anyone should be here explaining why we are sitting here, it should me the minster for education. This does not deserve a select committee, it deserves the secretary of state in the Department for Education to withdraw regulations that he slipped through when no one was looking that have caused so much pain around the country.”
Mudie was referring to the new crackdown on schools which allow pupils leave from the classroom including for holidays which, the debate heard, was agreed by Parliament as a ‘negative resolution’, meaning it was nodded through because no one objected.
However, stories of parents facing fines, and even jail, for taking their children out of school, and apparently reasonable requests for absence being turned down along with a flurry online petitions have forced the issue back on to the political agenda.
The travel industry emerged from last night’s debate largely unscathed, and in one MP, the Tory Damian Hinds who represents East Hampshire, it had a supporter who knew more than most due to his previous career in the hotel sector.
He explained that in the hospitality industry, as in other travel sectors, there is a relatively low marginal cost of having someone stay in a hotel room, meaning that in the off season firms set prices knowing they will make a loss and yet still make a “contribution to profit”.
When the often high level of fixed costs in the sector are taken into account, that hotel room needs to be priced significantly higher to make an actual profit, so companies have to offset their lower off-season prices with higher prices in the peak period.
“Leisure travel companies have to make more money in the peak periods in order to cover the marginal losses you would make in the off season. The definition of peak period is when most people want to travel and that is partly determined by when school holidays are,” he said.
“It’s inconceivable that any British government of any political persuasion would impose price controls on any British travel company. If they did, firstly British companies would go out of business and secondly you would lose capacity in overseas destinations being made available to British consumers.”
So, no prospect of a new government watchdog to oversee the proper functioning of the UK holiday market – no ‘Offon Holiday’, as the MP for Birmingham Yardley John Henning, who brought the debate, jokingly referred to.
The one hint of dissent came from Willott’s counterpart in BIS, Labour’s Toby Perkins, the shadow minister for regional growth, who asked why this debate was happening now and concluded it was down to the ‘cost of living crisis’ his party leader has successfully latched on to.
As Henning pointed out earlier, waving a copy of a trade magazine from the 1960s, this exact same issue was being discussed back then.
Perkins referred to the recent OFT investigation into Expedia, Booking.com and IGH which found that online discounting for hotel rooms was being prevented by agreements between the big players in the market, and he questioned whether any study had been done into the holiday market.
“Abta is clear that the reason for these price fluctuations are the commercial realities of running a business in a seasonal market. We all understand that. But because we do not have a policy on a macro level on price control that does not mean there is not a case to look into whether there is a properly functioning market.
“Many parents feel they are being exploited by holiday firms. Does the government think that a situation in which one group of consumers is paying over the odds to subsidise other consumers is sustainable with our current consumer law?”
Referring to the OFT hotel discounting probe, he added: “There have been allegations of cartel-like activities and they should be investigated. Only when we have open and competitive markets can consumers have faith in the prices they are paying.”
However, even with a change of government at the next election, the industry is highly unlikely face any probe into its pricing any time soon, and anyone who works in travel will be pretty confident that nothing untoward would be found in an industry that is hugely price sensitive and in which any collusion by firms to generally hike up prices to bolster profits would be undone by someone prepared to undercut them.
So, the focus will move back on to schools and the government to try to even out demand by allowing more flexibility in school term times, something which is coming in 2015 in the government’s Deregulation Bill which will allow all schools to set their term times.
But, as MP’s pointed out last night, this is only likely to have a minor impact, as will demands for headteachers to be given more leeway in allowing absence in exceptional circumstances, as the current stricter ruling does allow for.