As the country hits an economic milestone following the recession, what does this mean for the holiday market? Ian Taylor reports
Britain has officially emerged from its longest economic slump in more than 100 years, hence the Financial Times’ front page headline on Saturday: “Longest slump in a century ends”.
Official figures show the UK economy now worth 0.2% more than at its peak in 2008 following a provisional estimate of 0.8% GDP growth in the second quarter of this year.
Chancellor George Osborne hailed it as “a major milestone” after the recession of 2008-09 – triggered by the banking crisis – wiped 7.2% off economic output.
Only Italy of the G7 economies has taken longer to recover to this point. But the outlook appears sufficiently robust for the International Monetary Fund to forecast Britain’s economy will grow 3.2% this year – up from its previous forecast of 2.8%.
The “slump” was reflected in demand for holidays abroad. Office for National Statistics (ONS) figures show UK holiday departures fell from peak to trough by three to four times the 7.2% decline in GDP.
Last year was the first to see any real bounce back. ONS figures show holiday departures up 4% in 2013 over 2012, with the improvement coming after a flat first quarter (when there was fear of a ‘triple dip’ recession).
What might this economic milestone mean for the holiday market?
You would expect it to mean more people booking to go away and more of those who do increasing their spending. So far, the evidence on whether this is happening is contradictory.
A TNS survey for Travel Weekly in early June suggested 42% of UK adults had already booked or taken a holiday this year or were planning to book one. That is a higher proportion of adults than had a holiday abroad last year.
Yet latest figures from analyst GfK show bookings for the summer season to the end of June through tour operators and travel agents – on the high street and online – down 2% year on year. That is not so heartening, unless capacity is down by about the same.
Unfortunately, financial analyst HSBC, in a report published this month, estimated total short-haul capacity this summer up 6.2% on a year ago.
EasyJet revealed last week it has added 16% capacity at Gatwick alone this summer – in which case, a 2% drop in trade bookings doesn’t sound so great.
However, the TNS research suggested one in three consumers planning an overseas holiday would book less than four weeks before departure – so the bookings could still come in.
The question is have they in July and will they in August?
A second question is whether there is sufficient capacity to the places people want to go at prices they are willing (and able) to pay, which also leave sufficient margin for the seller?
Latest ONS figures on outbound holiday departures suggest the demand is there.
The ONS reported a 4% increase in outbound holidays over last year in the three months to May.
Last week we learned that families heading to Europe (and the US) this summer will not only benefit from a significantly better exchange rate than a year ago but also find prices in many resorts have been cut.
The Family Holiday Report from Post Office Travel Money highlighted price cuts in three out of four of the 14 destinations and resorts it surveyed.
The current exchange rate has to be a major incentive to late bookers. The pound was worth €1.24 at foreign exchange counters this week against €1.11 in July 2013.
Domestic holidaymakers won’t see that benefit – and if they were away at the start of this week they will have seen torrential rain in place of the “warm summer weather” that Abta noted last week was likely “to make the UK popular for late bookers”.
Government ministers have even picked up on the possible political impact of sterling’s strength. The Times reported on Monday: “Tories hope glow of cheaper holidays will rub off on them.”
The paper quoted “a leading minister” saying: “We hope that when people go abroad they will notice their holidays are cheaper because the strong currency means they can get more for their pound.”
Consumer confidence in the economy has undoubtedly improved. The Deloitte Consumer Tracker, published in mid-July, noted UK consumer confidence in April to June (Q2) “was four points higher than a year ago” and “sentiment about disposable income was up 11 points”.
Looking forward to July-September (Q3), Deloitte noted of its survey of 3,000 UK adults and their spending intentions: “Consumers plan to spend more on holidays.”
Yet Deloitte head of travel, hospitality and leisure Graham Pickett remained cautious, saying: “We note concerns … about softening prices caused by overcapacity and a very much lower than expected number of bookings in the second quarter.
“It appears consumers are delaying their booking decision with the expectation of picking up a late summer bargain.”
At the same time, the latest Holiday Confidence Index published by First Rate – also in mid-July – noted a dip in the outlook for bookings.
The index, based on a survey of 5,000 UK adults, showed a one-point fall in overall ‘holiday confidence’ since March following “a slight decline in the intention to book an overseas holiday among those who travelled in the past 12 months”.
First Rate found: “Slightly fewer people say holidays abroad are important to them . . . there has been a decline in those who think overseas trips are good value for money.”
Underlying this is the continuing gap between inflation and earnings.
Inflation in June was 1.9% and the average rise in earnings 0.7% – maintaining a five-year sequence of price rises outpacing incomes.
So, it’s all eyes on the lates market.