Travel firms should plan for volatility and expect a bumpy ride in 2016 as economic factors increasingly buffet the UK.
Prospects for the UK travel sector were the subject of the latest Business Breakfast marking the launch of the Travel Weekly Insight Annual Report 2015.
Panellists agreed 2015 had been a good year despite the shocks of terrorist attacks in Tunisia, Egypt and Paris, but warned more volatility should be expected in 2016.
Graham Pickett, national lead partner for travel at report sponsor Deloitte, said the UK economy would be influenced more than ever by global factors outside of the government’s control.
“We have got used, as an industry, to seeing life full of volatility,” he said. “We have to be more flexible in our planning. We have to box clever. We are going to have a fairly bumpy time of it.”
Pickett pointed to slowing growth in China as a major cause for concern, saying the world economy is now reliant for growth on established economies such as the US and UK.
He said he was “quite positive” about US growth but warned China’s slowdown would have an impact in the emerging markets that have fuelled global economic growth over the past decade.
“China has the lowest growth for 25 years; I find it quite worrying. The level of trading with the other emerging markets is softening. That’s making life much more difficult in emerging markets.”
Global economic growth of around 3% is predicted for next year, compared with 2.5% expected for the UK, but Pickett warned of potential shocks for travel in the foreign exchange and oil markets.
However, he said the UK travel sector is capable of riding out the challenges it faces, adding: “Tourism gets shocks, but good Old Blighty is very robust. It has to be something really serious to affect that.”
Nick Longman, Tui UK and Ireland managing director, agreed demand had proved robust this year despite the atrocity in Tunisia that saw 33 Tui customers killed.
He said Tui had increased capacity next year while having to redeploy its Egypt flying, but it would review its strategy as the year progresses.
“This coming year is going to be a much more difficult year because we are going to have to be continually planning and replanning,” he said.
Longman said Tui had benefited from $45-a-barrel oil and was looking at its hedging policy to take more advantage of this. He added: “It’s certainly been helpful in terms of controlling our cost base, but we have also coped when oil was $100 a barrel.”
Pickett voiced concerns about instability in the Middle East, but said normalisation of relations with Iran and the benefits to Saudi Arabia of cheap oil meant only an extreme event would push up prices.
However, he said cheap fuel negated some of the benefits for airlines of investing in more‑efficient aircraft, and noted Iata has forecast a softening in demand.
Champa Magesh, Amadeus UK managing director, said airline consolidation in the US had brought profitability quicker than in Europe.
“Airlines are reviewing their business models,” she said.
“There is a shift to the low-cost model and that has implications down the travel ecosystem.”