Growth expected this year and beyond, says George Moss, consumer partner at private equity firm ECI Partners
While the UK government’s recent Global Travel Taskforce report outlined a potential return to international travel from May 17, it also laid out numerous guidelines to abide by, and strict testing rules.
With many consumers weighing up the risks of travelling abroad, we are seeing people continuing to book holidays around the UK to give them more certainty that their holiday will go ahead, and with minimal restrictions.
This is likely to boost the domestic travel industry both this summer and in the longer term.
In the long run, the government’s new international travel framework will offer some security to travellers as people become accustomed to trusting the traffic light system defining which countries are high risk and which are not.
The complication for now is that the destinations on these categories will not be published until May, so choosing an overseas summer holiday is likely to be last-minute option at best.
Some may choose to avoid the uncertainty altogether, especially with the sudden status changes that the government implemented last year fresh in the memory, with holiday-goers forced to cut their holidays short and book immediate alternative routes home to avoid quarantine on arrival back in the UK.
This uncertainty is not just evident for holiday hopefuls, but for airlines and those working within the travel industry too. So much so, that shortly after the report was published Jet2 postponted its resumption of all flights and holidays until June 24 and Tui revealed it would need to raise an additional €350m of funding.
Following a difficult year, the lack of set deadlines or a clear framework has failed to provide much needed clarity for outbound operators.
Domestic growth continues apace
It is not all doom and gloom for the travel industry, however. While international travel prospects are uncertain, there are good opportunities for the domestic travel market, both now and in the long term. In fact, according to Visit Britain, inbound tourism in 2021 is set to be up to 11.7 million visits, a 29% increase on 2019, and the estimated spend by inbound tourists this year is expected to be c. £6.6bn, again up 23% from two years ago.
Due to the consistent international challenges, it has been difficult to invest in businesses specialising in overseas travel and it looks like this will remain the case for a little while longer. This means that domestic and staycations businesses, which have proven to be resilient through the crisis, are likely to continue to see higher valuations.
Valuations are also likely to be buoyed by the previous resilience of the domestic travel market during recessions and periods of instability. The fact that domestic travel has consistently remained stable in challenging circumstances is certainly a factor that will have, and will continue to, influence investment decisions.
One landmark such transaction was Blackstone’s investment in Bourne Leisure around the turn of the year, with the family shareholders rolling over into a significant minority. This is clearly a major investment in UK domestic travel and leisure space by a private equity firm, with Bourne operating 56 sites including 38 Haven holiday parks.
A difficult time to be invested in travel businesses
These positives aside, it’s fair to say that the last 12 months have been a testing year for travel businesses, even in the domestic travel market. The uncertain nature of operating in such an environment has left companies needing to constantly adapt and address unforeseen operational challenges.
For instance, during lockdown periods, many operators had to expand their customer service offerings to address valid customer concerns around whether holidays can go ahead and the applicability of refund policies. Funding this while revenues were reduced was difficult for many and, in some cases, will have pushed smaller businesses to the brink as cash resources were depleted.
While the latest lockdowns have provided short-term challenges, the fact that the UK’s chief medical officer, Chris Whitty, has said that there will be ‘no more lockdowns’ moving forwards should give staycation businesses some confidence. This should allow them to plan for the future, which over the last year hasn’t been possible.
Looking beyond this summer, there are firm expectations that domestic travel will continue this growth in the coming years. The market was already growing steadily ahead of the pandemic and it has unquestionably driven behavioural changes that have created new long-term customers.
The pandemic has meant more people opted for a staycation last year but, in doing so, many have realised how much the UK actually has to offer.
As a result of discovering the attraction of staycations, it’s likely that holidaymakers will see domestic holidays as more of an option in the next few years, continuing the long-term growth of the sector.
The high level of customer service many domestic operators have provided over the last year will help drive the loyalty of these new customers. For example, many UK based travel businesses have taken a more flexible approach to booking, with destinations offering free cancellation up until 48 hours beforehand. This will have had a positive impact on customer loyalty and in turn, will hopefully have converted many one-off visitors to long-term repeat customers.
Despite the challenges it has faced, the domestic travel sector has once again proven to be a resilient sector, and we can expect to see strong levels of growth from it throughout the rest of 2021 and beyond.
The key thing is that operators which have done the right thing by their customers over the last 12 months will benefit from both the short-term increase in domestic travel and the greater long-term positioning of staycation within UK consumers holiday repertoire.
Those who continue to deliver leading customer service will continue to thrive in the coming years.
This is a community-moderated forum.
All post are the individual views of the respective commenter and are not the expressed views of Travel Weekly.
By posting your comments you agree to accept our Terms & Conditions.