But inflation will affect some holidaymakers’ choices, says Mintel’s travel director Paul Davies
The Consumer Price Index (CPI) is at its highest level in almost 30 years. It reached 5.4% in December, mainly driven by increases in food, clothing, footwear and energy prices.
As businesses face higher costs over the coming months the Bank of England doesn’t expect things to get any better soon. The CPI rate is forecast to exceed 7% in April.
Holiday costs have so far had little impact. Mintel’s Covid-19 Tracker on January 18-22 found just 14% of consumers had been impacted by the higher cost of holidays in the previous two months while more than four times as many had been impacted by rising food and drink prices (61%). This is likely to change as demand recovers.
Travel will remain a consumer priority, but some will be forced to compromise
Many consumers have been able to top up their savings during the pandemic and travel will be one of the main areas to benefit from pent-up demand for experiences off limits for so long.
That said, the increased cost of living will lead the most-affected groups – those on lower incomes – to watch how much they spend in discretionary areas such as holidays. In October, 71% of consumers with a household income under £15,500 said they would take fewer holidays if these became more expensive, compared with 56% of those with an income of £75,000 or more
We can look to previous periods of financial uncertainty to assess the impact on the market
During and after the recession of 2008-09 we saw more consumers substitute an overseas trip with a staycation, while lower-cost resorts in Egypt and Tunisia continued to attract value-hunters at the expense of more popular destinations such as Spain, Italy and Greece.
We also saw the short-break market take a hit as consumers sacrificed shorter holidays to ensure they could afford their main summer holiday.
This pattern will play out more strongly this time around as the hassle or cost of taking Covid-19 tests when visiting some countries will remain a barrier to the short-break market.
Shorter holidays, such as city breaks and special-interest holidays, will be hit most. Family and beach holidays, which tend to be longer, should prove more resilient.
One holiday type that will undoubtedly benefit from the income squeeze will be camping and caravanning. The domestic camping segment gained momentum during the pandemic as consumers favoured outdoor, socially distanced breaks. Now its strong budget appeal is likely to attract financially constrained households, providing a strong platform for growth.
Better-off customers are least-affected
The travel sector holds one big advantage amid financial uncertainty. Holidays represent escapism, a chance to get away from gloomy headlines and day-to-day life – something never more applicable than now.
After being at home for so long consumers are desperate for variety, for new experiences and for reconnection with friends and family.
While the industry needs to respond to the financial constraints on some consumers, Mintel’s research shows how polarised sentiment is when it comes to people’s financial situation.
A survey in December found 59% of those with a household income of £50,000 or more were ‘pretty confident I will be OK’ financially over the next year.
The good news for the industry is that those on higher incomes, and less affected by inflation, are by far the most likely to take holidays. The same survey found 85% of those in the £50,000 and above bracket plan to take a holiday in 2022.
Those on higher incomes are also more likely to have increased their savings during the pandemic.
Mintel’s Luxury Travel UK, 2021 report found 68% of travellers with a household income of £50,000 or above had increased savings since the start of the pandemic, compared with 38% of those with a household income of less than £15,500.
This presents an opportunity for brands to premium-ise holidays and experiences to appeal to those able to afford it. The release of lockdown savings is likely to be strongest in big-ticket and luxury spending categories, providing opportunities to promote five-star accommodation, private luxury amenities and wellness treatments.
Mintel recommends travel businesses…
- Focus on the opportunities – while some consumers will be forced to cut back on holiday expenditure, focus on how to attract consumers who are able to absorb price rises. Many have been able to increase their savings through the pandemic and are keen to splash out.
- Learn from the past – short breaks and more expensive overseas destinations tend to suffer during periods of economic uncertainty, meaning companies should widen or diversify portfolios to ensure they are not too exposed.
- Promote escapism – leverage consumers’ desire for escapism, emphasising wellness elements and features that appeal to those wanting to get away from the stresses of daily life.
Paul Davies is Mintel leisure, travel and foodservice category director.
Mintel’s Luxury Travel UK, 2021 and Camping and Caravanning UK, 2022 reports are available here.