The outbound recovery has outpaced most predictions, says Steve Endacott
Although inflation is dropping rapidly with predictions of 5% by July and 2% by summer 2024, there has been a sharp decline in consumer confidence to -41%.
However, this drop in confidence is not hitting travel bookings, with the average intention to travel increasing to 55% in February following strong January sales, delivering a massive average price increase of 30% compared to 2019 figures.
So, what is driving this strong demand?
During the lock-down, we had the benefit of spending dramatically increased time with our families and loved ones in lockdown bubbles. For most of us, work has returned to dominate our waking hours with holidays providing the few weeks of a year we have to reconnect.
For me, this is the most obvious explanation of the increased investment in holidays, and I think it will last for many years as the Covid-19 lockdown forced many of us to reassess our work-life balance.
Another piece of the jigsaw puzzle may be how holidays are funded.
Recent research by First Rate FX highlighted that 41% of holidays are funded from savings, compared to 21% from current earnings.
Savings increased markedly during Covid, but high inflation rates are now eroding their value, leading many to say “sod it” and spend on holidays. This will have protected holiday spending whereas spending on eating out and drinking, funded from current income, has been hit harder.
Whether holiday sales this year match those of 2019 will depend far more on supply than demand.
Initially, Ryanair was the only low-cost carrier to add substantial capacity for 2023 on the back of ultra-low fuel hedges taken out in 2021. However, fuel prices have halved since their June 2022 peak, reducing Ryanair’s price advantage, and encouraging Jet2 and easyJet to add capacity.
Jet2holidays’ Atol now exceeds Tui’s by 500,000 passengers at 5.8 million, allowing it to claim the top spot and leaving rival easyjet Holidays languishing at 1.3 million. Given City expectations, easyJet needs to grow rapidly over the next few years and is the most likely to add further holiday capacity for Summer 23.
Love Holidays has expanded rapidly to match the 1.8 million passengers of On the Beach, with both businesses combining Ryanair seats into Atol-protected package holidays whether Ryanair likes it or not.
Although these two OTAs are dependent on third-party flying, their ability to mix and match airlines to create better flight times and occasionally lower prices is a clear winner when combined with well-merchandised lists of quality hotels, at the top of search results.
With all the above seeking to expand for Summer 2023 there is a good chance that volumes will match or exceed those of 2019, putting the industry a full year ahead of most observers’ predictions (mine included) that it would take until 2024 to get back to ‘normal’.
However, the new normal should also see 30% higher holiday prices if we don’t compete margins away. Here’s hoping!