Soaring energy bills, double figure inflation and rising interest rates threaten to pour cold water on the post-pandemic bounce back unless new prime minister Rishi Sunak acts quickly, experts fear.
“The worry is that we’re entering a very uncertain period,” said Alan Bowen, legal advisor to the Association of Atol Companies. “Nobody will book in January and February if they don’t know what their electricity and gas bills will be in April,” (when government support ends), plus food bills are going up every week.”
This year has largely gone well for the industry, although some of the post-Covid resurgence has been underpinned by rebookings. However, there are already growing signs cost-of-living pressures are biting, with On the Beach today reporting disappointing late sales of three-star packages this year, down 18% on 2019, a sign caution is setting in.
“We’re heading towards a polarisation; On the Beach has done well in five-star and long-haul at the luxury end, while on the other side there are those more impacted by money worries,” said Travel Trade Consultancy director Sarah Winship.
She predicted a change of approach to the January period. “We are seeing some big players push early bookings for next summer with ‘inflation-beating’ deals and flexible payments to target that end of the market.”
The signs are there will be a need for this. With inflation at a 40-year high, the Bank of England is poised to raise interest rates again on 3 November. Meanwhile, the weak pound is affecting dollar-based destinations and despite a rally following Rishi Sunak’s appointment, sterling hangs at around $1.13, compared to $1.37 a year ago. However, one piece of good news is oil, which remains well below $100 a barrel.
There was further bad news came today from the Office of National Statistics, which showed the price of food basics like pasta and vegetable oil has increased by 60% or more in the past 12 months.
Bowen added: “Because of all the uncertainty I suspect we will see people say ‘I’m not going to commit to something in January’. I suspect there’ll be some low deposit offers.”
However, he predicted operators would cut capacity rather than package prices.
“I am not convinced there will be huge bargains, I think capacity will be reduced further if bookings do not materialise,” he said.
The government will unveil its latest plan for the economy on 31 October, which Winship said could help the industry.
“Anything they can do to provide a bit more stability and certainty and which stops impacting interest rates and foreign exchange would be helpful – not just putting policies in place and then reversing them. It’s all about confidence.”
