Inflation hit 9% in April, and a 40-year high last week – "and has further to run" according to audit and tax consultancy RSM UK. Head of travel and tourism Ian Bell said inflationary pressures could stress bottom lines further and hamper travel’s hopes of a strong and swift rebound.
"[It] looks likely this [inflation] will track higher as the economic outlook looks set to worsen," said Bell. "But package holiday prices only increased by 3.1% due to a combination of prices being set many months before and some operators having to discount to stimulate bookings and counterbalance any slump in consumer confidence.
"This presents a significant challenge as travel agents and operators will need to absorb increased staff and business overheads, placing greater pressure on the bottom line and already squeezed finances."
Bell also noted the other headwinds travel firms and their clients are yet likely to face, which include the cost-of-living crisis, the knock-on impacts of war in Ukraine and rising holiday prices.
"After being hammered during the pandemic, the travel sector was hoping to make hay this year with no travel restrictions and pent-up demand for holidays post-Covid," said Bell. "But inflationary pressure, the cost-of-living crunch and reducing consumer confidence could all hamper any hope of a strong bounceback.
"Air fares have also rocketed by 12.6% year-on-year, so it’s inevitable winter breaks and summer 2023 holidays will cost more, which could impact future outbound sales.
"The UK staycation market, which benefited from the travel restrictions in the pandemic, is also seeing accommodation prices increasing by around 11% and may not seem a cheaper alternative.
"The size of these increases will certainly test consumer demand and it will be interesting to see how the sector can adapt to offset the inflationary headwinds to support the much-needed bounceback."
