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17 Sep 2015

BY Rob Gill

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TTG Analysis: Is the new National Living Wage a good deal for travel?

The minimum wage is set to increase next month, with an even bigger rise under the title of the National Living Wage (NLW) to be introduced in April 2016.

 

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While few would quibble with the principle of trying to increase wages for the lowest-paid in the travel industry, some are worried about the effect on jobs and prices.

 

Premier Inn owner Whitbread has already warned that its prices are likely to rise as a result of the new requirements, which will ensure a minimum hourly rate of £7.20 for all employees aged 25 and older, compared with the current rate of £6.50 per hour. Under the plans, the government wants NLW to rise to £9 per hour by 2020.

 

Whitbread, which also owns the Costa Coffee chain, currently has around 34,000 of its staff who are paid less than the £7.20 hourly rate, leading its chief executive Andy Harrison to admit that he “cannot rule out price rises” as a result of higher wage costs.

 

Chancellor George Osborne’s announcement about the NLW during his budget in July also came as a surprise to the British Hospitality Association, which represents domestic tourism businesses, with chief executive Ufi Ibrahim warning that it could lead to job losses.

 

“As an industry employing a large number of individuals earning more than the national minimum wage and less than the proposed living wage, we have tried to have a constructive dialogue with the Treasury on building towards the living wage without job losses,” said Ibrahim.

 

“We were very surprised the chancellor made this announcement without consultation.”

 

While the reaction from the outbound travel industry has been much more muted, with most firms welcoming the higher minimum rate of pay as a way of attracting and retaining staff, there are warnings that it could affect major tour operators’ bottom lines.

 

Impact of change Morgan Stanley leisure analyst Jamie Rollo said that Tui and Thomas Cook could be among the firms to see their profits suffer due to the introduction of the living wage. “We think there may be little that UK-based employers can do in practice,” said Rollo in a report on the impact of NLW.

 

“It might be hard to reduce headcount as they run businesses where service standards are key.

 

“They might be able to close pay levels or reduce bonuses. They can also perhaps raise selling prices in compensation.” It is high street travel agencies and call centre-based travel businesses which may be most affected by the change though, according to Barbara Kolosinska, director at C&M Travel Recruitment.

 

“I think it will affect entry-level positions in retail agencies and those who operate call centres where they have low basic salaries and high commission pay structures,” she told TTG.

 

“You do get people aged over 25 coming into the industry at these levels, particularly if they’re switching careers.

 

“The living wage works out at a salary of about £14,400 per year, and basic pay for these jobs at the moment is £11,000 to £12,000, so companies could be facing a big extra cost if they are employing several hundred staff at a call centre.

 

“They may have to tweak their commission structure or this could be a trigger for companies to audit their pay structure to try to encourage more talent into the industry. The talent we have already is great but it’s diminishing – it’s hard to attract and retain people because other sectors pay better.”

 

Alistair Daly, chief marketing officer at online travel agency On the Beach, said the rise in the minimum wage was “good news for workers”, adding that it would have “limited impact” on the business as they already pay the “top minimum wage, irrespective of age”.

 

“Even if the rise did affect us and we were having to pay more for our staff, we would not pass the extra cost on to the consumer,” Daly insisted. As for independent agencies, Julia Lo Bue-Said, managing director of the The Advantage Travel Partnership, said that even if agencies were not directly affected there could be a “ripple effect” throughout the industry.

 

“It’s difficult to predict what is going to happen – it depends on what proportion of employees in the industry are being paid at the current minimum wage,” she said. “I think there will be extra costs that businesses need to incur and they will need to find a way to deal with that.

 

“It may lead to an increase in holiday prices or a reduction in profits and income. If your cost base is going to increase, you have to decide whether to absorb it and cut costs elsewhere, or raise prices.”

 

Take action now

Lo Bue-Said urged agents not to adopt a “wait and see” attitude to the implementation of the NLW, and start taking steps now to deal with the increase if it is likely to impact them.

 

“You know it’s coming in, so you need to act now if you’re going to be affected,” she said. “It’s too late if you just wait for it to be introduced.”

 

Andy Stark, managing director of Global Travel Group, is less worried about the NLW’s impact on members, as he said most agencies were already paying the new £7.20 per hour minimum.

 

“Most members already pay more than the new minimum wage when you take incentive-driven sales into account,” he said. “I think it’s a good thing because it’s making sure staff get a fair day’s pay for a fair day’s work.”

 

Independent agency owner Steve Pattenden, of Double S Travel in Luton, welcomed the introduction of the living wage as his staff are already earning “at or above” the £7.20 hourly rate. However, he warned it could affect overheads because it coincides with small firms facing increased pension payments, which he conceded “may stop us giving pay increases in the future”.

 

“We will also have to be even more careful about which tour operators we work with,” added Pattenden.

 

“We will only give business to operators who pay us a meaningful living commission.”

 

As with most law changes, it is hard to know what the impact will be on the travel industry until it is implemented. Will holiday prices increase as a result of higher wages? Could it cause job losses or even a rethink on how pay is structured by some firms? It will be one of the issues to watch in 2016 and beyond.

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