Boiling point: Rising cost of living adds fuel to fire
Gary NoakesJust as we begin to see off Covid, new barriers to travel’s fledgling recovery are emerging, with agents heading into April braced for a cost-of-living squeeze set against all-out war in Ukraine.
Summer 2022 should be when the travel industry returns to something approaching pre-pandemic shape. Ukraine is one factor hampering this, but consumers are more discouraged from travelling if they cannot afford it to begin with.
Half of respondents to TTG’s snap Cost of Living Survey last month said customers and clients had proactively raised the issue with them, and that it was affecting travel purchases. Two-thirds, meanwhile, said they were worried about the implications for their own businesses. Energy costs, oil prices and record inflation could all dampen demand, but bills are consumers’ biggest concern.
Regulator Ofgem cushions prices by capping how much firms can charge, reviewing it in April and October. The price cap increased from Friday (1 April) by 54%, with most seeing £700 added to bills. In addition, April will see most households begin paying their 10 council tax instalments, although there will be temporary respite with the government’s £150 rebate.
More pain will come in October with Ofgem’s next review, but perhaps by then some consumers will decide it’s better to spend a fortnight in Tenerife than heat their home!
Consumers are only just starting to feel the extra cost pressures, but there are signs some are already beginning to worry.
TTG survey comments were mixed, but revealed definite concerns. One respondent predicted: “The family bucket-and-spade market will be the most affected. Customers have asked if there will be surcharges due to fuel price increases.”
Another said: “Clients have already cancelled/postponed a long-haul trip for early 2023 because of the cost of living.”
Some highlighted the increased costs to their agencies. The Federation of Small Businesses estimates a single small enterprise in London will see annual energy costs rise by £10,000. “Most of my clients are still willing to spend well on their holidays,” said one respondent. “But the rising living costs for myself and the impact on my business is huge.”
Another added: “After two years of not earning from travel and now with the cost of living so much higher, it’s a real struggle. I had hoped things would be better this year, but we’re not seeing that due to the rise in living costs.”
Speaking to TTG, agents presented a typically stoic outlook. Thorne Travel owner Shona Thorne said: “Some customers are concerned that they’re going to start seeing fuel surcharges. Approximately one in four are asking questions about surcharges; we tell customers it hasn’t been added to terms and conditions yet, so their price is fixed.
“We’ve seen a lot more customers asking to pay in instalments because they know their cost of living is going up every month; they’re asking more for direct debit and for holidays to be pushed back,” Thorne continued, adding bookings were nonetheless “really buoyant”.
Polka Dot Travel has 19 branches in Wales, Shropshire and Cheshire. Director Mark Johnson said: “We’ve not seen a slowdown yet. If people want a holiday, they’ll find the money. After the past two years, people want one. They may downgrade from five stars to four or four to three, but they’ll spend.”
He admitted electricity bills were a concern. “Fortunately, we tied in for a couple of years before costs went up,” he said. The biggest issue, Johnson stressed, was recruitment. “We have a couple of shops we can’t open because we can’t get staff. That’s of significantly more concern now than cost of living.”
The recruitment challenges facing travel businesses were thrown into sharp focus on Wednesday (30 March) during C&M Recruitment’s Fit To Employ webinar, where the panel warned of the impending "great resignation" in travel and also of new vacancies outstripping available candidates.
Flexibility key
Graeme Brett, owner of Westoe Travel in South Shields, said: “We haven’t had anyone cutting back yet, but we’re anticipating we will – and we’re anticipating a big energy [bill] increase in the shop. Everything’s electric here, including the heating, so it’s a bit of a worry. Our electricity company installed a smart meter last week, which will help us identify what’s using energy.
“The situation in Ukraine and uncertainty around Covid-19 are the main concerns customers are voicing to us at the moment, not energy prices, although we are anticipating that.”
Brett added businesses needed “more flexibility to recover”. “A lot of travel businesses took the business interruption loan during Covid-19, and have had to start repaying that. That is hundreds of pounds a month, so they’re having to find extra money to pay that and then pay for energy price increases as well.”
Some, though, were more upbeat. Don Bircham, owner of Hays Travel North West, said cost of living was having no impact on bookings. “I keep thinking it may be, but not at all,” he said. "March has been very, very good and has got better as the month has gone on. It’s happy days after a terrible two years.”
'We're still living in the middle of a perfect storm'
"It’s too early to say if the crisis is having an effect. The majority of the population is going to take a hit – the question is scale. It’s whether people trade down on their accommodation, go self-catered instead of all-inclusive, go for a week instead of 10 or 14 days.
"I’ve no direct evidence of customers raising concerns about their bills, but that’s not to say they aren’t sitting at home thinking they can’t afford to go on holiday this year. It will become more evident as we come into the lates market, which would normally be very busy – we’re not quite there yet.
"Over the past two to three weeks, we’ve not had people query things like fuel surcharges on holidays they’ve already booked. It’s a fair question but we haven’t had that yet. It’s impossible to say how many are putting off travelling completely. We’re seeing more short-haul bookings than we would usually, and less long-haul. And, over the past two to three weeks, it’s been fairly mixed in terms of last-minute bookings versus those for later seasons and next year.
"We’re still in the middle of a perfect storm; Covid cases are increasing. We’ve got cost of living. Then there’s the uncertainty around Ukraine, which is a more significant factor. We saw a dramatic drop-off in sales for three or four days at the beginning of March following the invasion. These are three major issues for the travel industry.
"We’re slowly seeing an increase again now, though. I wouldn’t say it’s restoration of consumer confidence, it’s people coming to terms with there being areas of the world they can travel to and be safe."
Mark White is managing director of Ocky White Travel in Haverfordwest.
TTG went to press last month with a warning from chancellor Rishi Sunak ringing in our ears. “We should be prepared for the economy and public finances to worsen significantly.” Yes, he did indeed say “worsen”. After two years of Covid hardship, it’s hard to comprehend there being worse to come. But it would also be naive to think the uptick travel has experienced since the new year has been anything other than the very beginning of the end of these times of crisis.
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Gary Noakes
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