The changing shape of the UK outbound holiday market in a post-Covid-19 world

The UK industry hopes to re-start its holiday programs this Summer, with optimist still hoping for May/June and realists predicting a July 21 restart, as UK restaurants and pubs re-open.

 However, “3 tests to travel” will remain a requirement, as will robust plans to deal with further disruption from new Covid-19 variants.

 This fear of further Covid-19 disruption is likely to hamper the re-start of “Dynamic Packaging” for some time, forcing agents to sell holidays from the large integrated tour operators like Tui, Jet2 and Easyjet Holidays, as these ATOL bonded principals take responsibility for all refunds or holiday amendments, if further Covid -19 disruption occurs.

 Large OTA’s like On the Beach, Love and Travel Republic have the scale required to secure cost-effective public liability insurance and can afford to self-Insure “Supplier failure cover” by using virtual credit cards to pay suppliers which allow relatively quick and easy reclaims.

 However, the dramatic reduction in the “public liability” market and the complete disappearance of “Supplier Failure Cover”, make Dynamic Packaging by high street shops or retail consortia much more expensive and higher risk.  Given an alternative, retails would much rather sell packaged holidays from third parties.

 Customers who have been hit by the need to cancel, rebook or shift holiday several times, are likely to return in greater numbers to high street agents or higher human interaction booking routes such as homeworkers.

 If the major tour operators are sensible, they should benefit from high street agents and homeworkers turning to them this summer, but I fear that an ultra-lite booking market and excess seats over demand, could easily lead to the majors blowing their new alliances by undercutting agents with lower online prices.

 Holiday prices will also have to increase, as a badly depleted ATOL fund, looks to reduce risk further via trust funds or charge larger per passenger fees where it can’t.

 The CAA is trying to push ATOL holders away from “Bonds” towards “Trust Fund Models” with varying degrees of restrictions on how funds can be released before customer return from holiday. The more restrictions an operator accepts, the lower the cost, with rumours flying around of ATOL fees of up to £20 per person if operators do not reduce the CAA’s perceived risk via trust funds.

 How this will impact low-cost airlines holiday divisions is not clear, as the dominant airline division will not be happy if it does not receive payment in full on booking. Like all negotiations, it’s a balance of power and the CAA would not want the airline to abandon selling packages in favour of encouraging more customers to DIY unbonded holidays.

 I think existing fully bonded “Specialist” operators that survive Covid closure and new entrant’s, such as the Russian backed “Biblio Travel”, initially a specialist to Cyprus, could grow rapidly if they package a wider range of destinations for agents and remain trade focused.

 Secondly, there is also the need for a large-scale trade “Flight Only” operator, as many agents will now shift to selling unbonded accommodation to customers and then after a delay of 24 hours, help them book the flight element, as an agent of a third party to avoid selling a “package”.  Bluntly, the cost and risk of “bonding” a package in a Covid-19 disrupted world, outweighs the extra margin, so many agents are asking “Why do it”?

 Obviously, Goldmedal is best positioned to continue to dominate the trade flight only sector, but it may need to start “brokering” seats on charter aircraft, operated by “downstream” airlines from places like Turkey.

 One airline that will definitely see less trade support from dynamic packaging retailers is Ryanair!

The UK travel trade has always had an uneasy relationship with Ryanair, but after the refund fiasco where Ryanair has clearly tried to send many agents bust, by refusing to refund agency made bookings, the relationship is now openly hostile on both sides.

 Summer 22 should see a strong return to early holiday sales, as pent-up demand is finally released, with fully bonded package operators likely to benefit the most, led by Jet2 Holidays and Easyjet Holidays dominating the “mass market” beach sector and supported by a larger range of “small to medium” sized specialist tour operators, as agents reduce “dynamic packaging” efforts in favour of lower-risk commissionable business.

 Whether Tui can struggle out from under its debt mountain, which looks likely to destroy its ability to operate “differentiated” holidays, is another question altogether.

 What is sure, is that the 2022 post-Covid-19 outbound holiday market, will look a lot different from the one we entered the crisis with