A few weeks ago, I was highly pessimistic about travel’s outlook for Summer 23, but the Governments £100 billion energy price cap intervention, will make a massive difference to travel prospects in the short term.

 UK households saw a 54% increase in energy bills on the 1st of April as the energy cap for an average house was raised to £1,971 per annum and faced a further 80% increase on the 1st of Oct, and yet another 52% increase to £5,549 on Jan 1st 2022, just as travel hoped to move into its peak holiday booking period.

 Prior to the energy cap’s introduction, a massive 8.9m of the UK’s population was predicted to move into fuel poverty where they must make decisions between “eating and heating”. A total of 25m households were forecast to have virtually all their disposable income for non-essential luxuries eroded a few weeks ago, I was highly pessimistic about travels outlook for Summer 23, but the Governments £100 billion energy price cap intervention, will make a massive difference to travels prospects in the short term. 

UK households saw a 54% increase in energy bills on the 1st of April as the energy cap for an average house was raised to £1,971 per annum and faced a further 80% increase on the 1st of Oct, and yet another 52% increase to £5,549 on Jan 1st 2022, just as travel hoped to move into its peak holiday booking period.

Prior to the energy cap’s introduction, a massive 8.9m of the UK’s population were predicted to move into fuel poverty where they must make decisions between “eating and heating”. A total of 25m households were forecast to have virtually all their disposable income for non-essential luxuries eroded to zero, with most quickly running down any savings they had.

I love the optimism of the travel industry, but you’d have to be a complete ostrich with your head in the sand not to realise that the travel sector, like the hospitality and hairdressing industries, were all heading towards an “Armageddon” situation, given the weakness of businesses balance sheets post the massive Covid-19 disruption, that we are only just emerging from.

The Government’s intervention is massively beneficial to the travel sector, as many customers will still have short-term disposable income to spend on a long overdue overseas holiday before the true impact of the recession is felt in the UK and therefore this should save the Summer 23 early booking market.

However, the industry must still remember that fuel prices have doubled in the last year, which will greatly impact the winter “second” holiday market as two holidays a year, become a luxury that only the “haves” can afford.  

Whether “Armageddon” has been avoided or just postponed, really depends on how effective the Government is in the next 18 months in terms of resolving the energy crisis, via either ramping up gas exploration, nuclear power, or solar/wind generation, as a £50billion a year price cap is simply not sustainable. 

Inflation is like a stealth tax that most UK households are aware of, but assume they can counterbalance with wage demands. It, therefore, has a much slower impact than interest rate hikes, which potentially make mortgages unaffordable.

Unfortunately, inflation is currently at 10.9% and the most effective historically control has been increasing interest rates, which immediately filter into mortgage rate increases. However, the Government needs to boost the economic output, which means that it is unlikely to allow interest rates will rise above 5-6% in the next few years, as this could easily create a house price collapse and massively impact consumer confidence.

The travel industry’s short-term challenge will be passing on the substantial holiday price rises required to offset dramatically higher aviation fuel prices, which are further exaggerated as aviation fuel is purchased in dollars, at a time when the pound is at an all-time low of 1.15. This combined with the hotel price increases as they seek to recover increased operating costs is expected to cause a 15% year-on-year price inflation in holidays.

As previously outlined in other blogs, this will create a market divided between early booking “haves” and a dramatically weaker late booking market where the “have nots”, simply cannot afford to grab those last-minute bargains.

The jury may be out about the impact of the energy crisis on travel, but caution is a sensible short-term option. Here are my personal top tips, for companies selling short-haul beach holidays, as part of their mix.

• Stop flogging a “Dead Horse”. If your business has a debt mountain that is going to take more than 3 years to pay off, consider “popping” the Company and walking away, or if possible, launch a “Phoenix from the Ashes”, but make sure you protect customer cash as a priority if this is your intention. I know from personal painful experience, that at times, soldiering on is not the best option.

• Cut overheads. 

• o Location. Highstreet properties with a rateable value of £15k or less, now do not pay business rates, dramatically reducing operating costs. Few of these shops are on mainstream high streets and therefore require local community outreach and social media campaigns to drive sufficient traffic either in person or by phone.  
• o Staff costs. Covid-19 removed most of the “fat” from travel companies, so any further cuts will be highly painful and personal. It’s time to let those senior people go and be prepared to roll up their sleeves. get involved and invest in junior staff to make up the deficit.
• o Risk. Switch to selling third-party packages, which carry less re-book and ATOL risk, at a time when further travel disruption is likely.

• Invest in community outreach. Avoid the easy, but expensive Google route and invest in low-cost branding opportunities in local communities’ projects such as sponsoring the kits of junior rugby or football teams. Don’t be afraid to market directly to potential customers via these groups “WhatsApp groups”. Charity starts at home, but so does local marketing and if you’re smart both are tax deductible.

• Incorporate homeworking into your business model. This allows both lower salaries and increased opening hours.

• Increase ancillary income. Every business needs to “wring out” every pound of income from each lead generated. 

The future may not be bright, but as in any crisis., those who evolve and adapt will be the winners. Don’t put your head in the sand and instead create a prosperity plan, that acknowledges and accepts the risks the future poses. Opportunity knocks!