As families fly off for their annual holidays over the next few weeks, airlines, hotels and tour operators are facing another sizzling summer of travel. But amid inflation in everyday essentials, rising mortgage costs, as well as vacations themselves becoming more expensive, European consumers are adapting and choosing cheaper destinations or months to travel. Although there is no doubt the next few months will be a blowout for jet-setting, these changing habits may be a prelude to customers reining in their wanderlust.
Since economies reopened from Covid lockdowns two years ago, consumers, deprived of far-flung places, have prioritized travel over other experiences. Eager to get away, they have traded down to cheaper bottles of wine, skipped restaurant meals and curbed spending on their homes in order to protect their vacations. Keen to make up for lost time, they have also paid sharply higher prices for their weeks in the sun.
This has led to robust performances for airlines, hotels and booking platforms. Earlier this week, Ryanair Holdings Plc reported record passenger numbers for June, while Wizz Air Holdings and EasyJet Plc have also enjoyed strong trading. But shares in Jet2 Plc fell as much as 15% on Thursday after the UK travel operator said its average load factor — a measure of the seats an airline has been able to sell — was slightly behind that from summer 2022. The company also announced that its Chairman Philip Meeson intended to step down.
Although rising costs for food and household energy have started to abate, interest-rate hikes mean higher borrowing costs for the 1 million British households whose fixed-rate mortgage deals are due for renewal this year.
Of course, the pain from rising rates won’t be felt equally. Older and more affluent consumers are still spending. Consequently, according to PwC, they expect to splurge more on holidays this year.
Indeed, PwC and Travel Trade Gazette’s survey of operators in June found that most demand was at the luxury and premium sectors of the market, where customers are less affected by the cost-of-living crunch and can still tap accumulated savings. This echoes the narrative from some airlines, such as Delta Air Lines Inc., that this segment accounts for three-quarters of the industry’s revenue. In contrast, UK travel operators are more concerned about trends in the middle and value sectors of the market.
Some families are holding off from booking their summer holidays, as they wait to see whether they can afford to take a break. Others are hoping that prices for flights and accommodation will come down, or that they can snag a last-minute deal.
There are other factors contributing to the delayed booking patterns this year. For example, after all the cancelled flights and airport snarl-ups of 2022, some travelers are watching whether there will be a repeat of disruptive conditions this summer. And the recent UK heatwave may also be prompting some families to hold off from reserving that European getaway. It may be cheaper to opt for a “staycation,” if they can count on temperatures in Britain matching those in the Mediterranean.
Where consumers are booking holidays, there are signs that the pressure on household finances is starting to affect their choices.
Thomas Cook, now reborn as an online travel agent, generates about 50% of its summer bookings from families. Although it has enjoyed strong trading recently, as consumers spend their last pay packets before the school holidays on a summer trip, many families are trying to stretch their budgets as far as possible.
For example, they are opting for cheaper destinations, choosing Morocco over Majorca. Holidaymakers are rediscovering the delights of resorts on the Spanish mainland, such as the Costa Brava and Costa Dorada, which includes centers such as Salou. The latter contain plenty of fun family activities, and are around 20% cheaper than the Canary and Balearic islands.
Other travellers are avoiding locations known to require hefty budgets to have a good time, such as Ibiza, Mykonos and Marbella.
It’s a similar picture when it comes to European holiday rentals. As of June 11, there were 23% more nights booked for the following six months than at the same point in 2022, according to AirDNA, which tracks the market. But the biggest uptick has been for reservations in September and October, as guests look to travel outside of the hottest, busiest and most expensive periods.
Despite these shifts, the next few months are still likely to be pretty good for airlines, hotels and tour operators. But as families have prioritized travel for the past two years, and higher borrowing costs start to eat into household budgets and deplete savings, the industry shouldn’t count on an endless summer.
This story has been published from a wire agency feed without modifications to the text.