Distribution Strategies

A new study has found that the UK is expected to spend £41.1 billion on travel in 2010 – a welcome increase in total travel spend of 2.4%. However, following last week’s volcano eruption, the UK travel industry’s marginal recovery could be in jeopardy.

Published: 22 Apr 2010

A new study has found that the UK is expected to spend £41.1 billion on travel in 2010 – a welcome increase in total travel spend of 2.4%. However, following last week’s volcano eruption, the UK travel industry’s marginal recovery could be in jeopardy.

The report, commissioned by Kelkoo and conducted by the Centre for Economics and Business Research (CEBR), covers 12 countries in Europe with important markets, comprising the UK, France, Germany, Benelux, Italy, Spain, Denmark, Switzerland, Sweden, Norway, Finland and Poland.

The eruption of an Icelandic volcano has caused unprecedented travel chaos, leaving thousands of British travellers stranded abroad and costing the economy an estimated £500 million. This will add to the travel industry’s woes, following difficult times in 2009, which saw British travellers reduce their spending by -8.4% from £43.8 billion in 2008 to £40.2 billion last year. The news comes at a time when recovery was in sight, and UK spend was forecast to see a modest uplift of 2.4% (£1bn) in 2010 to £41.1bn, according to Kelkoo’s European Travel Index.

Just as forecasts were indicating a modest financial recovery, with sales set to increase by 2.4% (£1 billion) this year, the Icelandic eruption threatens to throw cinders on the travel industry’s recovery, said Bruce Fair, Managing Director of Kelkoo UK.

Fair added, “Meanwhile, the online travel sector has proved resilient during the downturn, and is expected to continue to thrive in the post–recession era with a record turnover of £17.6bn forecast for 2010, the highest online travel expenditure in Europe.”

Online travel sector

The European Travel Index reveals that the online travel sector is better equipped to deal with the financial impact of the disruption and will continue to buck industry growth trends this year.

According to the study, the UK has the highest online travel expenditure in Europe and the sector is solidly on course to sustain its recession-busting performance throughout 2010, with spending projected to rise by £2 billion this year from £15.6 billion to £17.6 billion compared to £13.2 billion in 2008 - a 33% increase over the past two years.

Over the same period, overall travel sales will have decreased by -6.4% from £43.9 billion in 2008 to an estimated £41.1 billion by the end of 2010.

UK online spending

UK online spending will account for 42.8% of total UK travel sales or 25% of the European online travel market by the end of 2010 - the largest share of any EU member country. British consumers are among the most web-savvy in terms of holiday planning, with 69% using the Internet to research and buy holidays compared to the European average of 54%.

2009 was the ‘annus horribilis’ for the European travel industry, and the UK was no exception. Travel expenditure is traditionally volatile and never more so than during times of economic hardship when consumers tend to cut back on discretionary spending. According to the study, almost every European country reduced their travel spending last year as the global recession took hold, and the economic meltdown combined with high unemployment undermined consumer confidence and eroded consumer demand.

The UK travel sector endured a £3.7 billion or -8.4% year-on-year decline in sales from 2008 to 2009, the second largest decline in Europe behind Poland (-19%). The advent of the ‘staycation’ in the UK also had an impact, resulting in a -8.5% cut to individual travel budgets from an average £717 in 2008 to £656 last year.

In 2009, British holidaymakers accounted for 12.6% of total European travel expenditure, with Spain, (including the Balearic Islands) ranking as the most popular destination for UK tourists - accounting for 20% of British holidays. The research also shows that British holidaymakers are more likely to travel abroad than their French counterparts. Last year, British tourists spent 9.6 days abroad which is three times more than French tourists. In total 66% of British holidays were spent on trips outside the UK, compared to the French who spent just 21% of their holidays abroad.

Forecast

The Kelkoo Travel Index predicts a more positive outlook for the European travel sector in 2010, although forecasts could be affected by the volcanic ash disruption which could cost the airline industry £164 million in losses worldwide for each day of lost business.

Although UK sales are anticipated to remain sluggish, spending is forecast to stabilise as the impact of the economic recovery feeds through. 2010 should see the annual rate of decline in travel sales improve significantly from -8.4% in 2009 to 2.4% this year, as consumers make up for recessionary cut-backs. In spite of this, with the sterling exchange at a record low and having lost -7.5% of its value against the euro in the past year, the UK will experience the lowest growth rate in percentage terms out of any European country.

Overall, France (£82.3), Germany (£76.8) and the UK (£41.1) will remain the countries with the highest travel spend during 2010, accounting for 58% (£200.2bn) of total European sales. However, while the UK has the third largest overall expenditure, it also appears to have one of the tightest budgets while on holiday. In 2010, it is anticipated that British tourists will spend £669 per person on travel, less than half as much as the Norwegians (£1,578), the French (£1,272) or the Danes (£1,254) – Europe’s biggest spenders. Whilst on holiday travellers from Denmark are expected to splash out the most per day (£107) on accommodation, food, and attractions. Those from Norway (£91) and Switzerland (£77) hold second and third place. The tourists that spend the least per day are the Poles (£20), the Spanish (£33) and the British (£51). These differences in travel expenditure stem from key factors such as local income levels, the price of domestic holidays, and the general state of each country’s economy.