Recession gives British holiday industry a boost

On the morning of 11 August, Mervyn King took his seat before the financial press to deliver the Bank of England’s latest quarterly report on UK inflation. The governor’s sombre expression told its own story. Economic growth targets would need to be revised downwards, he explained; inflation was likely to stay well above the Bank’s two percent target throughout 2011. King even conceded that a double-dip recession was not out of the question.

Later that evening, one national news broadcaster decamped to a holiday park on the south coast of England to take the pulse of the nation. One by one, the public lined up by the side of the swimming pool to regale their personal tale of woe. Some had recently lost their job: others had seen a marked downturn in demand for their trade and almost all had suffered a significant fall in their disposable income as a consequence of the economic downturn. All things considered, the report painted a bleak picture of Austerity Britain.

But the backdrop for this tableau of despair told a different story. The holiday park was fully booked, as it had been for the vast majority of the summer. Had the broadcaster chosen a different holiday park it would almost certainly have encountered the same scenario. Indeed, evidence from across the industry shows that against a depressed economy and pound, domestic holiday operators are thriving as cash-strapped consumers in the UK eschew an overseas trip in favour of a “staycation”.

Pontins and Butlins, two of the UK’s most iconic holiday parks with their respective bluecoat and redcoat entertainers, enjoyed double-digit growth in bookings in 2009 with the operators predicting similar growth for 2010. Center Parcs’ revenues grew 5.5 percent and profits 13.3 percent last year and occupancy rates hit an all-time high of 97 percent by November 2009. Merlin Entertainments saw UK revenues increase 10 percent as holidaymakers swapped the Costa Del Sol for its Alton Towers, Thorpe Park and Legoland attractions.

Weak pound, more strikes
Figures from the Office of National Statistics show that holidays to the UK from overseas residents rose five percent to 11.4 million in 2009. Meanwhile, the British Tourist Authority says the number of trips taken within the UK increased by seven percent in 2009, citing a rise in demand for domestic holiday trips from skint Brits.

Whether staycations are here to stay or a flash in the pan depends on your point of view. Outsiders looking in prefer to attribute the rise in holidaying at home to a series of external factors that have played to the advantage of UK operators, most notably a weak pound and the increased risk of delays or expensive flight cancel­lations in air travel because of heightened industrial action. With further deep public spending cuts and tax increases on the horizon, it is possible to argue that the UK tourism industry’s recent resurgence is merely an anomaly that will iron itself out – if, and when, exchange rates realign closer to pre-recession levels.

A flurry of business collapses in the UK tourism and holiday industry over the summer have played to the advantage of the Center Parcs and the Legolands. The collapse of budget holiday operator Kiss Flights in August, which followed the high-profile failures of rival outfits Goldtrail and Sun4U earlier in the summer, served to increase consumer insecurity over travelling abroad, coming not long after the unprecedented disruption caused by the Icelandic ash cloud and more frequent British Airways cabin crew strikes.

“Travel is a sector that is intrinsically linked to consumer confidence and with public sector cutbacks and concern over job security more people will be staying in the UK for their holidays,” said Mark Wilson, partner at Baker Tilly, following the collapse of Goldtrail.

UK holiday operators acknowledge they have been blessed with a prevailing wind. Yet finance directors among their number stress that it has given them the platform they needed to justify bigger capital expendi­tures in their offerings that will help them sustain the increase in business and compete with the Continent’s charms.

“Many holiday parks have been constantly raising the bar on quality and choice,” says Al Loch, chief financial officer of Park Holidays UK. Demand for Park’s caravan holidays has surged this summer and Loch anticipates finishing 2010 with a 10 percent rise in year-on-year bookings.

“Sales of holiday homes have also increased by a similar amount and in terms of income from renting pitches for touring and camping, many of our parks are reporting a 30 percent rise on 2009,” he says.

Loch notes an increase in demand from the UK’s white collar workers – university-educated, salaried office dwellers traditionally seen as favouring overseas holidays. He also identifies a growing demand for shorter breaks rather than the usual week away.

“For some people, a shorter break may well be an economic choice,” Loch says. “But I think more significant is the preference of many people to take a larger number of shorter breaks each year, instead of the traditional week or fortnight away.”

That is borne out by data from the British Tourist Authority showing that within the seven percent growth reported in trips taken in the UK over the last year, the increase in people staying away between one and three nights was 11 percent.