Outlook on Holiday Confidence Remains High Despite Brexit Uncertainty
The Holiday Confidence Index
First Rate’s recent publication, The Holiday Confidence Index 2018 (HCI), has highlighted a positive outlook for holiday demand in the UK, despite the uncertain climate created by Brexit negotiations and subsequent exchange rate volatility. The report determined that the most encouraging trend was a rise in the Holiday Intention Index. First Rate has determined this Holiday Intention Index to be the most important element of the total score of the Holiday Confidence Index because it measures whether consumers plan to travel abroad in the coming year. The measure for the 2018 study revealed the second highest score since the HCI began reporting five years ago.
This fifth annual study saw First Rate partner with the Institute of Travel and Tourism and YouGov, who surveyed over 5,000 eligible participants earlier this year. The survey consists of six key measures of holiday confidence – holiday intention, holiday frequency, holiday duration, cost of booking, travel money, and at destination spend. Each of these measures is indexed against previous studies to determine annual market movements.
- There is a general increase in holiday intention: 55% of consumers plan on traveling overseas in 2019, compared with 54% in 2017’s survey. 60% of 18-24-year-olds intend to travel, whereas older demographics and those with children are less likely.
- More consumers have already booked their 2019 holiday compared with last year: 46% of respondents have cemented their travel plans for next year with a booking, compared to 44% in 2017’s survey.
- Package holidays are becoming more popular: there has been a 2% annual rise in package holidays totaling 20% of all holiday bookings for the next twelve months.
- More holidaymakers are restricting themselves to one trip: 41% of consumers planning to travel will only take one trip abroad in the coming 12 months, with only 7% of 55-and-overs planning to travel more than once.
- Travel money expenditure remains stable: 77% of consumers still rely on travel money exchange facilities before traveling despite FinTech substitutes gaining popularity in overseas transactions. The travel money industry is becoming increasingly competitive, with online prices getting driven down by comparison websites.
- Consumers are spending less on their holiday: Only 11% of consumers are willing to spend more on their holiday booking compared to their previous trip; this is 3% down compared to 2017’s survey with 8% reducing their budget compared to 2017.
What does this mean?
Overall, First Rate’s report determines several positive measures across the travel and tourism industries. This positivity comes as a surprise to industry experts, who have been tackling volatile and weakening spot rates since the British population voted in favor of leaving the European Union (Figure 1). Furthermore, despite uncertainty on the regulation of the UK’s post-Brexit borders – where speculation on EU-Visas has caused turmoil – an increasing number of consumers plan to travel abroad in the coming twelve months.
Stricter border controls will be a likely outcome if Britain fails to compose a deal with the EU, impacting all cross-border industries with an emphasis on pharmaceuticals (according to the NHS) and tourism.
The volatile nature of the pound has caused consumers to hedge on current spot rates by booking holidays in advance. Those in the 55-and-over age demographic are the most likely to commit themselves to a booking at 52%, compared with only 34% of 18-24-year-olds, even though the latter is the group who have the most travel plans for the coming year (60%).
Only 21% of those planning trips had children, identifying a conservative approach to spending from families and older demographics. This reservation is likely a reactionary measure to recent warnings from the Bank of England about a pressing need to protect financial products and other key sectors to avoid a ‘cliff-edge Brexit.’ Without such industrial preservation or effective deals with the EU, Moody’s has warned that the UK could fall into a recession.
Focus on Currency
Spot rate volatility has led consumers to pursue the most cost-effective method of exchanging foreign currency. Alternatives to traditional travel money exchanges, such as Starling bank – which grew fivefold in the first eight months of 2018 to 210,000 users (FT) – are growing in popularity leaving consumers with more choice than ever. However, many fintechs, who offer near-spot rate exchanges for overseas payments, have failed to create profitable business models.
External competition and an increasingly competitive online market for foreign currency are also triggering concerns for travel money retailers. Comparison websites, such as Money Saving Expert, are providing visibility on exchange rates in a previously imperfect market. 77% of consumers, however, still favor traditional exchange methods over fintech alternatives. According to First Rate, this is largely due to convenience which subsequently has led to supermarkets gaining market share in the travel money market this year.
With online prices becoming unsustainably low across the travel money market, retailers must ensure that they effectively deliver value in every element of their physical presence. Convenience, customer service and pricing are all expected to play an important role in consumer preference going forward.
First Rate’s Holiday Confidence Index has unexpectedly revealed a positive holiday outlook for the coming twelve months as consumers are still willing to travel. With recent spot rate volatility, the travel industry can expect an increase in early holiday bookings to ‘lock in’ prices. However, unfavourable economic forecasts are causing consumers to become progressively price sensitive and spend less on their holiday – seeking savings in every aspect of travel.
As consumers become more aware of such volatility, they are finding the most cost-effective means of exchanging money, with the aid of comparison websites. While alternative means to travel money are growing in popularity, most of the population still prefer traditional means of cash for their holiday expenditure.
Evidently, with the growth of eCommerce players in the travel industry, consumers are willing to shop around for a bargain in every aspect of travel. Margins are being squeezed and shoppers are being abducted from the high street. Travel money retailers then should be looking to optimise their prices, offer excellent customer service and enable a convenient exchange process to survive in such an uncertain climate.
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