Challenging economic times have impacted global travel markets and will continue to do so in 2010; however, there are signs of a recovery in consumer confidence.

Challenging times in the world economy

The last 12 months have seen some of the most challenging global economic conditions experienced for a generation. The travel and leisure market is impacted in particular by consumers’ disposable incomes and confidence, unemployment rates, currency fluctuations and oil price movements.

All of these major drivers have deteriorated significantly. GDP in major developed markets is expected to decline by up to 6% in 2009. Unemployment rates have increased on average by two percentage points. Oil prices continue to be highly volatile, and key currencies, particularly sterling, have devalued significantly versus the euro and US dollar.

It is no surprise then, that corporate insolvencies have risen significantly, which has contributed to the trillions of pounds of government bailouts and stimulus plans put into place in 2009.

Other factors that have impacted global travel markets

In addition to the generally tough economic environment, there have been a number of other factors that have impacted global travel markets.

Global terrorism, such as the attacks in November 2008 in Mumbai and the more recent bombings in Majorca, has impacted consumer confidence. The swine flu epidemic has similarly affected travel plans, both in terms of inbound travel to Mexico as well as outbound travel more generally.

Increasing taxation has had an impact on the relative affordability of travel with governments seeking ways both to raise money to pay for the aforementioned stimulus plans and bailouts and to use taxes as a way to mitigate global climate change as we have seen with recent airport departure tax rises.

As a result of these challenging economic conditions and other factors impacting the travel market over the last year, there has been a significant decline in the overall travel market. This is highlighted in figure 1, which shows that the European leisure and unmanaged business travel market in 2009 is forecast to shrink by 9% versus 2008.

Changing consumer behaviours

The challenging economic climate has led to a number of new trends in consumer behaviour, as well as a continuation of some existing trends.

Consumer uncertainty has impacted travel markets in a number of ways. Fewer people have travelled abroad cutting, in particular, second holidays and weekend breaks. In the last year, there has been an increase in consumers holidaying in their own countries (the famous ‘staycation’).

Consumers have, however, prioritised their main summer holiday abroad, although they have often waited much later to book their trips to assess both weather in their home country and personal finances. There has also been a realisation that ‘staycations’ in many developed markets can in fact be more expensive than overseas trips and be subject to much less predictable weather.

For those consumers that did take a foreign holiday, they have looked to manage their budgets carefully. As a result there has been a marked increase in demand for all inclusive products which allow for easy budgeting, as well as strong demand for package holidays that offer both consumer protection and a single bundle price for travel.

Other consumer trends have continued and in some cases accelerated as a result of the downturn. As figure 2 shows, there has been a strong growth in travel to medium haul package destinations such as Turkey and Egypt, in part helped by the strength of the euro (versus, for example, sterling and the Swedish krona), which makes these destinations relatively cheap compared to for example, Spain and Greece, and their availability of purpose built high quality accommodation and all inclusive hotels.

The growth of independent travel has also continued. The ongoing improvement of dynamic packaging technologies, which allow consumers to create their own packages, and greater online penetration (as shown in figure 1) are in part responsible for driving this growth. Consumers are becoming increasingly comfortable using the internet to research and create their own trips, but also appreciate a multi-channel approach, particularly the advice of a knowledgeable agent.

1. *Online penetration of the leisure market.
   Source: PhocusWright Eurpean online travel overview 5th edition

1. Multiple answers allowed.
   Source: YouGov Online Omnibus October 2009.

Looking forward

All the signs point to global economic conditions continuing to remain tough in 2010. GDP in major markets is expected to return to slow growth in 2010. Unemployment, which traditionally lags GDP, is expected to continue to grow in major markets. Fuel and currencies are likely to remain volatile as economic uncertainty persists. In addition, the impacts of swine flu, taxation and global terrorism will all continue to impact consumer confidence and therefore travel plans.

Despite the tough conditions, there is evidence that consumers are feeling more positive about their holiday plans for next year. Recent independent research commissioned by Thomas Cook in the UK shows that holidays remain a top spending priority for 2010 (see figure 3). The research also shows a marked increase in the number of people intending to take a holiday abroad versus the same time last year.

However, whilst volumes may recover somewhat, consumers are still likely to exhibit the same price sensitivity and later booking patterns as seen in 2009. As a result, forecasters are pointing towards a relatively flat 2010 for the European travel market (see figure 1).

Back to top