A welcome break from the doom-and-gloom

Despite the demise of holiday firm XL and money troubles at Alitalia, the desire to travel remains as strong as ever.

Peter Smith

22nd September 2008

On 24 September, in central London, spiked is hosting a public debate titled ‘Are we talking ourselves into a recession?’ Here, Peter Smith argues that despite the economic problems of the travel industry in the short term, the desire to get away will continue to expand passenger numbers. Buy your tickets for the spiked debate here.

Are you tired of ‘bank in meltdown’ headlines? Do you fancy a break in the sun, away from the doom-and-gloom? Well, similarly depressing reports of the state of the UK travel industry might make you think twice about getting your credit card out.

As the summer season came to an end, the news were full of images of holiday makers being flown home, Dunkirk style, by the Civil Aviation Authority after the collapse of the UK’s third-largest tour operator – XL – on 12 September. The XL collapse affected approximately 300,000 people, with as many as 85,000 stuck overseas and a further 200,000 who lost their booked holidays and flights. The British press was full of stories about tourists struggling to get back on flights or facing sizeable bills from unpaid hoteliers.

Things were looking gloomy for the travel industry even before XL went bust. On August Bank Holiday weekend, the traditional last-gasp getaway for Brits before the summer ends, the Financial Times warned of ‘Rain clouds gathering over Europe’s holiday industry’ (1). That must have made for cheery reading in the departure lounge.

Recent record oil prices have already forced the closure of budget transatlantic airline Zoom and high-end business carriers Silverjet and Maxjet, while ever-struggling Alitalia seems on the brink of bankruptcy – again. British Airways boss Willie Walsh last week warned that the airline industry faces a ‘deep and protracted’ crisis (2). His airline reported carrying 100,000 fewer passengers last month, with the biggest fall on short-haul, European routes that should have been chock-a-block with summer holidaymakers (3). Globally, the International Air Transport Association (IATA) has just revised its forecast downwards, estimating airlines losses of £5.2billion over the next two years, most being concentrated in the US (4).

With recession looming, are we now seeing the end of the holiday, as some predict? Or, even worse, is the credit crunch forcing us to stop flying altogether, as many environmentalists want? With shrill headlines about travel companies collapsing and ‘stranded in holiday hell’ stories, it’s worth shining light on some short and long-term trends.

In the short term, it’s likely that the credit crunch and any recession will have an impact on holidays as consumers – particularly working families, the mainstay of the package holiday market – rein in their household spends. UK travel firms acknowledge this and warn of a tough trading year in 2009 (5). Smaller airlines may not weather the financial storm and could go under.

That said, XL was exposed: despite being the third largest package holiday operator in the UK, the company was less of a player elsewhere. The EU holiday market is dominated by larger conglomerates, which have merged and rationalised over recent years (like TUI Thomson and Thomas Cook). Reports also suggest XL had been in financial difficulties for some time, so much so that industry insiders and City boys bet widely on XL going bust in the weeks and days prior to the tearful TV announcement by XL’s chief executive that the company had run out of cash. At one point, Paddy Power bookmakers had taken so many bets on XL going under that that it closed stakes on the airline (6). So when the end came, it was hardly a surprise for those in the industry, even if it was a shock for holidaymakers.

Likewise, in Italy, the national airline Alitalia has been in on-going financial dire straits for around a decade. Often described as a basket case, all things being equal it should have gone bankrupt years ago; yet it remains in business, thanks mainly to Italian national pride. What major country would let their national flag carrier go bankrupt? Greece’s Olympic Airways has been in a similar position and, contrary to European legislation, has been bailed out by the Greek government for years, only coming to an agreement – sorry ‘understanding’ – with the EU last week to repay this illegal funding prior to privatisation (7).

Likewise, Berlusconi’s Alitalia rescue plan is likely to be of interest to the European Commission. In 2001, the Belgian airline Sabena – co-owned by Swissair – folded. The Belgian government orchestrated the creation of a new airline to fill the gap while Swissair was the subject of a rescue package backed by state support, allowing both countries to keep a national airline. US airlines have also been in and out of financial difficulties (if not in and out of Chapter 11 bankruptcy protection) in recent years, the damage to American pride of a major airline going under trumping the ‘free’ market every time.

The tourism market is changing and in the current economic climate there are likely to be casualties. Small package-holiday operators selling products with low margins are particularly vulnerable. The major conglomerates benefit from wide economies of scale and notoriously poor wages and they have diversified into higher-yielding products, such as adventure tourism or golf holidays. Other revenue-raising tricks include the familiar offering of add-ons: the obligatory-until-you-opt-out travel insurance or extra legroom on the flight.

In the long term, however, foreign travel will no longer be a luxury only available for the wealthy. Globally, the picture is even more complex. Whatever the difficulties the tourism industry faces in the EU and US, any slackening in demand in these regions is already being offset by rising tourism-generating markets such as China, new EU states and Russia (8).

In the UK, latest figures show residents’ visits abroad in 2006 numbered 69.5million: a 4.7 per cent increase on 2005 (9) and this trend has continued into 2008. It is a similar story in other major tourism-generating countries. This is particularly the case for the young, who have grown up with budget airlines and the ease and flexibility of booking their travel arrangements online. People tend to go away for a shorter period of time, but more frequently throughout the year. Indeed, as first-time buyers are squeezed out of the housing market and forced to rent rooms or live at home, surely the thought of a weekend in Ibiza or a trip to the sun next summer is all the more enticing and affordable. Let’s face it: there’s no point saving up a deposit for a house when you have little prospect of getting a mortgage or affording the payments.

Budget airlines, although having difficulty making profits, are reporting record passenger numbers, so it seems people are unwilling to let go of their summer holidays despite the gloomy headlines (10). Good for them. Like that other civilised activity that was once the preserve of the wealthy – eating out – British society has got used to foreign travel being a regular leisure activity. This isn’t set to change.

Peter Smith is director of tourism at St. Mary’s University College, Twickenham, London. He is speaking in the session What is it to be educated? at the Battle of Ideas festival on 1&2 November at the Royal College of Art, London.

Previously on spiked

Peter Smith said that despite shrill headlines about badly-behaved Brits, most people have a great time overseas. James Panton urged us to celebrate the freedom of flight. Neil Davenport had no sympathy with those who welcome a recession in the name of ‘saving the planet’. Brendan O’Neill said commentators who rejoiced over the closure of 700 Starbucks coffee shops expressed the socialism of fools. Or read more at spiked issues Tourism and travel and Economy.