Mid-year update on 2018 travel and tourism predictions

At the start of the year we made some predictions about the travel and tourism sector in 2018. As we reach the half way point, we reflect on the first six months and consider what may still occur in 2018:

1. The generation games

As we predicted, consumer demand has continued to shift from buying to doing and evidence of this has perhaps been exacerbated by the on-going toils seen on the high street. Continued tales of woe of profit warnings, restructuring, CVAs and administrations have dominated the business headlines.  

With both centennials and millennials being more health and wellness focused alongside focussing on ethical and environmental issues, travel businesses need to look at how they can entice these consumers to travel with them. Focussing on digital, improving food choice and quality, having environmental issues covered whilst providing fantastic experiences will be key to ensuring your holidays end up on Instagram.

2. Navigating unprecedented regulatory change

Just as the industry started to grapple with mitigating the impact of the abolishment of card charges in January this year, the new Package Travel Regulations arrived, somewhat late to the party, this month. Despite the PTR coming into legal effect on 1 July, agents and operators have yet to fully digest the implication for their business models.

Businesses attending the recent RSM Travel Forum debated this topic and, whilst the changes were mostly welcomed, it was the lack of time to update technology platforms and the customer booking process that was of most concern.

The CAA have stated that a proportionate and mentoring approach will be taken in the first 3 months. Travel businesses still need to ensure appropriate consumer protection is in place; with confusion over Linked Travel Arrangements, the wider definition of a ‘package’ and the impact of the abolishment of Flight-Plus many are struggling to interpret and apply the new regulations. 

One thing is for sure, if the industry remains unclear by the changes, it can hardly expect consumers to understand the implications for their holidays. In the second half of the year we expect to see public awareness campaigns to help communicate what this means for those consumers who are traveling abroad via these arrangements.

3. The GDPR arrives

As expected, the first half of 2018 saw significant activity as businesses rushed to implement changes to their marketing strategies, data security policies and contracts with their customers and suppliers. The actual deadline for compliance was marked by a last-minute surge of opt in emails, with many consumers taking advantage of the changes to cleanse their inboxes and banish unwanted marketing spam.

For those businesses that are compliant but have had their marketing lists decimated by the changes to opt in marketing, the rest of the year will be spent reaching out to customers through alternative channels, such as social media, and trying to rebuild databases. Businesses with huge historic databases have mainly viewed GDPR as an opportunity to clear-out old inaccurate data, understand customer bases better, focus marketing and improve conversion rates.

The deadline may have passed, but businesses should not lose sight of the overall aim of the regulations which are to safeguard and protect people’s data. Continuous vigilance will be required during 2018 and beyond – no one wants to be the first business to be found in breach of GDPR and investigated by the ICO.

4. People matters

We envisaged a focus on staff retention being a key theme in 2018, particularly through creating career ladders, training programs and a fulfilling fun work environment. Staff play a vital role in enhancing the customer experience. This has certainly come true, with recruiting the right staff remaining a challenge.

Alongside recruiting and retaining staff saying the right side of requirements such as National Minimum Wage is also a key area for travel businesses in 2018. There has been a focus on off payroll working for some time and we expect this to ramp up over the next six months as HMRC publish responses to consultation documents around off payroll working in the private sector and the wider issue of employment status. Businesses in the sector should assess what off payroll arrangements they currently have in place. Where these arrangements are with Personal Service Companies (PSC) consideration should be given as to what the additional cost could be if new rules are enacted which require the end user to assess arrangements and withhold PAYE/NIC if they have the feature of an employment relationship.

5. Shift from buying to doing

We predicted that the travel sector was likely to be a net winner in the experience economy. However, with the unprecedented hot weather and the value of Sterling pushing up holiday costs this is no easy feat.

Focussing on innovation and capitalising on trends will be key for operators over the next few months. With trends such as health and wellness, retro experiences, bucket list destinations and the ‘Blue Planet II’ effect operators should be looking at how they can integrate this into their offerings and tailor their marketing to highlight the benefits of traveling for these unique and customised experiences. 

6. Consumer confidence

At the mid-year point, the evidence seems to suggest our predictions were correct and the travel sector has held up somewhat better than other consumer sectors. Recent Barclaycard spending data for June shows year on year spend with travel agents up 14 per cent overall (17 per cent online and 10 per cent in store) and with airlines up 15.1 per cent. This compares to an overall spending increase of 5.1 per cent and supports the view that travel is generally bucking the trend of the rest of the high street. The fact that travel spending growth continued to beat bar income during the World Cup is particularly impressive.

Interestingly, the latest GfK data showed summer 2019 bookings up 40 per cent compared to 2017 bookings for this summer. Perhaps we are seeing cautious/savvy customers high on Brexit uncertainty locking into a price for their 2019 holidays?

7. Sparkle with Markle?

We expected the Royal Wedding would boost UK inbound tourism, bolstering the attraction already generated by the weakness of Sterling. We saw hundreds of thousands of Royal Wedding tourists enter the UK for the celebrations.

The recent numbers released by the IPS support the view that the weakening of the pound post the EU referendum has attracted more tourists to the UK. Inbound tourist numbers were up 4 per cent in 2017 to a new high of 39.2m, with spending up 9 per cent to £24.5bn. June 2018 data from STR has indicated a year-on-year increase in London hotel occupancy for the first time since May 2017 increasing by 2.2 per cent to 86.1 per cent.

VisitBritain anticipates a 4 per cent increase in tourists visiting the UK in 2018, spending £26.9 billion, 7 per cent up on 2017.

Whilst some may have kept away from the capital for the recent visit by President Trump, the data shows that May 2018 certainly added Sparkle for some UK businesses.

8. And to Europe

We expected the UK’s relationship with the EU single market and customs union to be under the spotlight throughout 2018 and the much-needed clarity around key issues to be communicated by the Government in the first half of the year.

At this stage, the view is that if the UK remains part of the Single market, the VAT system should remain, with of course the potential for any transitional period.

However, RSM is aware of the draft consultation bill that is with the government for consideration. That implies the Tour Operators Margin Scheme (TOMS) will continue, having had representations that if TOMS was abolished in favour of a UK only regime, circa £120m of revenue would be lost.

With so many more questions than answers at this point many travel businesses are finding it difficult to plan and this uncertainty looks likely to continue in the second half of 2018.