Three weeks
ago I opened our European Summit in London. On the downside this turned out to
be quite nerve-wracking and stressful. On the upside, it got me thinking about
the state of the travel industry and led me to
some interesting conclusions. Essentially, I wanted to
ask whether we should be hiding under our beds, fearful of the future, or
rubbing our hands with glee?
Well,
firstly, we travel professionals are almost
inevitably industrious, intelligent and devilishly good-looking, so no worries
there. However, on a macroeconomic level things seem
a bit more worrying. Slowing global growth,
weaker developing economies, market instability, plunging commodity prices,
high public and corporate indebtedness, the fragility of the European Union – these
are all causes for concern and I could go on. It
is certainly a materially weaker outlook than in 2015. Several central banks
have thrown everything in their arsenal at
trying to stimulate growth and inflation, encountering
mixed results at best.
Within this
context, it may seem all doom and gloom but
there is a subtext that is critical to travel i.e.
consumer spending and the way it is changing. Although median incomes have
remained relatively static since the recession, consumers are spending more and
critically, they are apportioning more of this
spending to tourism and travel. Indeed, consumer
spending is driving much of the remaining growth in developed economies.
So, on to the data that demonstrates these trends. In both
graphs I have plotted wider spending against travel spending. The top graph is
for the US where spending on durable goods and the value of goods imported (measures of spending physical items) have
increased – albeit at fairly pedestrian rates
since 2011 – whereas tourism spending growth has accelerated each year to a
high of just under 16% last year. Similarly in Europe, as shown in the bottom
graph, total spending has risen 7.9% since 2011 but the combined travel and
tourism spend has risen 13.2%. Some of the individual components for this are displayed here as well, with transport services
(passenger transport by all means) performing particularly well.
I note the
lack of rising incomes in particular because this should indicate a depressed
outlook for the travel industry. Realistically, travel
is a luxury good - or in economic terms an elastic good - to be put on the back
burner in hard times. Therefore this potential trend is even more
exciting because it is happening in spite of
conventional wisdom.
It’s early
days but this trend appears to be continuing into 2016. As I noted above, the growth outlook is weaker than in
2015 and consumer confidence is down, plus UK
and US consumers are saving more of their income. However, travel spend remains
robust.
- The ONS reported that international visits to the UK were up 7.2% in the first two months of the year and Barclays reported that UK consumers were spending 3.2% more on travel in Q1 2016
- Spain's national statistics agency estimates that tourism expenditure was up 7.4% in Q1 2016.
- Inbound tourism to Germany increased 6% over the first two months of the year.
- US outbound tourism was up 9.6% in January 2016 compared to the same month in 2015. Domestically, bookings and rates were also up, and indices are predicting growth.
So,
hopefully this has given you a little bit of hope to ward off the negative
sentiment bursting out of most news providers. Of course, we remain vulnerable
to a recession but if this trend does continue to be
supported by the data then we can expect tourism and leisure to be one
of the strongest performing sectors over the next decade.
Alex Hadwick
Head of Research, EyeforTravel
