Inflation will create a “Haves” and “Have Nots” market.

Rampant UK inflation at 9.4% will severely hit the disposable income of families and lower income groups, which are still recovering from reduced income during Covid-19.

The Covid-19 outbreak saw average household savings rise sharply due to a reduction in discretionary spending on luxuries such as holidays, with debt levels remaining static. However, this was not the case for lower-income families who ran down savings, creating a market where the “Haves” have more disposable income than ever, and “Have Nots” simply cannot afford to travel.

The travel industry has seen the impact of this in Summer 22, with the “Haves” spending on holidays increasing by 15% as they chose more expensive hotels and longer duration holidays. However, the “bargain-driven” late booking market has been relatively weak given its higher dependence on the “Have Nots”, who only book when they know they have enough money to buy the holiday and credit card capacity to cover their holiday spending money.

Summer 2023 is likely to get even more difficult with inflation likely to remain high and unless interest rates are increased forcing up mortgage costs, sterling will remain weak against the Euro and Dollar, pushing up holiday prices.

With aviation, fuel prices also surging and only Ryanair hedged at low rates for 2023, airlines must push up flight costs or face reduced profits. Combine, this with increased hotel operating costs and it’s likely that holiday prices will have to increase by 10-15% just to stand still.

This price increase may be paid by the “Have’s” whose pent-up holiday demand should drive decent early bookings in January 2023, as holiday booking patterns return to normal. However, without the large number of deferred holidays that boosted early load factors for Summer 2022, the year-on-year comparison stats will look poor against artificially high 2022 comparators.

The true pain will again be felt in the lates market.

Low-cost airline yield programs are based on low early prices, with flight prices increasing in increments as load factors improve, with late bookers facing higher prices to encourage early booking. However, what happens when they cannot shift these late seats at high prices?

Jet2 has always “dumped” unwanted seats into heavily discounted but opaque “Package Holidays” as an alternative way of managing yield, however now Easyjet are following this lead which could be bad news for OTA's.

Historically, OTA’s growth has been driven by access to all airline seats on a price parity basis, but as the low-cost carriers in house tour operations grow, they are now facing competitors with access to cheaper flight seats. Ironically, Ryanair and their low-priced flight seats are the key weapon in the OTA’s defence if their shareholders allow them to take the commercial risk of selling such a hostile partner, as demonstrated during the Covid-19 refund chaos.

The combination of weakened demand in the lates market, as economic pressure removes millions of late bookings “Have nots” and a temptation for low-cost carriers to dump seats as packages could create a high volume but low-priced “lates” market. This could provide a bonanza for independent agents and home workers, whilst undermining the ability of OTA’s to compete potentially reshaping holiday distribution yet again.

There are few constants in the UK outbound holiday market and it’s clear that Easyjet Holidays are set for rapid growth as they play catch up with the much larger Jet2 Holidays, but how this growth impacts holiday sales of other trade partners will be fascinating to watch.