Will inflationary headwinds knock the travel sector off course from a strong bounce back post-Covid?

The slump in the S&P/CIPS Composite PMI to 51.8, a 15-month low, and the jump in the input prices balance to 85.7, a new record, suggests that inflation has further to run after hitting 9 per cent in April. Ian Bell, head of travel and tourism at RSM UK, comments on the potential issues this could have for the travel industry:

‘Last week inflation jumped to 9 per cent, reaching a 40 year high, and looks likely that this will track higher as the economic outlook looks set to worsen; but package holiday prices only increased by 3.1 per cent due to a combination of prices being set many months before and some operators having to discount to stimulate bookings and counterbalance any slump in consumer confidence.

‘This presents a significant challenge as travel agents and operators will need to absorb increased staff and business overheads – placing greater pressure on the bottom line and already squeezed finances.

‘After being hammered during the pandemic the travel sector was hoping to make hay this year with no travel restrictions and pent-up demand for holidays post-Covid, but inflationary pressure, the cost of living crunch and reducing consumer confidence could all hamper any hope of a strong bounce back.

‘Air fares have also rocketed by 12.6 per cent year on year so it’s inevitable that winter breaks and summer 2023 holidays will cost more which could impact future outbound sales. The UK staycation market, which benefited from the travel restrictions in the pandemic is also seeing accommodation prices increasing by around 11 per cent and may not seem a cheaper alternative. The size of these increases will certainly test consumer demand and it will be interesting to see how the sector can adapt to offset the inflationary headwinds to support the much-needed bounce back.’