//Industry insights: the falling pound

Industry insights: the falling pound

Gary Noakes sees how sterling holds up against non-euro currencies, and how this might dictate post-Brexit travel.

Five months before Brexit, a question consumers and travel organisers are keen to have answered is how currency rates
will be affected – and how this will influence holiday spending.

No one needs reminding that following the Brexit referendum in June 2016, the pound’s value fell from €1.3 to €1.16 in a fortnight and, in terms of consumer exchange rates, has stayed below €1.2 ever since. Sterling has also fallen against the dollar – with which aviation fuel is bought. Although this September’s $1.32 level seems not far below the pre-referendum $1.47, memories of a pound buying $1.75 a decade ago are just that.

This is in tandem with a rise in oil prices; crude oil now trades at about $69 a barrel, compared with $50 a year ago, meaning aviation fuel is more expensive. Hedging smooths currency and oil price spikes, but on the face of it, it’s not looking good.

The long-term picture, however, may give some hope, as Post Office Travel Money’s Andrew Brown explains: “If you were to do a graph over the last 10 years, the euro would range from around €1.4 to a low of around €1.02. The average would not be much different from where it is today, around €1.2, and the travel market has grown steadily since the economic crisis of 2008/9.”

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ONS figures confirm this; last year, a record 72.8 million Britons went abroad, two million more than in 2016. Figures now surpass the previous peak of 12 years ago (69.5 million of us travelled abroad in 2006) and have a long way to fall before they hit 2010’s trough of 55 million visits – Brexit’s effects will have to be very corrosive before that figure is seen again.

Similarly, look at the long-term oil price trend and you find a spread between $140 in 2008 and $35 in 2016, with $100-plus rates for several years in-between, so perhaps we should not be too alarmed, although Brown concedes that the 10-year spread on the dollar is much wider than the euro’s. “That has an impact,” he says.

In short-haul, operators have been switching to non-euro destinations – witness Tui UK’s move into Croatia’s islands of Krk and Rab next summer. Croatia saw a 26 per cent jump in UK arrivals last year and Tui is following canny consumers away from the western Mediterranean.

As well as the destination switch, Brown points to another change in the past decade: that of flexible durations, which help consumers manage costs in times of unfavourable exchange rates.

“Go back 10 years and it was seven or 14-night holidays. Now, we’ve seen some shrinkage as people who can’t afford a fortnight go for 10 nights,” he says.

Whatever the pound’s woes, somewhere is always worse off than us and, currently, that country is Turkey. August saw the imposition of US sanctions on Turkish metal exports, a punch to Turkey’s already weak economy that prompted the lira to crash. In September 2017, a pound bought around 4.8 lira; a year later, sterling was worth 8 lira and back came the bargain-loving Brits. Figures from market research company GfK show UK bookings to Turkey are up 80 per cent year on year.

The switch is also apparent in long-haul, with hotspots such as South Africa trending. In-country costs have fallen in
14 of 34 long-haul destinations surveyed by the Post Office, with Brazil’s down 33 per cent since last year and Cape Town’s down 20 per cent in a year, both due to their respective currency’s weakness. Sterling might not buy as many euros as it once did, but in some places, it still ensures a luxury break at bargain rates.

In the post-Brexit era, there will be many countries where the pound is still powerful. The burgeoning number of flight options means much greater flexibility and cheap long-haul destinations are within easier reach.

But perhaps none of this really matters. A survey of 500 consumers by payment advice service DCC Forum found 70 per cent could not identify the correct dollar exchange rate, and 41 per cent that of the euro. Ignorance is bliss, and the number of Brits travelling abroad seems set to increase. The recent Holiday Habits Report revealed says that 60 per cent of the population took a foreign holiday in the past 12 months – the highest figure since 2011.

ABTA Magazine – November 2018

The November 2018 issue of ABTA Magazine is the fourth created by Waterfront Publishing.

With an exciting new look, feel and ethos, the magazine has a renewed focus on industry news. In this issue, Nicky Holford looks at the 2019 ski season; James Litston visits the Great Barrier Reef; Anthony Pearce heads to Hokkaido, Japan; plus, there’s an exclusive interview with G Adventures founder Bruce Poon Tip. Click on the cover to read the magazine in full or subscribe here.