The views of 2,000 consumers interviewed in December also showed most were happy with dynamic pricing when it came to buying travel.
In its 2024 Retail and Leisure Outlook report, NatWest said holiday expenditure will come at the expense of takeaways, electronics, furniture and other sectors that thrived during the pandemic, with 17% of consumers saying they will increase spend on holidays and 13% on hotels.
The report predicted Gen Z (those under 27) and millennials (aged 28-43) were “most likely” to cut travel spend due to economic pressures.
However, it added: “Gen Zs and millennials are more likely to find cheaper holiday alternatives. Trading down may come in the form of fewer days away, shorter haul flights, or domestic rather than international holidays."
The report also concluded dynamic pricing was more accepted in the travel industry than in others. While the technique was given a negative reaction for groceries, energy and retail products, it ranked nearly 10% higher acceptance than average for airline ticket purchases and more than 12% for hotels.
David Scott, NatWest’s head of consumer industries, said: “With peak holiday booking season now upon us, it will be important for travel agents to understand changing shopping behaviours.
"Consumers consider dynamic pricing to be more acceptable for hotels and airlines than any other category, but the industry should still be cautious to maintain customer trust and loyalty.”
Holidays now ‘a non-negotiable area of household spend’
NatWest predicts household incomes will not recover to pre-pandemic levels this year, while soaring interest rates mean an average extra £218 a month in repayments for those switching from a fixed rate.
An estimated 4.4 million households will pay an extra £625 million in mortgage payments by 2025. However, those with savings will reap benefits.
The bank’s retail economics chief executive, Richard Lim, said: “Holidays have become a critical, almost non-negotiable area of spending for households. Most consumers are determined to get away this year, particularly as they look to ‘catch up’ on travel after holiday plans were derailed during the pandemic."
Lim continued: “Consumers are now unwilling to cut out holidays even as personal finances come under pressure from heightened interest rates. Instead, households are becoming savvy by embracing off-peak travel, turning to cheaper, short-haul destinations and looking out for last-minute deals.
“But squeezed budgets will mean households inevitably have to cut back elsewhere. This includes spending on home categories being a lower priority compared to holidays and essentials, as elevated borrowing costs widen the scope of households under pressure, particularly among those who recently renewed mortgages or rental contracts.”
The report comes just a day after new data from Barclays showed spending on travel increased by 9% year-on-year in the period from Christmas Day to 19 January.
