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Can the travel industry capitalise on the pent-up demand for holidays when it finally arrives?
The phrase “pent-up demand” has been repeated almost like a mantra for the industry as it looks for a silver lining in the Covid crisis, and the PwC trade survey backs this up, with 83% of travel companies believing this potential wave of demand will be the biggest opportunity of 2021.
Although, even with a significant release of pent-up demand in the coming months as restrictions are hopefully lifted on international travel, operators do not see a full return to pre-Covid levels of business until 2022.
Other opportunities for the industry coming out of the pandemic include stronger demand for more premium options, as holidaymakers seem prepared to spend more money on their breaks after cutting back or missing out entirely during 2020.
“This aligns with the fact that many people are feeling relatively well-off, having not spent much and saved more over the past year, as well as wanting to treat themselves given they haven’t been able to travel as usual for an extended period,” said Eleanor Scott, director of Strategy at PwC.
The survey also revealed that 11% of operators thought there would be greater interest in “experiences” from consumers, creating more opportunities for firms to boost ancillary spending, while a similar number expected there to be more focus by holidaymakers on sustainable travel.
Operators also believed that holiday prices would go up this year, which will be driven by higher costs and also the fact that consumers are expected to be less “price-sensitive” with more money to spend in 2021.
The pandemic is also inevitably creating changes in booking windows. The majority of operators (94%) continue to be either “significantly behind” or “behind” normal sales levels for summer 2021, compared with the booking cycle seen during a typical year.
While summer 2021 still accounts for 44% of sales for operators, there have been strong forward bookings for winter 2021/22 representing 28% of total sales, while longer-term bookings for spring and summer 2022 account for nearly a quarter of operators’ business (22%), fuelled by the earlier-than-usual release of 2022 programmes.
“A lower mix of summer 2021 versus a typical year reflects the ongoing uncertainty,” said Scott. “Bookings for winter suggest some pent-up demand and consumers wanting to book ahead to ensure they get the holiday they want, given the potential for a bounceback in travel once restrictions ease.
“There are more bookings for further out than we saw in the autumn – this is partly due to timing, but also driven by operators releasing 2022 dates for sale early.”
As for what types of holidays and destinations have been booked through operators, Europe dominates with 83%, well ahead of the UK at 39%, followed by the long-haul options of the Middle East, Caribbean and North America.
Beach breaks were the top type of holiday for operators – reflecting the findings of the consumer survey – followed by group tours, ocean cruises and cottage/villa rentals.
“Many people feel relatively well-off, having not spent much and saved over the past year”
One of the top concerns for travel companies will be ensuring that they have enough cash to keep their businesses afloat through the rest of the crisis. The crunch point for operators, according to the survey, is set to be the second half of 2021, from July onwards when they have resumed operations and will need to pay suppliers.
Companies are now primarily raising money from shareholders or taking on new debt to get through this potential cash squeeze later in the year. The percentage of firms extending their existing credit facilities with their banks has dwindled in recent months (down from 25% to 11%), suggesting more reluctance from lenders to supply this type of credit as the pandemic drags on.
“Whereas last year most cited extending existing credit facilities for funding, that option is less available now and the focus is more on securing funding from shareholders,” added Scott.
More positively, the survey re-emphasised that those travel firms who make it through to the other side of pandemic were likely to come out as stronger businesses than when the crisis started, as they have been forced to become more efficient, flexible and creative with the holiday products they are offering to the public.
That’s not to say that the next few months won’t be difficult, with the main operational challenges being the danger of repeated travel closures due to spikes in Covid infections, as well as having to deal with the potential increase in last-minute bookings and cancellations.
“There are more bookings for further out than we saw in the autumn, partly due to timing”
