Month: July 2023
How is the summer season performing for you?
We enter the make-or-break month of August for the domestic holiday market with a couple of record-breaking months behind us; June the hottest on record in the UK followed the wettest July ever recorded and in some place by a considerable margin. The latter is never good news as it suppresses day and spontaneous staying trips, it impacts on the performance of summer events programmes and it can have a negative influence on future intentions for those those who have chosen and committed to take UK holiday this year.
A quick ring round of selected members last week, suggests that despite the generally good pre main season weather in June, results were mixed and generally still below para for both the time of year and for the generally long run of good sunny weather. Not surprisingly the overriding feeling is that the cost-of-living crisis is subduing visitor volumes but, in particular, day and staying spend among those that did visit.
The cost-of-living crisis has been either on the cards or with us now for the best part of a full year. The critical new factor is the more recent impact of interest rises on mortgages now being physically paid and/or the prospect of more households following suit, as advantageous fixed deals come to an end of their agreed span. For the “average family”, who are the bread-and-butter trade of the main summer season, housing cost (mortgage or generally related rental costs) are bound to be an almost universal concern. Even if you can easily afford the increases, the sums involved are typically in the order of hundreds of pounds a month and equate to the cost of a short break or second holiday or two. Logically something must give and retaining a roof over the family’s head is likely to take priority over discretionary, leisure spending, days out, short breaks and second and subsequent holidays all of which are the lifeblood of domestic tourism.
I remain convinced that we have returning to a phase where the domestic market is increasingly in direct competition with domestic outbound travel. When the leisure and tourism market was constantly expanding (pre-2020) there was plenty of room for both domestic and domestic outbound within the elasticity of the leisure pound. Covid-19 followed almost immediately by a financial crisis means that that elasticity has gone, disposable income is contracting and for those lucky enough still to have the choice, it is increasingly one or the other, not both.
Certainly, high quality sentiment research conducted in the latter half of 2022 and early 2023 supports the view that many individuals were choosing to curtail general UK visitor economy activities (pubs, eating out, to days out and holidays) in order to preserve “the annual holiday” by which most mean a longer overseas holiday trip. Having preserved those trips, usually booked well in advance, whether they have regretted the decision due to changing financial circumstance in more recent months, or in some cases due to the equally record-breaking unpleasantly hot weather condition in many popular near European destinations still remains to be seen.
Crystal ball gazing, it seems likely that record breaking weather conditions we have seen in this and previous years are set to be the norm now. It is also becoming clearer that the changes are not necessarily going to work in our favour. The traditional main summer season months of July and August may not now be the best months for outdoors tourism, as we would traditionally expect them to be? We can’t change the weather (we already done that!). Nor can we realistically hope to quickly or easily change the established patterns of when the critical main summer school holiday period falls. We can, however, look at how we compete both with other general calls on disposable income and, in particular, how we compete with our direct competitors for tourism spend, the outbound domestic market.
One colleague in my recent ring round sagely commented on their belief that some parts of the market, self-catering holiday cottages in particular, had potentially priced themselves out of a now depressed market, based on the over optimistic results of the relatively short-lived immediate post covid-19 period. This is something that is certainly worth further investigation and it is supported by anecdotal evidence that some agents, Hoseasons (?) for example, may have been encouraging discounting among its owners this season.
Going forward and with thoughts turning to 2024, a modest reset of the pricing within some parts of the industry may be necessary? This of course isn’t a palatable message for those still trying to recover from the Covid effects on their businesses and also under the self-same additional financial pressures as their potential customers. It is something perhaps to mull over in what remains of this year’s season. Something that we might then jointly try to influence in a positive fashion and do so rather sooner than if it were simply left to the alternative which is to let market forces rebalance pricing over time, with all the attendant untidy and often unwelcome consequences that usually entails. Beyond evidencing the need, developing convincing arguments and encouraging businesses to consider the option I am not sure what form that influence could take. Thoughts on the need, the rational and means would be welcomed.
While I was conducting my “quick and dirty” survey I received the following update from VisitEngland. Their excellent sentiment tracker and accompanying headline summary gives a quantitively assessment of consumer intent and attitudes:
The Domestic Sentiment Tracker Report for July 2023 has now been published on our website this morning: https://www.visitbritain.org/domestic-sentiment-tracker
Summary of findings
The perception of the cost of living crisis remains stable in July. Domestic overnight trip intention has remained steady at 75%, although slightly down from the April 2023 peak of 77%.
- In July, 50% of UK adults stated that the ‘worst is still to come’ with regards to the cost of living crisis (49% in June / 49% in May / 54% in April). This is stable compared to June and May which were the lowest recorded.
- Next 12 months trip intentions for domestic overnights: 75%, with 50% planning a trip July-September and 33% an October-December trip.
- Next 12 months trip intentions for domestic overnights are higher than same time last year, although the gap is beginning to close: 75% July 2023 v 72% July 2022.
- Next 12 month trip intentions for overseas trips is 56% (down from high of 58% in May) and on par with July last year (55%).
- In comparison to the past 12 months, in July 2023, 36% are more likely to choose domestic trips over overseas.
As every I would welcome comment on how your season is panning out from the many members I didn’t or couldn’t contact last week. I would also appreciate any views, particularly to the contrary on either performance or on the suggested actions, I.E. the potential need for a re-set of price points for certain products (clearly not all).
Finally please don’t forget to book into our joint annual conference Tuesday 19 September. Some of the above will be addressed within or at the fringes of the conference: https://britishdestinations.net/annual-conference-19-march-2018/
Intemperate language, increased visa fees and annual conference update.
1. Water Companies. Three or more years ago when Ofwat and EA enforcement action first began to shine a light on to the frankly scandalous historic behaviour of some, if not all of the UK’s private water companies, some colleagues in both British Destination’s and the UK Beach Manager’s Forum were concerned about the my use of at some potentially “intemperate language” used to describe emerging evidence of: avoidance, deceit, illegal and in some instances seemingly criminal behaviour, apparently undertaken to reduce both operational and necessary investment costs and all in order to help inflate profits and maintain senior executive bonuses and shareholder dividends.
I must confess to being a little nervous myself at first, but that nervousness soon turned to anger as it became increasingly apparent that the actual actions of most of the companies have been considerable worse than any of us have reasonably imagined. I like most others dealing with water and bathing water quality had swallowed the repeated assurances from the companies and, sad to say by Defra, that they had and were doing all in their power to address coastal and riverine water quality. All the evidence that has emerged since c 2019/2020 suggests that at best they were doing, the absolute bare minimum. Every indication is that there are far more and potentially far worse revelations yet to come.
If anyone has any lingering doubts about the use of “intemperate language” to describe some of the typical actions of the water companies over the last decade plus then look no further than the latest court judgement against Thames Water on 4 July (https://www.thetimes.co.uk/article/thames-water-3m-fine-clean-it-up-2ppnvck8d).
The judge when fining Thames Water over £3m, accused them of “either deliberate dishonesty or breathtaking blindness”. Although the pollution incident was serious and it’s handling very poor to the point of being inept, the particular notable highlights of the court case include: Thames Water denying for a number of years that there had ever been incident in 2017. Then when brought to account, withholding records on the grounds none had been taken. Records that subsequently helped prove the case against them, and which were only released after the EA produced a photograph taken by one of their inspectors of contractors recording relevant data.
Clearly a £3m fine, a c £1m voluntary contribution to 3 local environmental charities and the announcements of over £32m investment to eradicating the underlying problems in just this one sewage works, will not help the debt-ridden Thames Water’s growing financial problems. Problems that yesterday resulted in its owners writing-down the company’s book value by some 30%.
As well as worrying about whether Thames Water, their debts and critically their massive liabilities may yet fall back to Government (aka “doing a Bulb”), Government should be also be worrying about how to explain how this and previous Governments have allowed a culture of prolific profit taking to develop, unchecked in such critical piece of national infrastructure and then allowed it to be owned, operated and run in such a frankly reckless fashion. I very much doubt an answer will be willingly offered anytime soon.
2. Visa Charge Increases. Despite very well-argued campaign aimed at persuading Government to reverse previous increases in UK visa costs, the PM last week announced plans to increase UK work and visitor visa costs by 15% and all other visa or visa related costs by 20%, as part of financial measures to help pay for the increased public services wage bill and specifically NHS pay awards. This is bad news for inbound international tourism and unhelpful for those relatively few but nonetheless important areas where tourism is still able to file critical skills gaps with overseas workers. Thanks to the Tourism Alliance for highlighting the issue and for link to a useful article on the issues involved: https://www.standard.co.uk/news/uk/why-uk-visa-fees-cost-rising-b1094477.html .
Although industry representative bodies, including the Tourism Alliance, will be raising concerns about this move, in the current circumstances it seems highly unlikely that the decision, already publicly announced, will be reversed anytime in the near future. Any case for a reversal will need to be well evidenced. Something that in itself is likely to take time, not least because to be convincing it will need to demonstrate harm done, rather than harm predicted. That harm has yet to happen and will impact over time, not necessarily instantaneously.
3. Annual Conference. Bookings for the joint Tourism Alliance, Tourism Society and British Destinations, annual conference on Tuesday 19 September are continuing to come in. We are now reaching the point at which the numbers, not time-based, early bird ticket offer will soon expire.
If you are interested in the event or intending to book but have not, please do so ASAP to obtain the discount. More about the event can be found at: https://britishdestinations.net/annual-conference-19-march-2018/ or the British Destinations members booking link is at: https://app.tickettailor.com/events/thetourismalliance/943064/r/bdreferral2023conf
As ever our sincere thanks to our conference sponsors:
What might the main summer season hold for domestic tourism?
The 2023 main season is already upon us with most schools in Scotland breaking on 30 June and those in England following over the next three weeks. So, what are the major drivers, general indicators and overall prospect for this critical period for domestic tourism looking like?
As ever in tourism much of the evidence remains anecdotal until well after the event and generalising about such a large, diverse and all embracing “sector” is an art form not a science. Nonetheless the general indicator can be applied to the core mid-ground and thus has relevance to much of what we jointly do.
The indicators, thus far, suggest that while volumes of visitor have generally been good but not exception as they were, for example, immediately post covid, value has been lagging behind, as have forward bookings for some but not all accommodation providers. In a period where we have been reintroduced to inflationary pressures, after years of almost no annual increases, value logically should be increasing simply in order to stand still. No increase in total value equals a decline of at least 6 to 10 % and probably more. This is the stuff of statistician and something that will become clear months if not years after the event.
Lower levels of forward booking are a concern but less of a concern than value, simply because people can and do book late in times of uncertainty and financial pressure. Better late booking than the recent trend towards multiple no fee or refundable advance booking to secure something and then pick and choose nearer the date. This is relatively new phenomenon that has appeared in strength post covid and has we believe done untold damage, particularly to smaller accommodation providers who can’t easily fill late cancellations or no shows on an already limited stock of available rooms.
What are the main indicators? Domestic outbound travel continues to recover. Depending on whose figures you take is rapidly heading back towards 2019 levels, albeit with increased costs, reduced margins and a number additional barriers to seamless uninterrupted travel, particularly to popular EU destinations. Who is travelling abroad? Quite obviously anyone who wants to and can afford to take a generally a long holiday, usually at some significant cost. The affordability factor is particularly important this year because there is survey evidence (BVA BRDC, Barclays monthly travel updates among others) to suggest that significant numbers see a main usually overseas holiday as an essential and may have forgone additional UK holiday, trips days out, visits to the pub, meals out etc. to help secure that overseas long holiday. That is obviously bad news for the domestic visitor economy. There will always be those who can afford to go abroad because of their financial or life stage and they will continue to do regardless. Some of those “lucky ones” may or may not also take holidays and breaks in the UK and there is no reason to assume they won’t do so again now.
The biggest domestic indictors or more accurately factors are the ongoing cost of living crisis and within that the linked but arguably separate domestic and business energy and fuel price crisis. Energy and fuel prices are now dropping back but particularly in the case of domestic and business energy cost they still remain well above pre-Ukraine conflict levels. To add to the head mix of financial pressure on discretionary consumer spending, we now have increased lending costs. The Bank of England base rate was 1.25% in June 2022, it is now 5%. Mortgage interest rates have risen from typically sub 3% in June 2022 to c 6% or higher today. Other lending rates are rising in line with this. Increasing the cost of servicing debt is seen as a major tool in subduing discretionary demand and reducing inflationary pressures. Inflation in most areas of life is running at plus 10% with notable outriders, for example food inflation which was approaching 20% earlier in the year.
These costs will hit c 69 million UK residents differently dependant on multiple factors including: income, life style, life stage, single, married with or without dependent children, of what age etc. Nonetheless, it is not unreasonable to generalise and say that significant sections of UK society, including many with good incomes but high fixed outgoings, will find their discretionary spending restricted. Discretionary spending is, as we know only too well is the life blood of tourism and the wider visitor economy. When discretionary funding is squeezed leisure, tourism and the victor economy it drives, fall first, fastest and further than most other sectors as amply demonstrated during the covid-19 crisis.
Second only to affordability is of course travel. No travel, no tourism industry. Again, as we are all only too aware of rail, an important means of travel, particularly for urban and especially City destinations isn’t currently function as well as it could or should. Road travel and the private motor vehicles are the key means of tourism and leisure travel, especially for rural and more remote urban destinations. High, albeit now falling, fuel prices remain a cost factor and a barrier to longer or more regular discretionary leisure journeys. In addition, in the main holiday season car usage often acts as a self-defeating factor, Significantly increased volumes of vehicle usage, especial around predictable peaks like bank holidays, regularly exceeds normal traffic and or parking capacity and damages the quality of experience.
If we have a good season private vehicle and by default public vehicle transport becomes problematic. If we have a bad season, it is less of an issue but that is not necessarily the type of “good news” we are looking for. Not perhaps an issue for the 2023 season, but I remain convinced that the domestic industry needs to urgently get to grips with the public private sector transport issues. Including fleeting opportunities to facilitate future levels of leisure rail usage and the implications of future electric vehicle usage, before one or both gets a grip on tourism and conceivably, unintentionally act to strangles much of the current UK tourism industry as it is current configured and serviced by the transport networks.
Weather, will as ever remain the rogue factor. If the sun shines and it does so predictably and for any length of time, people will take the opportunity to do thing and go places, simply because they can. We have just experienced the hottest June on record and a generally good May prior to that. The long term forecast for the rest of the summer is hotter than average but not necessarily universally settled. Since the Met Office sensibly now tend to hedge their bets; I think we should too. My personal experience of 30 odd summer where I have had a professional interest in the outcome, is that good pre-main season weather tends to be followed by more mixed weather in the key 8 to 12 weeks that follow. In truth the weather remains is in lap of the gods and outside our control. What we can say, is that whatever the weather it will have a fundamental impact on volumes of visitors. In turn higher volume will influence total value, even if many of these extra visitors end up looking for lower or even no cost main activities. Ultimately quantity has a quality and value all of its own. Please God, let the sun shine.
What should we expect for main stream middle of the road domestic tourism? In short almost certainly some difficult times, with many people looking for holidays, short breaks, days out and general local visitor economy activities but not necessarily willing or able to pay the going rates. Volumes will be high especial if the weather continues to be good throughout July, August and into September, individual and total values less so.
The mainstream, essentially family and extended family markets, are likely to be looking for good value, that doesn’t necessarily equate to cheap or low cost but genuine good value for the price paid, whatever that price might be. There is likely to be a downward shift in all but the higher end of the market. Those that can afford the “top end” are less likely to be impacted by most of the factors outlined above. There will always be outliers, niche and oddities that don’t follow the pattern. If this season follows established pattern, the downward shift may not benefit the lower end of the market on the grounds of perceived value for money v quality of experience. There may also be some hollowing out of the midstream stream 3/4 star serviced and holiday let markets as their traditional customer trade down and those in the 4/5-star market stay put.
What can or should be done even this late in the day? The obvious traditional solutions are easily identified but less easily enacted. The products whatever they are need to focus on value for money: a combination of a good quality product for its intended market, offered at a reasonable price point for both that product and its intended market. It isn’t rocket science but far more easily said than done in practice.
At destination level the most appropriate response would be to market strong and market hard and, preferably, to do so at a higher rate and volume than in less uncertain times. That as destination manager and destination marketeers will know better than I, is also rather more easily said than done. In current constrained times it is a bit of a, “with what do I mend my leaking bucket”, moment?
The only available solution, if you are not already doing so, may be to encourage partners to focus on value for money in their own marketing and to adjust your own content to give the clear message that you are a quality, value for money destination. Most destinations I suspect will already be doing this, probably in response to similar but less severe pressures in 2022. The gold standard would of course be to spend more, potential much more, on marketing your destination out of this potential problem. Many more visitors than normal, even if they are each spending less individually, is perfectly valid short-term fix to a otherwise stagnant or declining market. It isn’t necessarily a long term or desirable fix to a longer-term change in market conditions. Hopefully the cost-of-living inspired problems we currently face aren’t indicative of a long-term shift in market conditions.
I would value comment, confirm or contradiction from colleagues at the coalface so I can develop a more robust joint assessment and feed evidenced detail to partners in other trade association, to colleagues in national boards and, of course, to Westminster and Home Nation Governments.
In an ideal world, in the face of a potential crisis outside the tourism industry’s own making and outside our voluntary joint ability to effectively influence national attitudes, we would be looking towards and be asking National Tourist Boards to consider facilitating, if not funding, a national marketing led response. That isn’t something that those board and in particular, Visit England are structured, funded or currently empowered to do by their political masters.
A flash in the pan or potentially the last nail in the coffin for private ownership of public utilities?
There has been a great deal of comment in recent days about Thames Water and the self-inflicted financial stress it is experiencing in the shape of a c£3bn hole in its accounts created by a combination of loan repayments on its debt mountain (£13bn) and the potential cost of fines for discharge breaches and associated bill to fix the backlog of remedial infrastructure works, that it now transpires they have been ignoring or avoiding for many years.
We are told that Government was sufficiently concerned about the possibility of financial failure to have drawn up contingency plans to effectively renationalise Thames Water. We are also told that at least three other water companies have debts ratios well beyond prudent levels and that in general all is far from well across the rest of the water sector. None of this “news” will be news to, or come as too much of a surprise to those in coastal and increasingly inland destinations with a vested tourism interest in bath waters and water quality in general.
Since around 2018/19 there has been a rapid unveiling of the shortcoming of the private water companies, first prompted, albeit somewhat belated, by Ofwat and EA investigations and prosecutions in to UK sewage and storm-water discharges. The only surprise, if there is one, might be sheer scale of alleged corporate greed involved, the degree to which legal and regulatory requirements have been ignored or sidestepped and the length to which many companies may have gone to ignore, misreport or even falsify records in order to avoid compliance. Yes, there has been investments made, initially quite significant but that fell away years ago and has now stagnated with the expenditure on infrastructure by the largest 10 companies combined seldom exceeding £300m per year since the late 1990s.
It is also hard to reconcile some of the emerging detail. For example, the fact that over the 34 years since privatisation the previously debt free water industry has managed to accumulate a combined new debts of £60bn, whilst over the same period paying out total in dividends of £72 bn and yet they still now need to find many billions more to fix long known about, and studiously ignored infrastructure failing, or in future face fines from an increasingly active regulator. Faced with massive outlays on fines or fixes and already burdened by their own choice with excess debt the water industry, with Government’s (reluctantly?) agreement, are now looking to the consumers to pay for much of this “extra spending”, rather than to shareholders, many of whom have already taken their pound of flesh and can now easily choose to cut their future losses and walk away.
The failings of the water industry could be the last nail in the coffin for the mantra that public services are best run by dynamic private sector companies who have a profit and competitive motivation to provide an efficient, customer focused service. In the last couple of years, we have seen chunks of rail network and rail operations fail and fall back effectively into public ownership. We have also seen a crisis in energy provision. Most notable among these was Bulb which cost the tax payer something in the order of £3bn to run and then hand on, or much the same as Thames Water’s reported shortfall in debt to asset ratio or about a quarter of Thames’ total indebtedness.
The critical difference and the reason why the water industry’s spectacular failing could well be the final nail in the arguments for private ownership of public utilities and services is that the water companies, unlike others utilities and service mentioned, have no valid excuse whatsoever. The rail network was caught unaware by a collapsed market during and radically changed usage after covid-19. Bulb and the energy market in general, were caught unaware by Russia’s invasion of the Ukraine and that conflict’s unplanned and unexpected impacts on world energy markets and prices. The Water Companies have not been caught unaware by anything or anyone, other than by the regulator whose increased regulatory activities have exposed years of unjustified profit taking, avoidance of legal compliance, deliberate under investment and loading their businesses and their industry with debt and all seemingly in order to drive profit, dividend payment and senior executives’ bonuses.
It is quite frankly a national scandal and one which might reasonable be genuine news to Joe Public but must have been known about, or at least suspected, by Government and their appointed regulators for many years. The strongest argument for the current Government or indeed a potential future Labour Government, for not now renationalising the Water Industry is also now the Water Industry’s biggest, entirely self-inflicted weakness. No Government of any colour, is likely to willingly take on £60bn worth of water industry debt and massive liabilities for long overdue infrastructure improvements, particularly during an ongoing period of major financial challenges and the associated higher cost of servicing debt. Arguably the proper course of action is to force the private companies to service their own debt, fix their own failings and preferably do so both quickly and without burdening the entirely innocent public with extra costs. Doing all four concurrently isn’t as simple as it might sound.
The Water Industry may have done their shareholder a great favour over the last three and a half decades but they have done themselves, Government and the consumer (in the case drinking and waste water all c69 millions of us) a great disservice. Whether or not the behaviour of the Water Companies causes a radical reappraisal of how and by whom public utilities and key public services are provided, remains to be seen. What is certain is that, whatever happens, it will not happen fast and that if and when it does, or does not happen within the water industry, it will not make an instantaneous difference to the practical problems being faced on the ground in our rivers and on our coast. Major infrastructure projects typically take 5 to 10 years or longer from outline agreement to delivery. Large numbers of projects that evidently could and should have been agreed and developed 5, 10, 15 or even 20 years ago, aren’t now all going to appear out of the ground in the next 5, 10 or even necessarily 15 years, whoever then owns and operates the UK’s water companies.
Meanwhile, much of the collateral damage from the Water Industry’s disgraceful failings will by default fall on to UK destinations to deal with and, in particular but not necessarily exclusively, fall to the popular UK coastal industry. Failing bathing waters, or indeed the mere perception that water quality isn’t as good as it could or should be, does have a major negative impact on the perception of the destination as a whole among both bathers and non-bathers. This is a perennial issue that most coastal destinations have faced for decades and it one that with the increasing popularity of wild and open water swimming, combined with a greater public awareness of water company’s record, will fall to differing degrees upon inland destination that enjoy the benefits of either rivers or lakes as part of their natural attraction.
Water and water quality is likely to become an increasingly more important issue for domestic tourism and domestic tourism destination over the coming months and years. The tourism industry needs now to ensure that the interests of leisure and tourism take priority over other considerations in what realistically is always going to be a fight for greater priority in a battle for limited resource to build new and improved waste water infrastructure. It isn’t your typical tourism issue but it is one that individually and jointly the domestic and inbound tourism industry can’t afford to allow to go wrong.
British Destinations