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MP63047

MAPS HOLIDAY PURCHASING PATTERNS NOVEMBER 1997

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EXECUTIVE SUMMARY

The British took an estimated 53.75 million long holidays, (4+ nights), away from home in 1996, a drop of 5 percent from a 1995 peak of 59 million. Figures for 1997 are predicted to rise by an average of 5 percent, reflecting a surge in consumer demand following building society demutualisation windfall payments, the rising value of the pound and all round consumer confidence.

Some existing trends seem set to continue: holidays in Britain have fallen from a market share of 79 percent in 1979 to 57 percent in 1996, whereas holidays taken abroad have grown annually to a figure of 23.25 million in 1996, representing an annual average increase of 4.9 percent. The total value of expenditure is expected to rise in 1997 and long term forecasts of PDI and consumer expenditure indicate no long term threat to the Holiday market.

It is clear, however, that the late Nineties market has reached a point of maturity. Rapid growth rates of traditional products such as the Mediterranean package holiday which was the mainstay of the travel industry in the UK are no longer a feature of the package tour market. Major operators are diversifying their product range to include more long haul destinations to meet more sophisticated demand. New popular destinations include Thailand and Australia, which were formerly the preserve of the independent traveller.

Increased airline capacity and independent travel as well as the consolidation of the major tour companies into profit-driven conglomerates have heightened competitive pressure. The price wars of the early 1990s and process of market consolidation have encouraged the major tour operators to act in unison to control supply. Tight controls in 1996 reduced the numbers of holidays on sale and restored profits. Despite extra provision for 1997, similar controls failed to anticipate demand from late bookers and the question of control of supply is under investigation by the Monopolies and Mergers Commission (MMC).

The travel agency sector has been reorganised by the vertical integration of travel operators with travel agency multiples, e.g. Thomson-Lunn Poly. Four multiples accounted for approximately 60 percent of Summer 1997 inclusive tour bookings.

Competitive pressure is increasing in the travel agency sector, particularly for the independent agent, as market consolidation increases. Two of the major operators now have their own direct sales companies which pose a long term threat to the high street travel agency as the principal vendor of holiday products. The vertical integration of the major operators with travel agency multiples is being challenged, however, by the Monopolies and Mergers Commission which is set to loosen the major operators control of the market to the advantage of the independent travel agent.

The inclusive tour still dominates the holiday market, despite a declining share of the total market and the rise of independent travel. In 1997, the number of inclusive tours taken is estimated to be 14 million. The UK inclusive tour market was worth £7 billion. The market is dominated by three operators - Thomsons, Airtours and First Choice, with a market share of over half of all sales.

The Mediterranean sunshine holiday remains the most popular holiday product. Despite a fall in the late Eighties in numbers of visitors Spain is still the number one destination in 1997 for British holidaymakers, benefiting from a year round favourable climate particularly in the Canaries. It enjoys continuing popularity both with senior citizens during the winter months and with young people in sectors such as the Balearics and the 18-30 type package holiday.

France, as the world’s overall leading destination country, attracts the second greatest number of British visitors. With a great diversity of tourist destinations and attractions, numbers of visitors are expected to increase steadily through 1997 and 1998, aided by a favourable exchange rate and continuing fierce competition between Channel tunnel and air and ferry operators. France is the number one ski destination and Paris is the top European city break choice.

Despite a predicted rise in visits in 1997 the popularity of Greece and the Greek Islands is in long term decline - from a peak 10 percent market share of all overseas holidays to 6 percent in 1996, with a fall of 24 percent in holiday maker numbers on the previous year. This trend is attributed to consumer reaction to a lack of development of facilities and infrastructure. Spain and France, too, are seeing a decline in their share of the market. Traditionally popular Mediterranean countries are now being rapidly discarded for long haul destination holidays.

The long haul market has expanded at an astonishing rate. With a market share of 22 percent in 1997, the market has now doubled in size in 10 years. The US is now the third most popular overseas destination, with Florida as the prime holiday destination. New York is an increasingly popular City break destination. ABTA predicts this trend will continue into 1998 and beyond.

The Caribbean is increasingly a popular summer and winter holiday choice, and new destinations such as Cuba and the Dominican Republic are achieving record figures for visitors in 1997 in addition to old favourites such as Jamaica and Barbados. New destinations will soon be included such as Costa Rica and St. Kitts Nevis. The growth of the long haul market in the Caribbean is clearly linked to the popularity of all-inclusive holidays, with mass market benefits such as price and the guarantee of a ‘safe’ environment in a new destination country.

Tour operators have been successful in shaping this market as a new mass product as well as diversifying to suit ‘niche’ interests, such as the honeymooners and couples market. A trend towards a more sophisticated package holiday is also evident in the rapid expansion of the cruise market. The major tour operators have invested heavily in this sector in the early and mid 1990s and a successful pricing strategy has attracted many first-time customers. ABTA estimates that 500,000 are likely to book a cruise holiday in 1997, an increase of 17 percent over 1996.

Another mainstay of the inclusive sector, the winter ski market, is now recovering from a difficult start to the Nineties when poor weather conditions in Europe brought a decline in demand. This recovery has been fuelled by an increase in capacity in long haul destinations such as the North American skiing resorts. The reshaping of traditional products to suit more sophisticated demand will ensure their long term survival as long as the operators continue to adapt to consumer trends which are increasingly nonconformist.

Around 3 million overseas short break holidays will be booked this year, one fifth through travel agents. The Channel tunnel link will ensure growing capacity, particularly for the South East. Regional air traffic is also enjoying a boost from the growth in short break traffic. New destinations in Eastern Europe are becoming popular as are long haul destinations such as New York, Toronto and Cairo.

Despite the long term decline in popularity of holidays in Britain, over 57 percent of holidays are still taken within the UK. Expenditure levels on holidays in Britain, however, are far lower. An estimated £5,000 million will be spent on holidays within the UK in 1997, compared to an estimated £16,000 million for holidays abroad for the same period. Some reasons for this low spend pattern are self-evident: such as unfavourable weather and high levels of VFR tourism, (visiting friends and relatives), within the UK. Other factors are the lack of development of tourist infrastructure and the lack of domestic supply structure, e.g. low travel agent involvement, poor standards of accommodation and consequent poor consumer perception and treatment.

There are signs that these trends are being reversed. The short break has enjoyed rapid growth in the UK over the last ten years. The larger hotel chains are now investing more rapidly and offering a diversified product catering to special themes and cultural, sport and leisure interests. Traditional Butlins holidays, while still popular, are losing ground to the Center Parks chain, which offer superior leisure and child care facilities.

The changes in both market segmentation and supply are influenced by commercial and technological factors - but these trends will accelerate the growing provision of customised holidays and responsively to individual tastes. Although the market can be volatile in the short term - long term patterns of consumer behaviour are in evidence. An estimated six in ten adults, 60 percent, took at least one holiday in Britain or abroad in 1996. The figure of those adults taking no holiday remains steady at around 4 in 10 adults, or 40 percent. These figures remained constant during the years of early 1990s recession. A holiday is increasingly regarded as a necessity rather than a luxury.

The late 1990s will see a further concentration of power in the travel industry, through vertical and horizontal integration, combined with the emergence of smaller scale niche orientated companies. Although the possibility exists that the big suppliers could force prices up in the wake of regulatory and competitive pressures, the increase in supply introduced by the deregulation of air travel, consumer protection legislation together with access through new technology to more alternatives for the consumer will continue a pattern of competitively priced holiday travel for the consumer. The trend to constantly increasing travel movements and expenditure is set to continue.

Text © 1997 MAPS

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