Travel sector braces for difficult winter as summer boom fades

The travel industry has reaped the rewards of a frantic summer season, with airlines reporting record profits and hotels on both sides of the Atlantic having returned to near pre-pandemic occupancy. But it is now facing an uncertain winter and questions over whether the insatiable demand for holidays can withstand persistently high inflation and economic stagnation, or is a post-pandemic bubble waiting to burst. Most senior executives, particularly in Europe, are confident that consumer spending on travel appears immune to the cost of living crisis. But some cracks are appearing to show across the Atlantic, where the first signs of weakening demand have appeared in the domestic market. Low-cost airline Spirit said it had turned to “steep discounting” as it issued a profit warning this month, while JetBlue reported a “shift away” from domestic travel in August. More optimistic executives say travellers are swapping domestic breaks for foreign holidays, and an influx of US tourists certainly boosted Europe’s tourist industry this summer. But as domestic trips in the US were one of the first parts of the travel industry to restart during the pandemic, there are also fears this slowdown could be an early warning that peoples’ broader desire for travel is wilting. In Europe, Michael O’Leary, CE of the continent’s largest airline Ryanair, remains “cautious” despite strong winter bookings that are 3-4% ahead of where they were last year. “I am worried about the state of consumer confidence . . . you have higher interest rates, higher mortgage payments and energy prices,” he said. O’Leary expects to have to cut prices to fill planes during quieter periods as the industry becomes more “peaky”, and for overall fares to fall by “low single digits” this winter. Sébastien Bazin, CE of hotel giant Accor, agrees that the industry is braced for a “diminishing in pricing power”. The French company has offset occupancy levels that are 4% lower than before the pandemic by raising prices 10%. “With interest rates the way they are and what we’ve seen with inflation the way it is, the discretionary income of consumers is going to be far less, but we’ve planned for that,” said Bazin. Accor now expects more normal growth in revenues per available room of 2.5-5% a year, he added, “because of pressure on the middle class population”. For most though, serious cracks are yet to appear. As of mid-September, booked occupancy for hotels worldwide in the fourth quarter is 11% ahead of the same time last year, according to travel technology platform Amadeus.<br/>