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Viewing report
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UK Overseas Package Holiday Market Market Assessment
Key Note Publications Ltd, Jan 1999
Introduction
It is estimated that British people will have taken around 95 million holidays and short breaks away from home in 1998. By the end of 1999, the annual total is expected to approach 100 million, 65% of which will have been taken in the UK, a percentage that has fallen steeply over recent years. This decline in the UK domestic holiday share has taken place for a variety of reasons, including the unpredictability of British weather, and a perceived failure on the part of UK seaside holiday resorts to match their foreign competitors in terms of both price and quality.
The UK market for package holiday travel abroad is estimated to be worth over £7bn per annum, excluding expenditure on travel to and from the holiday destination. In volume terms, this consists of around 18-19 million visits a year, averaging some ten nights in length, producing an annual total of almost 190,000 visitor nights.
The package tour industry began with the organisation of tours by rail in the first half of the 19th Century. It developed with the advent of the motorised road transport vehicle and the growth in the popularity of trips to the seaside by `charabanc', before cheap charter flights and entrepreneurial flair created the air inclusive tour that provides the basis of the present day industry. Today, the industry has grown to the point where the Association of British Travel Agents (Abta) has some 600 tour operating members, around half of who also act as retail travel agents.
Market Overview
Over the past five years, the UK market for overseas package holidays has grown at the relatively modest rate of just over 4% a year. This rate of growth is around the same as that experienced in the UK market for overseas holiday travel as a whole (independent as well as package). This represents an interruption of the longer term trend towards a decline in the package holiday share.
A number of recent developments, particularly in relation to travel within Europe, have strengthened the competitive position of those providing alternatives to the package tour, such as the scheduled low cost airlines. These operators provide opportunities for individual travellers making their own independent holiday arrangements to avail themselves of lower fares without needing to purchase a package tour.
Within the package tour sector, the last five years have seen a faster rate of growth in the newer sectors of the market at the expense of the traditional destination areas within the European Union, notably Spain, France, Greece, Italy. However, EU countries collectively still retain a dominant position in the market in terms of numbers of visits, expenditure and nights. Particularly noteworthy has been the increase in the importance of the long haul destinations outside Europe. This development has been based on the supply of traditional mass market products, such as holidays to Florida beaches and theme parks, as well as offerings that appeal to the more adventurous traveller, such as mountain bike tours to the Himalayas.
Air remains the dominant mode of transport used by UK holiday takers travelling on package tours overseas, with over 80% travelling to their destinations by this means in 1998. Sea travel, by both ferries and cruise ships, was used by some 12% of package holiday takers in that year, with the balance travelling abroad via the Channel Tunnel, a competitor in this market only since 1995.
The average length of UK package holidays is estimated to have declined over the past five years. This is in part due to the relatively rapid growth of the short breaks abroad market, increasing that segment's share of the total package tour market and steadily reducing the average length of stay from just over 11 days in 1993 to just over 10 days in 1999.
The period of the Northern Hemisphere summer (July to September) remains the most popular time for UK package holiday takers. However, not all package holiday takers are restricted in their choice of holiday period, and there are significant differences in the seasonal pattern of holiday taking between the broad destination areas. Some 40% of package holidays taken in the countries of the European Union and 47% of those taken elsewhere in Europe are taken in the three months of the summer. However, that period accounts for only 33% of package holidays spent in North America, and 23% of those taken elsewhere in the world.
The Product Range
The travel brochures for summer 2000 issued by UK tour operators indicate a continuation of recent trends. Separate brochures are published that appeal to different segments of the UK package holiday market. Some target these segments directly, by featuring holidays for families, the 18 to 30 age group, and senior citizens, whist others are destination specific.
Family holidays are at the core of the UK package holiday market, and provide the bread and butter business of the main tour operators. Also of considerable importance is the youth market, originally developed in the 1960s and 1970s by operators such as Club 18-30, and expanded significantly since that time. Tour operators such as Saga have also successfully targeted the over 50 age group with products ranging from cruises to coach tours, educational tours and single destination holidays.
Historically appealing mainly to the more mature, less affluent traveller and those with a fear of flying, coach tours have recently been attempting to upgrade their offering. Major operators Wallace Arnold and Shearings offer a large range of holidays throughout Europe and the Mediterranean as far as Turkey. Some provide for travel by coach for the entire tour, whilst others, especially where travel to the more distant destinations is concerned, involve air travel before the coach tour proper is begun.
City breaks are now an established sector within the UK holiday market, having been growing rapidly at a rate approaching 10% a year in volume terms over the past 10 years. Although many travellers make their own independent arrangements, tour operators are also very active in this sector, with many of the major holiday companies, such as Thomson and First Choice, producing brochures featuring their own city break products.
Many of the large tour operators produce a winter sun brochure. Understandably, the destinations selected tend to be those with a climate that offers a good chance of sunshine. Winter sun destinations therefore tend to be in tropical or subtropical regions, and in the southern and eastern parts of the Mediterranean.
The activity holiday sector offers sporting activities in a holiday environment. Frequently, clients already participate in these sports on a regular basis, and wish to spend a concentrated period enjoying one of their favourite activities in an exotic location. However, some activity holidays offer tuition to novices and others as a key element of the holiday package. As well as the long-established skiing market, other activities provided for by operators in this sector include golf, diving, windsurfing, water-skiing, sailing, tennis and horse riding.
Although normally considered as a separate and distinct market, cruise holidays are in fact a long-established form of package tour, featuring its essential elements of travel and accommodation (albeit they cannot be separated). The UK cruise market is now the second fastest growing market in the world, after the US, and is now estimated to represent around 800,000 holidays annually.
Other important product sectors are fly-drive, all-inclusive holidays (providing unrestricted food and drink as part of the package holiday deal), `lakes and mountains' holidays and `adventure holidays'.
In summary, the typical UK foreign holiday maker is becoming very much more experienced. The foreign holiday is now an annual event for many, and not everyone is content to repeat the typical package holiday experience at the same destination year after year. Many experienced holidaymakers now seek new types of holiday incorporating new destinations and new experiences. At the same time, social change has produced a new generation of consumers, seeking a more active holiday. In response to these developments, the UK travel trade has been very innovative, combining the various product features outlined to produce new and more flexible travel products to meet the needs of the new breed of consumer.
Nevertheless, the mainstay of the UK industry remains the traditional summer holiday abroad, with sales of summer package holidays rising steadily throughout the 1990s, and holding up even during periods of economic recession. It is estimated that the summer package holiday market is now over 50% higher in volume terms than it was in 1991, accounting for around 53% of the total abroad summer holiday market, with independent holidays taking a 47% share. This expansion has been achieved through a combination of growth in traditional holiday destinations and the development of new destinations, notably on long haul routes to the USA, the Caribbean, the Indian Ocean, Asia, and Africa.
Industry Structure
`The big four' dominates the UK package holiday industry holiday companies, Thomson, Airtours, First Choice and Thomas Cook and their subsidiaries. The regulatory authorities in both the UK and the EU have challenged this dominance. It is not merely that these four operators collectively account for a high proportion of tours sold in the UK. What is also being questioned is the fact that these companies exercise control at several stages in the distribution chain. This vertical integration takes the form of control, normally through ownership by a single group, of a tour operator, an airline and a retail travel agent. Collectively, these companies accounted for around 78% of package holidays abroad taken by UK residents in 1998. Thomson was the market leader with a share of 27%, followed by Airtours with 19%, Thomas Cook/Carlson with 17%, and First Choice with 15%.
Traditionally, package holidays have been sold from brochures and booked through travel agents, but alternative distribution methods are being increasingly used. Direct sales by tour operators to customers are not new, and many of the mainstream holiday companies have set up direct sales operations. Some independent specialist tour companies also operate solely on a direct sales basis. However, the High Street travel agents still retain a commanding role in the distribution of package tours, their current share being estimated at some 75%-80% of this market.
As with the tour operating sector, the big travel companies dominate the retail sector, who also have a controlling influence over the five leading retail brands? These now account for around 46% of the total number of High Street outlets, with World Choice, Lunn Poly and Going Places occupying the first three places in the rankings. Lunn Poly, owned by Thomson, is the market leader, with a market share of retail sales estimated at around 20%.
A recent NOP survey revealed considerable use of the Internet in order to obtain information about package holidays. However, there appears at present to be very little use made of it when making a booking. Seventy-one per cent of respondents were recorded as making their reservation through a retail travel agent, 24% booked direct with the tour operator or cruise line and only 2% used the net. This is probably at least partly due to the fact that in many cases the facility is not yet available.
Future Predictions
Over the 10 year period between 2001 and 2011, the population of working age is expected to remain a fairly constant proportion of the population (62%) with an annual rate of increase of only around 0.3%. However, it is predicted that, over the same period, there will be an average drop of around 0.7% a year in the under 16 age group, almost matched by an average annual increase of around 0.9% a year in the population of pensionable age.
The continuing decline in the numbers of traditional family units has clear implications for tour operators and other sectors of the travel industry that will need to pay more attention to the needs of other types of household. Implications are for a strong singles market, resulting from a continuation of the trend towards later marriage, and for a movement away from the traditional family beach holiday, opening up the opportunity of marketing a wider range of travel products.
Lifestyle changes have also been affecting the UK holiday travel market for a number of years. These include the trend towards postponing the start of a family, and the consequent increase in the numbers of households consisting of couples with two incomes. This is likely to increase the numbers of those able to afford several holidays during the course of a year. Changing fashions can be difficult to predict, but can be quite dramatic in markets such as the teenage and pre-teen markets, and in other sectors such as winter sports, where particular resorts may suddenly decline in popularity.
The greater degree of commitment expected by employers combined with concerns about job security may mean that more employees feel unable to take long periods away from work opting instead for a number of shorter breaks. For some this may also mean taking more unconventional holidays, adventure holidays, fitness breaks etc.
There has also been an increase in the numbers of people working from home, and thus able to make more flexible holiday arrangements. This trend is due to a number of influences, including initiatives by some companies to move from direct to contracted-out employees, sometimes the same individuals. Even where employment is not contracted out, employees may be encouraged to work from home on one or more days per week, to reduce the stress of unnecessary commuting. There has also been a trend towards early retirement. Although this may provide increased leisure time, satisfactory pension arrangements that provide sufficient income for leisure activities may not be guaranteed, with expectations regarding planned levels of holiday taking not achievable.
New Products
One area where the UK travel industry can rightly claim to be innovative is in the development of new products to meet changing market needs. This has been the pattern of development over many years. Many of these new products (such as all-inclusive holidays, the development of short breaks, the educational cruise etc) have added value to the basic holiday package for targeted market segments, a process that appears set to continue. The range of package products offered by the UK travel trade will doubtless be modified to reflect demographic and social changes.
Short breaks in particular, have considerable potential for growth, to meet the needs of the busy professional, unwilling or fearful of being away from the action for extended periods, but able to afford short trips abroad. Destinations such as the cities on the east coast of the USA, like New York and Boston, can be reached within a reasonable flying time, and where bargains, in terms of shopping opportunities and reasonably priced accommodation, provide an additional incentive, should become increasingly popular.
Other long haul destinations will continue to appeal to other groups for whom time is at less of a premium, but who seek something different from the traditional sun and sand holiday on a Mediterranean beach. Similarly, adventure holidays will develop as new destinations are discovered.
As well as these opportunities, the UK package tour industry faces many challenges, from low cost airline competitors, to the development of the Internet and through to changing relationships with customers. However, the demise of the retail travel agent has been predicted many times in the past, and the most resilient and innovative of the breed should still manage to survive, provided complacency could be avoided. Tour operators seem in some respects to be better able to survive in the longer term, supported by the sector's proven ability to develop new products.
Latest predictions for the UK economy suggest that it will remain one of the strongest economies in the world over the next five years, with low inflation, low unemployment and reasonable economic growth. The downside is that disparities between the wealthier parts of the country, not all in the south east of England, and pockets of deprivation, will get wider, with implications for travel demand. These predictions point to continuing GDP growth over the period averaging around 2.4% a year, with real household disposable income rising at a somewhat faster rate. Table 22 summarises forecasts of these indicators and others likely to influence the growth of the UK resident travel market.
Long term growth prospects in the UK market for overseas package holiday travel differ according to broad destination category. Markets for travel to the countries of the European Union (ie including all the high volume destinations in Spain, France and Greece) are relatively mature, and hence future growth is likely to slowdown compared with the past. In contrast, the market for travel to North America and other long haul destinations is relatively immature, with higher growth rates anticipated as a consequence. In summary, the UK market for overseas package holidays is expected to grow at an average rate of just over 3% a year in volume terms between 1999 and 2004, equivalent to an increase of almost 6% a year in value.
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