1. As we head towards the end of the main school summer holiday period and now over three quarters of the way through the 2022 peak season and shoulder months combined, it would be prudent to start looking at what the coming late Autumn and Winter “off season” may now hold for the visitor economy as a whole and, specifically at the impacts of the unfolding national events on this Winter’s trade and more generally for the “industry” into next year’s main domestic tourism season and beyond. Hard to believe as it may be, I do genuinely hate to be pessimistic but, however hard I try, I can see little to gives any great cause for optimism.
2. The pressures on the supply side of the various sectors and sub sectors directly or indirectly involved in the visitor economy, most still battling to recover from a two-year pandemic and ongoing endemic, combined with the now rapidly escalating but not as yet fully developed crisis on the demand side, look set to cause major difficulties for much if not all parts of the “tourism industry”. Those difficulties, although different in their cause or nature, could well be just as bad, if not worse, than those experienced during the height of the Covid-19 pandemic. Whether they will elicit anything resembling the same types and level of support for the hospitality sectors is, at best, doubtful. Consequently, there is good reason to take stock now and, as we did in very early 2020 with the emerging threat from Covid-19, undertake some sensible contingency planning, both locally and jointly at a wider national level, so we have some common understanding around what we may face and how we might face it.
3. My central premise is that although we are already feeling strong, mainly financial, “head winds” we aren’t yet in the eye of the storm. Everything I know about tourism and everything I see about the energy, inflation, cost of living and cost of borrowing issues is telling me the supply and demand side pressures are all going to continue to build and eventually collide head on probably around the time Autumn turns to Winter. Or just about the time that the different and differing component parts of what is often loosely termed the tourism industry, would normally be switching to their differing feast or famine, seasonally drive modes. Given all that has passed since the distant normality of Christmas 2019, the prospect of a third seriously disrupted Christmas and Winter season can’t reasonably be viewed as anything other than a disaster in the making.
4. Looking objectively at what is bearing down on us, none of the constituent parts of our industry are likely to fare well out what is heading their way. Increased costs, inflationary pressures, higher interest rates and significantly subdued demand could be (almost certainly will be) catastrophic for many individual businesses and the likely resulting in curtailment of trade and business failures. Both are cumulatively damaging for individual destinations now and, with the loss of product and associated appeal, well into the 2023 main season and probably beyond.
5. The energy crisis is already hitting businesses hard, driving up their cost base for just about everything, including wages, the latter symptomatic of a combination of inflation and concurrent labour shortages. Inflationary pressures can no longer be absorbed, so consumer prices are rising fast, whilst margins and any related profits are at best static or are still falling fast. Access to cheap, short-term loans are now largely a thing of the past, while the interest rates on longer loans and on money already borrowed are likely to become prohibitively, if not terminally, expensive.
6. In a normal year at the end of Autumn traditional domestic “tourism” largely moves in towards semi-hibernation and/or switches emphasis towards more hospitality-based Winter, festive season activities. This year many tourism businesses will be going into their off-season mode without the comfort of either financial muscle from strong ongoing trade or the store of financial fat built up, over a strong summer season or two. Despite the self-promotional hype, 2022 has been at best alright but not truly wonderful for most businesses and most destinations as a whole, as was the equally hyped up and shorter 2021 season and of course 2020 was basically a write off for all but a lucky few.
7. This year, the lower end of the market has been hit hard and fast early on, as disposable income dried up earlier for those already with less of it. I.E., those on lower incomes or with bigger fixed out goings. The mid-market has, as it tends to do when buying power is squeezed, trade down and reduce spending: shorter journeys, self-catering instead of a hotel, camping instead of a guest house, a drink out, instead of a meal out. Trading down though doesn’t automatically mean filling all the void left in all the lower end of the market. Trading down generally involves similar quality, less expensive and not necessarily the cheapest or lowest quality option. Meanwhile the top end of the domestic market has done what the top end usually manages to do, initially, which is largely carry on regardless, for now at least.
8. The consequence I think can be summarised as plenty of volume but rather less value and a potential hollowing out, particularly of the largest by proportion middle market and is typified by fewer overnight stays, rather less eating out, fewer and less expensive treats, fewer ticketed events, more, free or low-cost days out and fewer days out or short breaks with any significant costs attached. That is not to say there have not been significant winners and losers and as always, the odd out layer that bucks the trend, but the generality, I believe holds true when viewed and taken across the piece.
9. Inbound tourism has done marginally better than originally forecast but still has a long way to go before it returns to 2019 levels. As ever the distribution of overseas visitors remains anything but uniform, with a small number of mainly City destinations capturing the lion’s share of both value and volume. Going forward, for a few, mainly City and historic honey pot locations, a poorly performing pound might offer an otherwise unwelcome glimmer of hope for some additional trade to come. Given the other consequences of a significantly weakening pound, it is best not to even go there, unless and until it becomes an unavoidable reality. Meanwhile, it is worth noting that this is a global crisis in the making and the chances are split evenly between the UK seeing fewer international rather than more in the short-term, whatever else happens in the months and year to come. My best guess is the financial crisis will slow the already, slow recovery of the international inbound market. I could be wrong. For UK plc as a whole and those destinations previously reliant on overseas visitors this is a major consideration. For most destination in our membership and many others, it is minor consideration, particularly when compared to the domestic market on which most are totally dependent and likely to remain so.
10. Despite some well-publicised travel related difficulties for the domestic outbound market, we have had a stronger and more marked return of the main overseas holiday than previously thought, after last year’s very welcome respite from the overbearing competition for the domestic holiday pound. The outbound market has not yet fully recovered to pre-2019 levels, but then again neither has the domestic market. In April domestic outbound travel had returned to 66% of its 2019 (ONS data) equivalent and the figures when eventually published for the key summer months are likely to be much higher. Some carriers and operators have reported summer holiday performance around 80% on 2019 levels. Although seen by Government as all part of the same big, happy tourism industry family, the elephant in the room remains that domestic and domestic outbound sectors are often (always?) in direct competition for the domestic leisure pound and never more so than when that pound is in shorter supply.
11. It is unlikely we will easily, if ever, overcome the Treasury orthodoxy that, among other things, refuses to even acknowledge let alone act upon the, admittedly simplistic, proposition that a pound spent on tourism at home is, or could be, a pound not effectively exported abroad. But like the Treasury orthodoxy that sees all domestic tourism promotion as merely a mechanism of general economic displacement and therefore a waste of local and national public resource, it still should at the very least be volubly challenged at any and every opportunity.
12. The failure to acknowledge the import/export benefit of taking a domestic holiday v its most obvious and realistic alternative option and viewing all domestic promotion of tourism as simply serving to needlessly displace the same spending from other parts of the economy (and not just between “competing” UK destinations), are probably just different strands of much the same piece of core economic policy or Treasury Green Book orthodoxy? Trying to tackling one or other on its own probably will not make a lot of difference. Perhaps a better understanding of what and why Treasury think what they think, might lead to better understanding of what fiscal levers need puling in which order to change their minds. One for the urgent to do list?
13. On reflection this orthodoxy could also be at the heart of not just Westminster Government’s refusal to see value in anything other than inbound overseas marketing but also a reluctance to support public funded, public enabled destination management and, within that, generic domestic, destination marketing, or to proactively encourage local and regional authorities to engagement in these activities within England? Government’s standard response is “It’s your choice” but we aren’t of course going to make any meaningful funding provision to allow you to do it, without it impacting on other services, many of which are statutory duties. Nor indeed should they, if they truly but erroneously believe the bulk of our/your effort, that of supporting the domestic market, is a wasteful general economic displacement activity. Or that they truly believe that the UK tax and UK employment benefits arising from outbound travel (the UK carrier and UK operator’s contributions) are more valuable (or possibly more vulnerable?) than that accruing from a large mainly SME based, physically captive domestic industry. A domestic industry that if it wishes to continue trading, can’t easily just choose to shut its UK businesses, attribute its value to other countries or rebase some or all of its activity elsewhere outside of the UK but yet still operate to, from or within it.
14. There is also an interesting side debate to be had over the degree to which a main holiday is now seen as “an essential” and/or to what degree that main holiday is seen by many who now know no different, as something that only takes place abroad. These and other factors like our understanding of “main” v “other holidays”, are nuances that we really do need to have a better handle on if we are to better manage the looming crisis. If indeed a main holiday is now sacrosanct and we are also confident that many do now see that main holiday as being one taken abroad, then that would actually increase size of the immediate hurdle that the domestic tourism industry faces. If significant proportions of a suddenly more limited pot of disposable income gets earmarked to be spent abroad regardless, then that logically leaves even less discretionary spending available for second and subsequent holidays, short trips and days and nights out, shopping trips, theatre, arts and sporting event etc. All of which tend to take place more at home than abroad and combined are the mainstay of the UK’s visitor economy.
15. Back to the immediate matter in hand. Come the Autumn, the “hospitality sectors” within tourism and leisure will again be looking for a very strong Christmas and New Year, if only to tide them over a normally lacklustre January, February into March and the begins of the green shoots of a new main season. Having had the last two critical Christmas and New Year periods essentially shut down, any renewed pressure on discretionary festive spending this year, will be most unwelcome. Much the same can be said about high street retail for whom the run up to Christmas and New Year sales are, or were until recently, their equivalent of tourisms summer high season. Again, pressure on disposable income will be most unwelcome for retail in general and the already embattled high street retailers, in particular. Smaller independents, the savour of many a high street in recent years, may be particularly exposed as they don’t have the backing of corporate finance to smooth the peaks and troughs, let alone to get them through any prolonged, tight spot.
16. Theatre, arts, historic houses, events specialist and so on, also all generally now look towards some form of Christmas related bounce to balance the annual accounts. Out there somewhere there will of course be the odd amusement park, the rural B&B, etc. who will close down entirely for winter maintenance as they have always done, but for economic reasons they are fewer and now further between. They might avoid the immediate and worst ravages of an energy inspired crisis but only for a few extra months of the year until they reopen. We should also be mindful that almost every tourism strategy and major study in living memory has looked at seasonality as an inherent weakness and action to reduce it as essential to the long-term success of the industry.
17. All recent headline surveys show that consumer confidence is already at or near a historic low, as the public fret and worry about what for many, if not the vast majority, is still largely yet to come. Come late Autumn early winter and consumer confidence will not be low, simply because the public are worried about future energy bills, the cost of short-term loans for smoothing cash flow issues or for funding special treats, or the prospect of long-term loans, in particularly mortgages rates, returning towards levels not seen in a generation. They will be worried because by then most will actually be living it and feeling the fiscal chill and the cold of a long dark winter. At that point we will get absolute clarity around what is mandatory spending and what is genuinely discretionary that can and will be curtailed or even eliminated and on what scale by which socio-economic and demographic groups. My immediate thought here is: do we real need to wait until then to prove what we can already predict with a reasonably high degree of certainty? Both from a lobbying perspective and from one of giving timely, well-informed advice to our stakeholder businesses, if we do wait until then, it will be way too late to act decisively or make any meaningful difference.
18. When the costs of mandatory spending (utilities, rents mortgages, daily feeding, basic clothing etc.) goes up there has always been a compensating reduction in the money available for discretionary spending. If mandatory costs go up dramatically, logically the compensating fall in disposable income and the fall in discretionary spend will be equally dramatic. By any historic standards the current and predicted rises and especially pace is going to be dramatic. This week one investment bank was forecasting inflation to have hit 18% by January 2023 and Bank of England interest rates having to go to, possibly as high, as 7% to bring inflation back under control. Even if they are out by a full 50% in their predictions, it would still be grim news. Sadly, much if not all of tourism leisure and the visitor economy in general, falls firmly in to the middle of that discretionary spending bracket. Just as with covid-19 it is now entirely predictably that tourism leisure and the rest of the component parts of the visitor economy will be hit first, hit deeper and hit for longer than most other parts of the UK economy.
19. Although it is still too early to say with confidence what HMG under an as yet to be selected, new PM are actually going to do about the energy and financial crisis, inflation and rising interests’ rates, it isn’t too early to predict that whatever they do, it will not be entirely effective by the Autumn of this year, or have returned the UK economy back to anything like the position it was, say only a year ago.
20. The current focus appears to be on easing consumer’s energy bills, not necessarily those of businesses. Telling customers in a hospitality environment, to toughen up, to wear an extra jumper or enjoy the more subtle lighting in, for example, the pub, restaurant, hotel or shop isn’t really a realistic proposition. If in the worst-case scenario and the lights actually do go out on a rota, as some have suggested, then that really could be, “game over” for some businesses. Proposed action on taxation, payments towards energy bills etc. may ease the quantum of financial pain being felt by consumers and businesses alike but because of the degree of pain it will not come close to salving them entirely. Reducing tax on business profit, for example, is helpful but only really helpful while you are making a decent profit to be taxed on. Much of what has been discussed as possible solutions appears to equate to minor, most welcome assistance with eyewatering painful costs increases. Consequently, despite the range of actions currently proposed by both the PMs in waiting business will remain under pressure, as will consumer spending. That doesn’t of course preclude the winner from pulling an unexpected rabbit from out of the Treasury hat, albeit that the more financial well-informed view suggests all the biggest and best, one-off fiscal tricks available to HMT were used up during covid-19 and there is little headroom left to buy in more.
21. Any more radical actions taken when the new PM takes over, may well ease inflationary or interest rate pressures but again, such action is highly unlikely to remove the underlying problems, many outside the UK’s direct control, overnight and certainly not much this side of 2023. Meanwhile, any structural damage done to businesses over this Winter will have implications, probably serious, for the following and subsequent year’s performance. Most observers now predict these problems are set to continue at a significant level for some years to come. Therefore, we may also need to start planning on longer-term reductions in disposable income and its impacts on all manner of discretionary activities, many of which fall somewhere within the remit of the visitor economy.
22. What do I think the most likely immediate outcomes are for individual business and for their host destinations? Faced with runaway costs and especially heating, lighting and cooking/production costs and the prospect now of increasingly subdued demand, businesses will have few other choices but to look to reduce trading periods, their hours of business and/or to close for longer periods altogether, in order to slash input costs and try and preserve their businesses until, in normal times at least, business would traditionally pick up from Easter (end of first week of April in 2023) onwards. This is most likely to occur in the usually quieter first quarter of the New Year, when many businesses already take a short maintenance or staff holiday break, but it can’t be discounted as an option or as a necessity before this. Unlike the pandemic, businesses are unlikely to have redress to lump sums, emergency grants, Government backed loans or critically to furlough payments. Consequently, not only will individual businesses and by default much of their supply chains be operating in survival mode but also there are likely to be significant, wide spread, implications for employment, for employees, for their total earnings and for increased levels of hopefully sort-term `unemployment. Some of which isn’t necessarily going to be adequately addressed within the current rules of the benefits system.
23. For the destinations, there will of course be concerns around businesses survival and business failure rates and concerns around skills retention, employment and unemployment rates. There will also be a, potentially unaccustomed, need to monitor and manage product levels and to market and promote those hyper-sensitively. Even in the face of depressed demand, the destination’s offer and it’s over all appeal not only needs to be maintained but its presentation also has to be broadly accurate and remain compelling. If not properly monitored or badly managed there is a real and counterproductive prospect of destinations inadvertently, “trying to flog a dead horse”, this winter and potentially beyond. None of us can yet be certain about precisely what will need to be done to promote destinations, but we can be pretty certain already is that it can’t possibly be about the same old same old, or business as usual this Winter. That realisation alone is in itself is a good and timely starting point for a half decent plan of action.
24. As with the pandemic there will be a role for strong leadership and for a centre for information and support. Albeit the type and range of physical support and official accurate, authoritative updates seen during the pandemic may not be forthcoming. There will also be a role in providing honest and accurate assessment based on as much or as little authoritative information as is available . For the sake of an immediate example, unlike during the pandemic demand in this case can’t be switched on or off in a matter of days or at most weeks by Government edict. The popular concept of “when things get back to normal” that developed and was sustained throughout what, even then, turned out to be a two-year pandemic will and cannot apply to this crisis. What we are experiencing now is happening despite Government interventions, not as in the pandemic, because of it.
25. Things will get better but probably at an almost imperceptible pace and the timing of critical events certainly can’t be predetermined well in advance, like the lifting of x or y restriction on a given date will allow you to do w or z. On the flip side nor, can the problems faced be made 100% worse, overnight by an unexpected Government policy pronouncement as they were in the pandemic. Things will just happen in their own good time, if we are lucky nudged there by much earlier policy or fiscal actions. The so what from that is that is curtailing opening hours to save cost or hunkering down for some or all of the first quarter of 2023 might work this winter but if the tourism green shoots of spring don’t appear as soon or grow as strongly as they always have before, then don’t get caught out by that. Don’t just assume a good summer season always follows on in turn and to order from Winter and Spring. Plan for the long-term and for the worst case and sincerely and fervently then hope your wrong, would be my personal advice to anyone who is prepared to listen.
26. As we did with the pandemic the tourism industry urgently needs to highlight how seasonality and the differing cyclical patterns make our industry as a whole far more vulnerable and immediately so, than most others to external pressures like those about to hit deep and hard this coming winter. Timing, as much as the problems themselves, are critically for our industry. Evidencing this, based on recent experience during the pandemic should now be far easier than it was pre-pandemic, when let’s be honest about it, winter was widely and erroneously seen as the relatively unimportant “off season”. How very wrong did that prove to be? Unfortunately, on this occasion however convincing the case made, it seems far less likely that HMG will be willing or able ride to our rescue with any targeted financial support for hospitality or support for employers in general. That shouldn’t stop us making a strong and persistent case and subsequently asking for very specific assistance in order to ensure our industry continues to remains viable through and beyond what in all probability is likely to be a very deep and protracted, international financial crisis.
27. I am keen to get the view from a wider circle of destination managers outside the “management team” and I propose to call a meeting shortly. In particular, I would like to hear what destination managers think has already and will now happen and what can be done locally, with or without government support, to mitigate the impacts on either individual businesses or the destination as a whole. Predicting the problems is the simple bit, doing it accurately and especially knowing what to then do to deal with it is rather more problematic. If you have any immediate comments or priority asks of Government, prior to any proposed meeting, then please let me know.
28. As ever apologies for the length of the thought piece but I didn’t have the time, nor do I have skill needed to write less on what I perceive to be a much biggest challenge than convid-19. If only because it follows on so closely behind it and hits us well before anyone or anything has had a chance to get anywhere near approaching the illusive and probably now mythical state of “the old normality”.