The travel and hospitality industry has spent the last two years talking about pent up demand. It goes something like this: western consumers were largely shielded from the worst of the pandemic — thanks to plentiful government support — and even managed to save money, they wanted to go on holiday but were prevented from doing so by travel bans and health concerns.
Now that vaccines have done their thing and Omicron has proven less deadly, people will go back to booking as normal.
There is some truth in that. When people were allowed to travel again, they did so, albeit in smaller numbers than usual. The received wisdom that people are tired of the pandemic and want to go back to normal. But what if there is no normal and a return to 2019 levels is unrealistic thinking?
Analysts at Morgan Stanley conducted its seventh annual UK holiday survey and found some surprising results.
The percentage of people planning a holiday in 2022 was 51%, up from 45% in 2021 but well below the pre-Covid-19 three-year average of 73%.
“The weaker travel intention is contrary to the strong pent-up demand that companies as well as investors are expecting,” Morgan Stanley analysts said.
This could be a big problem if businesses are expecting and planning for a bumper year.
Worse news for the hospitality and travel industry has come in the form of a cost-of-living squeeze in places like the UK, where inflation together with rising gas and electricity prices has the potential to put a curb on spending.
GfK’s long-running Consumer Confidence Index decreased four points to -19 in January, illustrating the public’s growing concern.
“Despite some good news about the easing of Covid restrictions, consumers are clearly bracing themselves for surging inflation, rising fuel bills and the prospect of interest rate rises,” Joe Staton, client strategy director at GfK, said.
He later added, somewhat ominously: “Will the mood brighten when the latest wave of the pandemic subsides and Covid numbers improve? It seems unlikely because it’s the cost-of-living squeeze that’s worrying us now and this will affect us for months to come.”
It’s not just the UK that is being impacted. Inflation is rising across Europe as well but not everyone thinks consumers will start cutting back.
Ian Stewart, Deloitte's chief economist in the UK, said it was possible for earnings and spending to diverge.
“[It] is also more than likely that overall consumer spending will grow strongly this year. Falling real earnings and rising consumer spending can, indeed, be reconciled,” he said in a recent article.