Demand for package holidays falls as UK cost of living crisis hits budgets

Vacation bookings for three-star destinations are starting to fall as households hit by the cost-of-living crisis shrink amid soaring bills, according to travel company On the Beach.

The online travel retailer said that while premium bookings from customers with deeper pockets were proving “resilient”, tourists who traditionally booked cheaper travel were being forced to rein in their spending.

“Those who book holidays at a higher price (around £600-800 per person and up) are proving more resilient than those who book holidays for £300-500 and less. So that tends to be the difference in three stars and five stars. [destinations]said On the Beach CEO Simon Cooper.

He said: “So those would be, potentially, the demographic groups that would be most stressed by cost-of-living pressures and potentially have the least savings.”

The headline rate of consumer price inflation reached 11.1% in October, its highest level since 1981, due to rising energy and food bills. The rising cost of essential items has eaten into the spending power of UK households, some of whom have subsequently rowed back on holiday abroad.

But On the Beach still reported lower-cost destinations like Turkey, where customers could get more for their money, increasing in popularity. Cooper said Turkey was “very affordable,” offering premium locations and “well-appointed hotels” for less.

However, the fall in the value of the pound and the rise in the US dollar had affected reserves for destinations such as the Caribbean. “And yet, even against that backdrop, we have again seen very strong sales for long-haul destinations, perhaps as a result of pent-up demand arising from Covid.”

It came as On the Beach returned to profit for the year to 30 September, reporting pre-tax earnings of £14m. That compares with the £18m loss recorded in 2021, when pandemic travel restrictions were still largely in place.

Cooper said that compared to the disruptions the company has faced during the pandemic, planned walkouts by workers, including Border Force personnel, were not particularly concerning. “We’re not seeing any immediate impact from those strike headlines,” Cooper said. “We have managed a significant level of disruption over the past two and a half years and will continue to do so.”

On the Beach also announced that Cooper, who founded the firm in 2004, would step down as chief executive officer and be succeeded by chief financial officer Shaun Morton within the next year. On the Beach shares fell 4.6% in afternoon trading.

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