Economic recovery ahead but uncertainty abounds

Travel companies face hard times ahead of a hoped-for recovery next year, but business leaders see benefits in some firms going under.

Kuoni UK managing director Nick Hughes told the Travolution Summit in London on Tuesday: “Our industry has pretty low barriers to entry and it does not do our industry any good when, in good times, a lot of players enter the market on low margins.” managing director Graham Donoghue agreed, saying: “Recession is not necessarily bad. Strong organisations will survive.”

The summit heard a leading economist predict the UK recession would end in the final quarter of this year, but the outlook remains uncertain and consumer spending could be “off the agenda for a while”.

The recession is proving especially painful because it follows an unbroken period of growth in the UK economy from 1992 to the first quarter of last year. GDP grew 52% over those 16 years compared with growth in the euro-zone of 29%.

But UK consumer spending – the single greatest element of GDP – outstripped the rise in incomes, producing “staggering levels of debt”. Now discretionary spending is under pressure and unemployment rising, making consumers nervous.

A recovery should begin next year, delegates were told, but there is considerable uncertainty – much of it stemming from the credit crunch which continues to hinder bank lending.

There is also underlying anxiety about UK government strategy in encouraging consumers to resume borrowing and spending when that is what led to the current situation. The summit heard: “It is not a sustainable growth path.”

Hughes expressed concern about the longer term impact on consumer behaviour – a subject tackled by analyst Mintel in its recently published British Lifestyles survey.

This suggested spending on holidays abroad could take four years to recover.

Opodo chief executive Ignacio Martos told summit delegates: “The industry will be quite changed after the crisis.”

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