Friday, 8 July 2016

Brexit travel prices update

It appears not to have dawned yet on many prospective summer holiday travellers that the £ has plummeted in the aftermath of Brexit. Tour operators are reporting that bookings have continued to arrive, particularly for long haul trips. But there seems little doubt that in the slightly longer term, things look bleak for consumers and the industry. As I write sterling is 10% weaker against the euro than it was on the eve of the vote and around 13% down against the US dollar. So a couple of weeks touring for two people in Europe, with spending at, say a relatively modest €300 a day, will cost the best part of £400 extra. Package holidaymakers will be less hard hit, as they will have paid much of the cost upfront. Those who have booked all inclusive trips will escape most lightly. But watch out if you made a pre-Brexit hotel booking on a website allowing you to pay when you check out and showing an illustrative per night price in £s. By the time the credit card fee has been added and the fall of sterling taken into account, the final bill could look very different. It's open to question whether or not there will be surcharges on packages. The amount and timing of surcharges are tightly limited by an EU directive passed not law by the UK Government. (Yes, the same EU British voters elected to leave).Tour operators must absorb extra costs - such as those created by currency fluctuations - up to the first 2% of the holiday price. They can't surcharge later than 30 days before you depart. And the maximum they may charge is 10% of the package price. Much will depend on the extent to which operators bought in advance the currency needed today hotel companies and other suppliers abroad. Industry insiders say it's certain that some were caught out, gambling that a remain vote would prompt a rise in sterling's value against the euro another currencies. As for this who haven't decided where to go yet, the advent of online bookings has at least given operators more flexibility to adjust prices than in the days of the hard copy brochure. The more expensive the accommodation you choose, the more the price is likely to rise. If the hotel element represents, say, 60% of the price of a £700 holiday in Euroland, that price could rise by £56. But even that calculation hangs on whether the operators decides to sacrifice some of its profit margin to keep business flowing. On top of all this is the impact on flying costs. The price of aviation fuel, which is paid for in US dollars, has dropped. So, since 2010,have average worldwide fares. As with tour firms, the short term effect will depend on how much - and at what rate - airlines bought forward. The percentage fuel represents as a proportion of airline operating costs varies, depending on the length of routes (it's higher on short flights) and the efficiency of the aircraft they use. So even working out what impact a 7% appreciation of the US$ against sterling will have on overall fares is mighty difficult and calculating the effects individual routes with any certainty impossible. That said, I wouldn't be surprised to see fares from the UK rising by 2%-3%. All this speculation depends, of course, on speculation - the speculation of currency traders as they bet on the way they think the UK economy will move. All I can say on that front is - buckle your seat belts.

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