Produced in association with Front Cover VERSION REPRO OP

SUBS Annual Report 2019-20 ART PRODUCTION CLIENT

Forty-seven million reasons to be confident in 2020

Produced by Travel Weekly, with exclusive consumer research

BLACK YELLOW MAGENTA CYAN 91TRS1951903.pgs 02.12.2019 08:46 Deloitte VERSION REPRO OP SUBS ART PRODUCTION CLIENT

Be ahead of the changing consumer www.deloitte.co.uk/ths

JJ1904619046 TTravelravel WWeeklyeekly AAmendsmends 2270mmx203mm70mmx203mm iir.inddr indd 1 002/12/20192/12/2019 009:419:41 BLACK YELLOW MAGENTA CYAN 91TRS1951900.pgs 02.12.2019 11:36 Contents VERSION Contents TRAVEL WEEKLY INSIGHT REPORT 2019-20 REPRO OP

4 Executive summary 18 Inbound 32 Hospitality

SUBS 5 Key findings 20 Domestic 35 Travel technology 7 Consumer research 22 Cruise 40 Cybersecurity 9 Market outlook 24 Business travel 42 Future of work ART 15 Consumer research 26 Investment in travel 45 Sustainable travel 16 Outbound 29 Aviation 49 Resilience

PRODUCTION TRAVEL WEEKLY INSIGHT ANNUAL REPORT 2019-20

Editor Ian Taylor Designer and illustrator

CLIENT Kate Collings Chief subeditor Mike Walsh Production manager Nick Cripps Travel Weekly Group editor-in-chief Lucy Huxley Head of sales Mary Rega Managing director Stuart Parish Jacobs Media Group chairman Clive Jacobs

Front cover: Outbound holidays hit a record 47 million in 2018; numbers in 2019 were on a par and exclusive consumer research by Kantar/Service Science for this report suggests demand for overseas holidays in 2020 will at least match 2019 (page 15)

Travel Weekly Insight Annual Report 2019-20 is published by Travel Weekly Group Limited. Registration number 6927031. Registered address: Third Floor, 52 Grosvenor Gardens, London SW1W 0AU. Materials in this publication may not be reproduced in any form without permission. Registered at the Post Office as a newspaper. Printed in England for the proprietors by 26/12. Origination by Rhapsody. © Travel Weekly Group Limited 2019

Cover and page 3 images: Shutterstock

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BLACK YELLOW MAGENTA CYAN 91TRS1951127.pgs 02.12.2019 14:37 VERSION Executive summary Executive Summary opportunities for growth REPRO OP

2019 has been an eventful and some might say transformational year for the UK travel sector. While consumer confidence wavered in a climate of continued political and economic SUBS uncertainty, spending remained resilient. Most important, consumers still favour experiences and our research on leisure spending has shown net spending on holidays remains robust and above ART other leisure categories. However, should the consumer fundamentals change there is concern consumers’ ability to pursue their holiday dreams as often or as elaborately may be constrained. There have been fewer travel company PRODUCTION acquisitions over the last year. While Travel companies and there is more the sector could do in this could be linked to the general using analytics to predict what consumers uncertainties, it is also potentially an need to focus want next. The sector can also make better indication that longer-term prospects for on consumers use of technologies to operate efficiently growth in the sector are being questioned. and empower staff – for example, by The sector is becoming increasingly and employees, automating more menial tasks and

CLIENT competitive and a range of operational and work out enabling staff to be more insight-led. challenges have put pressure on This can be achieved by extracting more individual operators as well as the sector how to lead with value from the data collectively held on as a whole. Cyberattacks, drones and fleet purpose, says consumers, by collaborating and sharing issues have caused service disruptions, across companies. and workforce-related challenges – rising Alistair Pritchard There are indeed signs that consumer labour costs and limited labour supply – of Deloitte preferences are evolving. Holidays have combined with overcapacity to put are increasingly an opportunity for margins under pressure. consumers to enrich their lives and they want authentic experiences. They also SETTING A VISION FOR 2025 want to understand the impact their As 2020 dawns and focus shifts to refining holidays have on the environment, the business plans for the next five years, what local communities and places they visit. should travel businesses do to continue Having a strong brand, interesting to grow? The answer is simple: focus on offerings and competitive prices might people – both consumers and employees. not be enough to succeed in the next While the outlook for economic phase of growth. In future, a successful growth might be muted, there are still company needs to be responsible and opportunities for growth. Holidays purpose-led to inspire and resonate with remain special to consumers and a travel consumers and employees. This is not business can set itself up for success by about quick wins. Companies need to understanding what, when and how invest time and effort in working out how consumers want their holidays. This is they truly lead with purpose. The pressure only possible if staff are motivated and to do so is only likely to increase. feel their contribution is valued. Technology is a key enabler for Alistair Pritchard, lead partner, improving understanding of the consumer Travel and Aviation, Deloitte LLP

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BLACK YELLOW MAGENTA CYAN 91TRS1951128.pgs 02.12.2019 14:46 Key Findings VERSION Key Findings

REPRO OP More than 1 i n 2 plan overseas 7 in 10 took a holiday in 2020 domestic

SUBS 6pt holiday in rise in 2019 concern at environmental 6pt rise ART impact of flying in adults ‘very likely’ to take No change domestic in planned duration 6pt increase holiday

PRODUCTION in holidaymakers who anticipate of overseas holidays: in 2020 53% plan Brexit impact 7 nights or less on holiday decision

CLIENT 2 in 3 under-35s 2 in 3 4pt rise anticipate over-55s in booking ‘Brexit impact say Brexit by smartphone on holiday’ to have ‘no impact’ 5pt fall in expectation of 9 out of 10 booking with agent to spend same or more 1 in 2 holidaymakers 5pt rise in on holiday to book all-inclusive: adults planning in 2020 +4pts on 2019 hotel stay overseas Only 1 in 25 holidaymakers plan homestay booking – no change since 2015

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BLACK YELLOW MAGENTA CYAN 91TRS1951129.pgs 02.12.2019 14:52 Forward VERSION Foreword focus on sustainability is the one certainty REPRO OP

Desire for certainty on Britain’s continued to rise . . . at 1.5% per year future relationship with the EU may in the last decade. There is no sign of be satisfied one way or another by Despite a clouded emissions peaking.” the general election as this report A 55% reduction in emissions by went to press. But we will await economic 2030 is required “to put the world on SUBS clarity on how the process plays out outlook and the the pathway to limiting warming to whatever the outcome. 1.5C”. By contrast, business newspaper This is the fourth Insight Annual preoccupations the Financial Times reported: “Existing Report since the 2016 Brexit referendum of the past 12 global pledges to reduce emissions will and the main concerns of the travel correspond to more than 3C of warming industry have not changed. The months, demand by the end of the century.” ART sector requires maintenance of flying for travel remains Growing anxiety about the climate arrangements, friction-free borders, was reflected in a rise in awareness thriving economies, stable exchange undiminished of the impact of flying and the ‘flight rates, skilled personnel and so on. shame’ (flygskam) movement in Sweden. What comes next may not entirely Whether this will spread remains to measure up. Yet despite a clouded be seen, but unchecked growth can’t PRODUCTION economic outlook and the preoccupations be assumed – perhaps leading to new of the past 12 months, demand for travel pressure for carbon taxes or fresh doubt remains undiminished. over a third runway at Heathrow. Trends previously identified have I am grateful to all at Deloitte for their strengthened over the past year. help in producing this report, indebted All-inclusive bookings have become such to Tom Costley of Service Science for

CLIENT a mainstay of the outbound market that arranging the Kantar research and one-in-two holidaymakers intend to book grateful to David Hope of GfK for his all-inclusive in 2020. insight on outbound booking trends. Any Smartphone bookings are rising, faults are my own. posing a challenge to high street agents. Ian Taylor Yet the liquidation of Thomas Cook executive editor, proved less of a death knell for the Travel Weekly high street than an opportunity for ian.taylor@ renewal as the UK’s largest independent travelweekly.co.uk agency chain swallowed Cook’s retail outlets whole. Consumer research findings run through this report, along with supporting data, and senior figures at Deloitte provide commentary on the economic outlook, investment, latest THE CHARTS (page 7) represent UK holiday taking in 2019. Figures trends in technology (especially aviation), 1, 2 and 4 are self-explanatory. cyber security, the workplace and, Note the increase in overseas holidays among 16 to 34-year-olds crucially, sustainability. and decline among older adults. Like it or not, this issue will most Figure 3 shows a breakdown of those taking overseas holidays by define the future. age and the proportion by region; Rapid progress is now required to 24% of overseas holidaymakers taking two or more breaks in 2019 reduce fossil fuel emissions. The UN travelled with children, 39% were Environment Programme (UNEP) annual over 55 and 71% in social class ABC1. These are not the same as Emissions Gap Report, published in the proportions within these groups taking two or more holidays – 20% November, provided sobering reading. of those with children, 23% of It noted: “Greenhouse gas emissions over-55s and 29% of ABC1s

6 Travel Weekly Insight Report 2019-20

BLACK YELLOW MAGENTA CYAN 91TRS1951130.pgs 02.12.2019 14:51 VERSION UK Holiday Market Kantar/service science consumer research research: UK Market 2019

REPRO OP FIGURE 1: UK HOLIDAY MARKET +8 +9 47m points points -1% YoY 89% overseas YoY on who took an overseas 2017 holidays, 2018 68% holiday in 2019 also had a domestic break +1% holidays, SUBS who had a domestic 0 domestic & increase points 105m overseas, 2018 in overseas holiday in 76 % YoY 58m -2 2019 also took points holidays a holiday took at least domestic YoY in 2018 overseas one holiday in 2019 holidays, 2018 Source: 2018 data – ONS/VisitBritain

ART FIGURE 2: UK OUTBOUND HOLIDAY MARKET, 2019 % adults taking overseas holidays UK adults % took at least 0% 80 +2 +6 +3 +2 0 -9 -3 -2 -7 +1 0 -7 0 +3 +2 +3 0 -2 one overseas points 54% holiday... YoY 61% 60% 61% 61% At least one 60 56% 51% Two or more 23% 47% 44% 46% PRODUCTION ...took two 40 or more 29% +1% 27% 24% 23% 20% 23% points 20 18% 17% YoY 15% 0 16-24 25-34 35-44 45-54 55+ Child No child ABC1 C2DE

CLIENT FIGURE 3: WHO TAKES HOLIDAYS? AGE OF UK OVERSEAS % of UK holidaymakers taking... % UK adults taking at least one HOLIDAYMAKERS, 2019 overseas holiday, by region % of those taking at least Two or more Two or more overseas holidays domestic holidays one holiday abroad North +3 with -9 -9 24% points 22% points 16-24 children YoY YoY 55 % 16% 55+ 34% 39 % 40% +2 -1 Midlands +2 25-34 Over-55s points points YoY YoY London 19% 52% 0 Social class -4 ABC1 points 62 % YoY South 45-54 35-44 +5 -2 15% 16% Figures points % change YoY 56% 55% rounded 71% year on year

FIGURE 4: UK DOMESTIC HOLIDAY MARKET, 2019 % adults taking UK domestic holidays % +8 +6 +6 +2 +4 -1 -2 +2 +7 +8 +13 +2 +2 +5 +9 +8 +11 +1 +4 80 points 73% 72% 76% 76% +5 YoY 69% 70% 67% 63% 63% At least one points 60 Two or more YoY 54% 51% 45% 44% 44% 40 36% 40% 37% 39% 37% 71% took two or more took at least 20 one domestic holiday 0 16-24 25-34 35-44 45-54 55+ Child No child ABC1 C2DE

Source: Kantar/Service Science, October 2019 Base: 1,276 UK adults

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Let’s explore together

www.deloitte.co.uk/ths

119228392283 20182018 BTABTA BrochureBrochure ps02.inddps02 indd 1 111/29/20191/29/2019 8:58:208:58:20 PMPM BLACK YELLOW MAGENTA CYAN 91TRS1951152.pgs 02.12.2019 11:36 VERSION Market outlook consumer confidence faces twin pressures UK Market Outlook, 1 REPRO OP

Political uncertainty hung over Political agreed withdrawal should at least avoid everything in 2019, heightened by the risks outlined in leaked cabinet more than one Brexit withdrawal uncertainty and office papers in August of fuel, food and date and multiple seemingly critical an economic medicine shortages and “a three‑month moments. meltdown at ports”. SUBS slowdown The sector was trebly hit by the impact Industry leaders attending Abta’s on business and consumer confidence could test UK Travel Convention in October were and by the uncertainty about travel holidaymakers’ warned by Peter Foster, Europe editor of arrangements. It could be considered the Daily Telegraph, to expect “grinding remarkable, therefore, that the market resilience in 2020 uncertainty” to continue as the “long‑term held up so well. The collapse of Thomas impacts of Brexit have yet to emerge”. ART Cook in September barely countered that The uncertainty had an undoubted view since Cook was not brought down impact on the outbound booking cycle as solely by events in 2019. explored elsewhere in this report (page 16). The UK will have a new government Deloitte UK lead partner for travel in 2020. The December general election and aviation Alistair Pritchard agreed appeared likely to produce either a with Foster’s assessment, saying: “If the PRODUCTION government led by Boris Johnson that Withdrawal Agreement is ratified, it only would lead Britain out of the EU on deals with the exit terms. We’ll move into January 31 or a hung parliament and a new period of extended uncertainty maybe a second referendum. A no‑deal OUTBOUND holiday numbers hit about what a future relationship with the a record in 2018 and appeared on departure remained a theoretical possibility course to match those numbers EU will look like.” He also warned: “I’m after Johnson insisted a government led in 2019 despite a relatively slow not sure [a ratified deal] would have an first few months of the year for CLIENT by him would stick to December 2020 as bookings (Figure 5). Note the link to immediate positive impact [on] bookings. the Brexit transition deadline. GDP growth and the lengthy period It might take longer for confidence to of stagnation in numbers between Former Abta chairman Noel Josephides 2009 and 2014, coinciding with come back. In March 2019, people thought the years of post-financial crisis warned a January leave date would be austerity, before a recovery and bookings would come in once we got “problematic” for the sector. But an then a relative plateau since 2016 a Brexit delay. We’ve seen assurances

50 FIGURE 5: UK HOLIDAYS ABROAD, 2000-19 Annual holidays and GDP growth 46.6m 47m 46.7m* 45.3m 45.4m 45.5m 45m 44.2m 42.9m 42.2m 41.2m 40 39.9m 38.7m 38.5m 38.5m 37.2m 36.7m 36.4m 36.8m 36.2m 4 Holiday trips (million) 3.4% 3.3% 3.2% 3% 2.8% 2.6% 3 2.3% 2.4% 2.4% 2.4% 1.9% 2.1% 1.9% 1.9% 2 30 1.5% 1.5% 1.4% 1

0.4%** GDP growth 0 -0.3% -1 -2

*12 months to June 2019 -3 **Six months to June 2019 -4 Source: ONS -4.2% -5 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019*

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that flights will operate irrespective of growth as “somewhat optimistic”. no-deal, but that is not the only factor. It’s Yet UK demand for overseas holidays more about certainty.” broadly held up and exclusive research Pritchard does not foresee agreement by Kantar for this report suggests good on Britain’s withdrawal leading to a THE UK is among the world’s reason for confidence going into 2020. SUBS surge in the value of the pound. He said: top-four source markets for It found a small increase to 53% in the international travel and the “[Currency] dealers have already priced in number two for travel spending proportion of UK adults intending to take expectations on the exchange rate. I don’t per head, only narrowly behind an overseas holiday in 2020 and almost Germany (Figure 6). Total UK see sterling returning to heady heights.” outbound holiday numbers are 90% expecting to spend as much as or at an all-time high, although more than in 2019 – when outbound provisional figures suggest a small ECONOMIC SLOWDOWN dip in spring 2019 (Figure 7). The holidays in 2019 appeared set to equal the ART Brexit was not the only source of overall recovery since 2008-10 is not reflected in first-quarter figures record of 47 million set in 2018. uncertainty. Alexander Boersch, which remain down on 2008 Pritchard explained: “The UK chief economist at Deloitte Germany, highlighted a “synchronised slowdown” FIGURE 6: GLOBAL TOP-FIVE TRAVEL in the world economy when he addressed SOURCE MARKETS, 2018 the European Hotel Investment PRODUCTION Conference in London in November. Departures Spending per head of population Boersch said: “Trade growth is at an all- million $

time low if we exclude the [2008] financial $1,160 $1,152 100 93m 1,200 crisis. There has been an industrial 89m recession in eurozone manufacturing 1,000 China 80 72m through the whole of 2019. We see a 71m* US 800 CLIENT 20-point fall in investment intentions. 60 $716 Germany There is a two-tier economy. Services 600 UK France and domestic-oriented sectors thrive but 40 $440 manufacturing suffers. Can this decoupling 29m 400 $199 go on? Yes, for now, but not for ever. It 20 200 *Excl. Hong could last into next year.” He described Kong, Macao, Taiwan forecasts of slower but continued global 0 0 Source: UNWTO

FIGURE 7: OVERSEAS HOLIDAYS FROM UK, 2008-19 Holiday trips by quarter and % change on 2008

+6% +4% Q1 (Jan-Mar) -13% Q2 (Apr-Jun) Q3 (Jul-Sep) Q4 (Oct-Dec) +8% 20

17m 17m 17m Holiday trips by quarter 16.4m 15.8m % change on 2008 14.5m 14.5m

15 14.4m 14.2m 13.7m 13.7m 13.4m 13.1m 13m 12.2m 12.1m 11.9m 10.9m 10.6m 10.5m 10.4m 10.2m

10 9.5m 9m 8.9m 8.7m 8.7m 8.3m 8m 7.6m 7.7m 7.5m 7.4m 7.2m 7m 7m 6.8m 6.5m 6.7m 6.6m 6.5m 5.9m 5.8m 5.8m 5.8m 5.7m

Holiday trips (million) 5

0

2008 2010 2012 2014 2016 2018 2019 2008 2010 2012 2014 2016 2018 2019 2008 2010 2012 2014 2016 2018 2008 2010 2012 2014 2016 2018

Source: ONS

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consumer continues to be in a reasonably growth. That does not mean people good place. Over the first nine months won’t go on holiday, but it raises the of this year we had UK wage growth question whether they will go as many exceeding inflation, high levels of THE FALL in the value of sterling times, go away for as long and spend as employment and low interest rates. The against the euro since 2016 appeared much. People will still want to travel, SUBS to have little overall impact on UK one caveat is there are signs things may holiday numbers to the eurozone but perhaps on a slightly tighter budget. become more challenging.” at first, possibly as it coincided All‑inclusive resorts give some certainty with a shift away from the eastern He noted: “There tends to be a Mediterranean. The subsequent about costs so are likely to be popular.” lag between business confidence and impact appears muted (Figure 8). The Kantar research suggests a four‑ Brexit may have more of an impact consumer confidence and businesses (Figure 9). Research for this report point rise year on year to 50% in the have been more cautious for a time. The suggests 45% of holidaymakers proportion of UK holidaymakers intending foresee a potential impact, with a ART most‑recent figures showed employment sharp difference in view by age to book all‑inclusive accommodation. falling and that could potentially have a bearing on wages. Consumer spending might become a bit weaker. FIGURE 8: UK-EUROZONE HOLIDAYS* “Looking at the global economy, & EXCHANGE RATE: 2007-19 Germany, China and the US all weakened. 35 2 33m 33.1m PRODUCTION 32.6m We have slowing global growth, with 31.7m 31.2m 31.8m 30 29.6m UK outbound tariffs biting. Trade‑related matters have €1.46 27.1m 26.6m 26m 1.5 UK inbound created uncertainty and where there is 25 24.2m 25.1m 25.1m €1.38 €1.26 €1.23 €1.24 €1.22 £/€ rate uncertainty you have less confidence to €1.12 €1.17 €1.15 €1.18 €1.14 €1.13 €1.12

20 £/ € rate invest and a tendency to retrench and 1 control costs. The risk is that multiple 15 CLIENT economies tip into recession.” Holidays (million) 10 8.1m 8.2m 8m 8.6m 8.7m 8.4m0.5 He acknowledged an added problem: 6.3m 6.6m 7.2m 7.4m 7.3m 7.1m 7.5m “The ability [of central banks] to invest in 5 fiscal stimulus [cut taxes] is more limited 0 0 because of the measures already taken. To 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019** an extent, we’re overdue a recession. *EU15 states, includes main eurozone destinations but excludes Cyprus, Malta & Slovenia “Most major economies will see slower **12 months to June Exchange rate at June 30 Figures rounded Source: ONS/UK Treasury

FIGURE 9: BREXIT’S IMPACT ON OVERSEAS HOLIDAYS ‘How much impact, if any, might Brexit have on the likelihood of you taking an overseas holiday?’

% change in ‘impact’ year on year % % change YoY 80 +20 +9 0 -1 +7 +3 +9 +14 +1 +7 +6 +4 +10

+2 +6 70 Impact Don’t know Significant 66% 64% 13% impact IMPACT 60 62% No impact -11 14% 45% 55% 49% 49% 50% 50% 50 46% 47% 48% 47% 47% 43% Some 40% 41% 40% 39% Some 40 impact 34% 37% 35% impact 31% 33% 31% 30 28% 31% 25% No 22% impact +4 20 42% 10 +5 0 16-24 25-34 35-44 45-54 55+ Child No ABC1 C2DE North South Child London Source: Kantar/Service Science, October 2019 Midlands

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THOMAS COOK FALLOUT Tui chief executive Fritz Joussen made Thomas Cook’s failure marked the end the same point in May, noting: “All markets of a 170-year history, although the group If businesses pile are suffering. People have better prices only emerged in its final form in 2007. and we have lower margins. Everyone is The collapse was described by Abta back in [to fill prepared to put on capacity, to fight for SUBS chief executive Mark Tanzer as “a the gap left by market share. We assume there will be failure of corporate finance”. Pritchard, consolidation. There are weak players.” In however, attributed the failure to “a Thomas Cook], July, Philip Meeson, executive chairman of range of factors”. An overriding issue we will probably Dart Group, parent of Jet2, similarly noted: was the group’s debt, accumulated under “Pricing has to be continually enticing.” previous management and expensively get back to where Cook’s was not the only failure. Super ART restructured in 2011-13. Another was there is not a lot Break and its parent Malvern Group the loss of confidence in a group left ceased trading in August. But Cook’s fighting for survival after announcing a of margin collapse was a defining moment. £1.1 billion “impairment of goodwill” in Joussen attributed the failure to “too its UK business in May. little differentiation”, noting: “When you Intense competition and the wider have no differentiation, you are head to PRODUCTION forces reshaping the outbound market head with the internet. People are fine with and retail sector were also factors. packages because it’s comfort. People are The pressure on margins was intense. not fine being treated like anybody else.” The UK’s top-10 Atol-holders increased Tui joined other leading players – A SIGNIFICANT minority of their capacity for summer 2019 by almost holidaymakers (28%) appear Jet2, easyJet Holidays, On the Beach 15%, compared with a capacity rise of just concerned about the risk of a travel – in making clear its intention to fill the company failure, a proportion CLIENT 2% the year before. The increase was due up seven points year on year gap left by Cook, and easyJet Holidays not only to additional capacity but also to (Figure 10), albeit the survey was relaunched in late 2019 with an initial UK conducted within three weeks of previously unprotected sales falling within Thomas Cook’s failure. The well- capacity of one million. Pritchard noted: the new Package Travel Regulations. But documented shift to the western “The failures took short-term capacity Med of 2015-17 appears over industry adviser Alan Bowen expressed (Figures 11 and 12). The market to out, but a number of businesses said they surprise at the increase in April, saying: Turkey has come back. All-inclusive are going to add capacity. If they pile back demand appears at a new high “The short-haul market is enormously (Figure 13), having risen steadily in, we will probably get back to where since 2015. Holidaymakers with difficult. There is huge competition. children show a clear preference there is not a lot of margin.” Airlines are holding constant sales.” for all-inclusive resorts The Financial Times suggested

FIGURE 10: CONCERN AT RISK OF TRAVEL COMPANY FAILURE % for whom Failure a concern: By age By child status By social class failure ‘a concern’ % % % % 35 35 35% 35% 34% 35 34% 35 35% 32% 33% 33% 33% Oct 2019 30 30% Oct 2018 30 28% 29% 30 29% 30 29% 27% Oct 2017 26% 25% 26% 25% 25 24% 25 24% 24% 25 25 Oct 2016 21% 22% 20% 20% 20% 21% 20% 21% 20 20 19% 20 19% 20 15 15 15% 15 15 10 10 10 10 5 5 5 5 0 0 0 0 16-24 25-34 35-44 45-54 55+ Child No ABC1 C2DE Child Oct 2019Oct 2018Oct 2017Oct 2016 Source: Kantar/Service Science

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Cook’s failure raised “questions over the FIGURE 11: UK HOLIDAYS TO WESTERN MED, 2006-18 future value . . . or even the concept of 13.8m 15 12.9m the package holiday”. The rush to add 12.6m 12.1m Spain capacity challenged that view. France 12 10.8m Pritchard likewise dismissed it, saying: 9.3m 9.8m Italy SUBS Portugal “Packages are not a small percentage 7.6m of holidays, they are a mega part. If 9 7.1m 6.3m 6.2m 6m 6m anything, consumers want the confidence 5.6m they get from a package. That is not to 6

Visitors (million) Visitors 3.1m say OTAs or flights and accommodation 2.4m 2.4m 2.8m 1.6m 1.8m 2m booked independently won’t do well.” 3 ART He is also positive about travel’s future 2.3m 2.3m 1.65m 2.2m 1.6m 1.6m 1.8m on the high street, pointing out: “There 0 Source: ONS are plenty of examples of bricks-and- 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 mortar retailers performing very well.” Hays Travel’s purchase of Thomas Cook’s shops appeared a significant vote FIGURE 12: UK HOLIDAYS TO EASTERN MED, 2006-18 PRODUCTION of confidence. By November, owners John 2.5 2.3m and Irene Hays had already reopened 470. 2.2m 2.2m Greece But Hays was not the only travel retail Turkey 1.9m chain looking to expand, with Barrhead 2 Cyprus 1.7m Travel planning to open 100 new stores. 1.5m 1.6m John Hays offered an insight into his 1.5 CLIENT strategy in May when he said: “I try to 1.7m 1.2m 1.6m 1.2m inculcate in staff the web is their friend. 1.1m 1.1m Of people who book in store, more 1 Visitors (million) 1.1m 1.1m 0.73m than half have researched their holiday digitally in advance.” 0.5 0.77m The rate of closure of high street agencies 0.72m 0.69m 0.64m 0.51m also slowed dramatically in 2018-19, retail analyst the Local Data Company (LDC) 0 reported, despite the pressures on retailers 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Source: ONS

FIGURE 13: % likely to book ALL-INCLUSIVE DEMAND: 2015-19 all-inclusive for By age By child status following summer % % 2015 2016 2017 2018 2019 % 2015 2016 2017 2018 2019 50 50% 80 80 46% 44% 43% 70 69% 70 69% 40% 40 63% 63% 61% 60 60% 60 58% 59% 55% 51% 53% 52% 54% 50 48% 50% 50 30 47% 42% 45% 41% 42% 40% 41% 42% 40 37% 38% 38% 38% 38% 40 37% 38% 35% 34% 31% 34% 20 30 28% 30 20 20 10 10 10 0 0 0

2015 2016 2017 2018 2019 16-24 25-34 35-44 45-54 55+ Child No child Source: Kantar/ Service Science

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and high-profile closures of stores such Elena Kountoura told the International as Debenhams. An LDC spokeswoman Tourism and Investment Conference in described “a resurgence”, noting the November: “There is a climate emergency.” sector had been “boosted” by agencies Outgoing Abta sustainability director opening “concessions within larger Nikki White told Abta’s Travel Convention: SUBS retailers” and “offering experiences for THERE was little change in the UK’s “There is an awful lot of confusion preferred holiday destinations consumers in-store”. in 2018 (Figure 14). Italy, Greece about what companies should be doing. and Turkey enjoyed the strongest Destinations are not always aware. Not growth of the major destinations. TOURISM SUSTAINABILITY Numbers to the US appeared many governments have a joined-up plan.” Environmental sustainability moved to plateau, no doubt due to the She noted: “There are customers exchange rate. The gap in spending sharply up the agenda amid growing between older and younger who are more conscious and those who ART awareness of global warming. As former travellers is sharp (Figure 15). Destinations in Europe remain the want to forget about sustainability, Greek tourism minister and now MEP bedrock of the industry (Figure 16) but whatever the size of a business, everybody has to do something.” FIGURE 14: The Kantar research suggests a sharp TOP-10 HOLIDAY DESTINATIONS FROM UK, 2018 increase in consumer concerns about By destination By bednights the impact of flying, although still only

PRODUCTION % change -1% -2% +7%0% +7%0% +6% 0% -8% +22% YoY among a minority (pages 45-47) – a 15 150 finding echoed by CAA research (page 31). 13.8m However, concerns appear only likely 12 120 121m to grow, along with scrutiny of carbon 9 90 offsetting. Intensified pressure for carbon taxes on aviation also seems likely. 6m CLIENT 6 60 Former US president Barack Obama 47m Holiday visits (million)

Holiday nights (million) raised a separate, often neglected issue 3.1m

30 28m

3 2.3m 2.25m when he addressed the World Travel & 2.2m 22m 21m 19m 1.7m 1.2m 1.1m 8.4m 1.1m 10m 11m

6.8m Tourism Council summit in April, noting: 0 0 “For young women, travel poses specific US US Italy Italy issues around safety and security and the Spain Spain Turkey Turkey France France Ireland Greece Greece Mexico Portugal Portugal attitude of men.” It’s a good point and one Germany Caribbean* Netherlands Netherlands the industry would do well to act on in *Excl. Mexico Figures rounded Source: ONS the era of #MeToo.

FIGURE 15: UK OUTBOUND TRIPS FIGURE 16: UK TRIPS BEYOND AND SPENDING BY AGE, 2018 EUROPE: BY AGE, 2018 % % of total trips % % of total spending % of all outbound trips in age group 25 20 20% 20% 25 22% 18% 18% 21% 21% 20% 20% 20% 20% 19% 19% 20 19% 20 15% 15% 15 15% 15 15

11% 11% 10 10 10 9% 5 5 3% n/a 0 5 0 0-15 16-24 25-34 35-44 45-54 55-64 65+ 0-15 16-24 25-34 35-44 45-54 55-64 65+ 0-15 16-24 25-34 35-44 45-54 55-64 65+ All ages Source: ONS Source: ONS

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BLACK YELLOW MAGENTA CYAN 91TRS1951107.pgs 02.12.2019 15:09 VERSION UK Holiday Market Kantar/service science consumer research REPRO OP HOLIDAY INTENTIONS, 2020 Research: UK Holiday Intentions

+3% YoY 28.4m +11% 36m 11.4m YoY UK adults intend SUBS intend to 13.9m to take intend to take spend more a domestic an overseas on overseas intend to holiday holiday in 2020 holidays spend the same in 2020

FIGURE 17: HOLIDAY DEMAND FOR 2020 ART LIKELIHOOD OF OVERSEAS HOLIDAY % UK ADULTS LIKELY TO TAKE OVERSEAS HOLIDAY By age, class, region % point change YoY % change on % a year ago 80 +5 +7 -1 -2 -3 +1 0 +1 -1 +2 +1 -2 -4 A ONE-POINT rise overall in the 64% 66% Very likely 63% 60% proportion of UK 33% 60 57% adults intending to 54% 52% 53% 54% 47% 49% 50% take an overseas +1 44% holiday in 2020 PRODUCTION 40 masks a sharp +1 increase among 16 20 to 34-year-olds and Undecided* Quite likely a more cautious 18% 20% response among *Includes 0 older respondents ‘don’t knows’ 0 16-24 25-34 35-44 45-54 55+ Child No child ABC1 C2DE North Midlands South London (Figure 17)

CLIENT FIGURE 18: SPENDING ON OVERSEAS HOLIDAY, 2020 LIKELY SPEND ON OVERSEAS HOLIDAY ADULTS LIKELY TO SPEND MORE % change on By age, class, region a year ago A lot -2 % more +5 +3 +6 +3 +4 +7 +3 +4 +3 +6 +2 +2 +4 % point 60 change YoY 11% 53% 49% 46% 44% 40% 40% 39% 41% 41% 40% A little 40 36% 37% ALMOST 90% of more 28% those planning an 29% overseas holiday in About 20 2002 intend to spend the +2 at least as much as same in 2019, with barely 49% any difference 0 by age, class or +4 16-24 25-34 35-44 45-54 55+ Child No child ABC1 C2DE North Midlands South All region (Figure 18)

FIGURE 19: UK DOMESTIC HOLIDAY DEMAND, 2020 LIKELIHOOD OF DOMESTIC HOLIDAY % ADULTS LIKELY TO TAKE DOMESTIC HOLIDAY By age, class, region % change on % point a year ago % +1 +3 +1 +9 +5 +6 +4 +6 +2 +6 +5 +2 +5 change YoY Very 80 75% 71% 71% likely 67% 66% 67% 67% 67% 67% 63% 64% 61% 62% A SIX-POINT rise 41% 60 in the proportion Undecided* +6 ‘very likely’ to take 18% a domestic holiday 40 -2 and sharp increases among adults aged 45-plus and Quite likely 20 those with children 26% -1 suggest the domestic sector could have *Includes 0 ‘don’t knows’ 16-24 25-34 35-44 45-54 55+ Child No child ABC1 C2DE North Midlands South All a bumper 2020 Source: Kantar/Service Science, October 2019 Base: 1,276 UK adults

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BLACK YELLOW MAGENTA CYAN 91TRS1951132.pgs 02.12.2019 15:46 Outbound VERSION Outbound Summer market defies challenges REPRO OP

The outbound sector had a difficult Sector withstands It was a pattern repeated through 2019 amid uncertainty about the early 2019. By January’s end, summer terms of Britain’s departure from the Brexit delays and 2019 bookings remained 4% up year on EU, initially set for the end of March, overcapacity year, but Brexit concerns, amplified by and significant overcapacity in the sensationalist media reports, were having SUBS but summer’s short-haul market. a demonstrable effect. When Iata warned It saw months of tough trading, end dominated flights could be cancelled in the event of then something of a reprieve for by collapse of a no-deal Brexit, and the UK government summer 2019 bookings in late spring warned travellers to check passports and summer before the failure of Thomas Cook were sufficiently up to date for EU travel, Thomas Cook in September posed a they triggered a spate of headlines such ART different set of problems. These factors as “No-deal threat to 5m tickets” and – overcapacity, Brexit and Cook’s “Passport chaos: 3.5m could be INVALID”. failure – plus underlying uncertainty GfK senior client director David Hope about the economic outlook dominated noted: “The market dropped off a cliff.” the year and will largely shape the The difficulty was highlighted by Brittany outbound market in 2020. Yet they remain Ferries chief executive Christophe Mathieu, PRODUCTION tempered by the remarkable resilience of who told an Abta Brexit briefing in March: holiday demand. “We can’t offer reassurance when people It’s worth noting 2018 was a record book. We’re unable to give answers other year for outbound holidays with than ‘We hope to minimise disruption’.” 47 million UK departures. Industry By late March, summer 2019 bookings analyst GfK reported summer 2018 were running 7%-10% down year on year

CLIENT bookings ended 5% up year on year. It each week and season-to-date bookings would be remarkable in the circumstances were barely up on the previous year. The if 2019 topped that performance. inevitable Brexit delay appeared to have The trade went into January 2019 no immediate impact. In early April, in a strong position, with summer 2019 Hope reported: “Things are not getting bookings up 9% year on year and revenue better. Everything is down.” By late April, growth in double figures despite a 20% season-to-date bookings for the summer plunge in bookings in the second half of had turned negative. December following a Sunday Times front Discounting halted the decline and page warning “Don’t go on holiday after pushed summer bookings in May up 1% March 29” (December 16, 2018). year on year at the price of a 1% drop

The Deloitte view Holidays continued to be important for sterling possibly impacted winter 2019-20 demanding and educated about the subject. Britons in 2019. The Deloitte Consumer bookings, which have trended below last It is critical that the sector considers care- Tracker showed net spending on holidays year’s levels. fully whether it is truly exploring all avenues has continued to track above most other In the long term, a more significant to continue to offer travel opportunities in a leisure categories. challenge is likely to be the increasing focus way that is sustainable for future generations. Europe remains the most-important on sustainability and the impact this might Travel agents will continue to play an destination for Britons. Spain and France have on consumers’ decision to travel important role in the process. As consumers alone generated more than £5 billion from abroad, for business or pleasure. While the seek more unique, personalised experiences, outbound UK tourism. Newer destinations sector is undoubtedly taking steps to limit there is no better time to highlight how agents such as Bulgaria have continued to gain its negative effects on the environment can help consumers navigate choice and traction with UK consumers owing to their and to increase the positive impacts it can keep holiday experiences exciting and fun. budget-friendly offerings. have on local communities and economies, █ Danielle Rawson, director, Travel and The uncertainty and depreciation of the consumer is becoming increasingly Aviation

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BLACK YELLOW MAGENTA CYAN 91TRS1951133.pgs 02.12.2019 15:38 Outbound VERSION REPRO OP

in revenue. June brought a turnaround FIGURE 20: DURATION OF NEXT OVERSEAS HOLIDAY as monthly bookings rose 7% on 2018 By age, child status and season-to-date revenue returned to % point Don’t +4 -9 +10 -9 +5 +10 +12 -7 -5 +2 +2 -2 +3 -2 2% up year on year. By mid-July, GfK change know 4% y-o-y +1 -1 -7 -3 +3 +1 -1 could report “nine consecutive weeks of +1 SUBS passenger growth” which it described -1 % 1-6 nights 7 nights 1-3 nights 60 59% as “all-inclusive driven”. Hope noted: 0 7% 7 nights 8-plus nights “The industry has had to price extremely 29% 50 48% competitively. The tough trading 4-6 nights 45%

17% 40% 37%

40 37% 35%

environment has had a significant impact 35% 34% 32% 31% 30%

on cashflow.” How significant was yet to 30 28% 27% 27% 25% ART 25%

-1 24% 15+ 24% 23% be revealed. nights -1 20 By the end of August, season-to- 8% 0 8-13 nights date bookings had recovered to 2% up 14 nights 18% 10 10% and revenues 3% up. That was before 17% 0 Thomas Cook went into liquidation 16-24 25-34 35-44 45-54 55+ Child No child on September 23. The failure rendered Excludes don’t knows PRODUCTION irrelevant attempts to quantify the overall state of the market at the season’s close. FIGURE 21: TYPE OF NEXT OVERSEAS HOLIDAY OTHER SEASONS By age, child status % point Winter 2018-19 followed a different Don’t change % -11 +2 +5 +6 +2 +8 -4 pattern. Despite a fall from 6% up year on y-o-y know 15% 60 Beach % point change y-o-y CLIENT year at the end of December, bookings 56% Beach City break 51% and revenue remained 4% up to the Group 50 50% Active holiday +1 tour 5% +1 season’s close – a strong performance 44% -4 40 given winter 2017-18 ended 4% up year on Beach 37% Personal 41% 35% year for bookings and 9% for revenue. tour 5% Activity 30 +1 25% A good start to winter 2019-20 24% 23% holiday 23% bookings – the season was 9% ahead of 7% 20 21% 16% 16% 16%

Countryside 14% winter 2018-19 at the turn of the year – 8% 12% +2 10 gave way to eight consecutive months of 0 6% City break 4% 3% year-on-year decline. This left bookings 19% 0 down 3% and revenue down 1% at the 16-24 25-34 35-44 45-54 55+ Child No child end of August, with GfK suggesting: Source: Kantar TNS “The October 31 Brexit deadline is a major concern.” FIGURE 22: Early bookings for summer 2020 were LIKELIHOOD OF BOOKING ALL-INCLUSIVE OVERSEAS HOLIDAY, 2020 1% down on the previous year to the end Likely of August, but average selling prices up % point % +4 +17 0 0 +3 +10 0 +4 +2 % point 3% with family and all-inclusive bookings change change y-o-y y-o-y 80 growing ahead of the market. Likely 69% 69% Undecided Unlikely 60 63%

28% 52% 50% Likely 48% 42% 40% 50% 40% 38% 40 38% 34% MORE THAN half UK holidaymakers intend their next +4 31% overseas break to be seven nights or less but, as 23% 19%

last year, adults over 45 show a clear preference 20 17% 15% for longer holidays (Figure 20). Beach holidays Undecided 14% are clearly favoured by older adults (Figure 21). 19% Source: All-inclusives are a strong favourite among -1 0 Kantar younger adults, especially parents (Figure 22) 16-24 25-34 35-44 45-54 55+ Child No child ABC1 C2DE TNS

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BLACK YELLOW MAGENTA CYAN 91TRS1951134.pgs 02.12.2019 15:35 Inbound VERSION inbound arrivals dip in wake of record year REPRO OP

Overseas visitor numbers to the UK US visitors two-thirds of our inbound visitors.” fell last year after hitting a record Office for National Statistics figures 39 million in 2017. overtake French confirmed a fall in numbers from northern However, numbers remained higher to become UK’s Europe in 2018, with visitors from France than at any previous time despite signs of down 7% year on year, the Netherlands SUBS a tail-off in visitors from northern Europe top source down 8% and Germany down 3%. That at the turn of the year, and visitors in market, as meant the US surpassed France as the the 12 months to July 2019 were on a par inbound leaders UK’s biggest inbound market by volume, with a year earlier. with 3.9 million making the transatlantic A fall-off might have been expected hail first tourism trip, while the US remained the biggest- since 2017 set a record for a fourth spending source market by a huge margin.

ART sector deal consecutive year. However, the fillip which sent numbers higher was the fall CONFIDENCE in the value of the pound following the Despite concerns that Brexit was EU referendum vote in June 2016. Sterling deterring some visitors, the UKinbound has remained lower against the dollar association reported a sharp rise in and euro since, but the impact on some confidence among members early in PRODUCTION eurozone source markets has clearly the year. Its rolling Business Barometer diminished. showed its sharpest rise in two years. In February 2019, VisitBritain reported In August, the barometer found inbound bookings down 10% year on confidence higher still with 75% of year. Chief executive Sally Balcombe told member businesses reporting bookings the UKinbound convention in Glasgow: or visitor numbers at the same level or

CLIENT “The concerns about Brexit are filtering higher than in 2018 and almost three into the results. We see a decline across in five expressing confidence about the board when we look forward. Desire the next 12 months – eight percentage to travel to the UK has decreased in every points up on March and April. Given the market [in Europe].” But she described uncertainty about future arrangements the trend as “particularly strong in with the EU, that seemed remarkable. France and the Netherlands”. By contrast, Industry leaders remain deeply Balcombe reported “really good growth” concerned about the impact of post- from the US and “fantastic growth from Brexit restrictions on immigration from China”. Yet she noted: “However well we the EU. Tourism Alliance director Kurt do from China or the US, Europe provides Jansen told a Westminster Forum on UK

The Deloitte view Inbound travel to the UK showed a London continues to entice most visitors, many forms as lots of traveller segments disappointing drop in 2018, with the number with more than 19 million. However, Deloitte are still growing at pace – be it solo of visitors falling more than 3% and the research suggests the travelling consumer travellers, those 60-plus or visitors from value of spending down 7%. is more focused than ever on unique, fast-growing developing economies. With ONS figures for July 2019 showed authentic experiences that give a sense of so many opportunities, businesses have year-on-year growth in both volume and adventure. This means that while traditional to decide which segments to go after and value, but the rolling 12-month average to tourism hotspots remain important, spend time to understand those customers’ July still painted a picture of some missed consumers are also seeking opportunities to preferences to ensure these are reflected opportunities – visitor spending was down go off the beaten track. It offers destinations in their offerings. A relentless focus on the 2% and visits flat. At a time when the UK is outside London an opportunity to develop consumer, using data insight to make keen to enhance its prominence, this could offerings and marketing campaigns decisions, is crucial. pose challenges not just to the sector but to highlighting a sense of exploration. █ Alistair Pritchard, lead partner, Travel the economy more widely. Growth in inbound travel can come in and Aviation

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BLACK YELLOW MAGENTA CYAN 91TRS1951135.pgs 02.12.2019 15:18 Inbound VERSION REPRO OP

tourism in June: “We’re running out of FIGURE 23: OVERSEAS VISITORS TO UK, 2004-19 UK nationals who want to and can work 40 All trips and % change year on year in nights 39.2m 37.6m 37.9m 37.8m in tourism. We’re more and more reliant 36.1m 35 34.4m on EU nationals.” 32.7m 32.8m 32.7m 31.9m 31.1m Employers await the incoming 30 30m 29.9m 29.8m 30.8m SUBS 27.8m government’s decision on UK 25 Immigration Advisory Committee 12 proposals that businesses be allowed to 20 12%

recruit EU workers post-Brexit only for % change year on in nights 15 9% 9 8% jobs paying £30,000. UKinbound chief Annual visitors (million) executive Joss Croft told the same forum: 10 6

ART 5% 5% 5% “A lot of people in tourism don’t earn 5 4% 4% 3 £30,000.” 3% 0 1% Existing arrangements will only 0% 0% 0% 0 continue until the end of the Brexit -3 transition period even with acceptance -3% -3% of the withdrawal agreement with the -6% -6 PRODUCTION EU. So the industry looks forward to 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019*

the decision on this and to the end of *12 months to June 2019 All visitors, including business & visiting friends & relations (VFR) Source: ONS the transition period with trepidation, assuming Brexit goes ahead. FIGURE 24: TOP-10 FIGURE 25: INBOUND SECTOR DEAL INBOUND MARKETS, 2018 HOLIDAYS TO UK, 2018 By visitors % change By source region CLIENT The government did at least confirm on 2017 a first tourism sector deal in June, in US (2) 3.9m 0 one of the last acts of Theresa May’s -7% World beyond France (1) 3.7m Europe/N America administration. This promises a new Germany 3.3m -3% 18% Tourism Data Hub to help businesses Irish Republic 2.8m -8% 40% “better target overseas visitors” and will Spain 2.5m +5% North create several ‘Tourism Zones’ which can OF ALL VISITORS Europe Netherlands 1.9m -8% America expect to receive government support “for 14% 68% ON HOLIDAY [EU 62%] product and promotion development”. Poland 1.8m +1% EXCLUDING VFR The deal also promises support for Italy 1.8m +2% an additional 10,000 apprenticeships in Belgium 1.1m -3% tourism and hospitality, and construction Australia 1m -10% of an extra 130,000 hotel rooms by 2025 Source: ONS when the government hopes to see Britain By spending % change attract nine million more overseas visitors. on 2017 US £3.4bn -7% The then-PM Theresa May joined Middle East* -24% business secretary Greg Clark to declare £1.8bn tourism “one of our most valuable Germany £1.5bn -4% industries”. Both were out of government France £1.4bn -3% office the following month, although China & HK (6) £1.1bn +6% there was no suggestion their successors Spain (7) £1.1bn +5% would dilute the commitment to the sector. Australia (5) £1bn -12% *Includes UAE OVERSEAS visitor numbers have The full benefits of the sector deal Irish Republic (9) £895m (2017, where -5% dipped since 2017 (Figure 23), with are not explicit, but Tourism Alliance position has noticeable declines from northern Italy (10) £784m changed) -7% Europe making the US the leading director Kurt Janson hailed it as source market by numbers as Netherlands (11) £716m Source: ONS -4% well as spending in 2018, although “recognition that tourism is a driving the favourable exchange rate force for the economy”. 0 £1bn £2bn £3bn £4bn meant spending fell (Figure 24)

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BLACK YELLOW MAGENTA CYAN 91TRS1951136.pgs 02.12.2019 15:18 Domestic VERSION Domestic Holidays at home to hit new heights? REPRO OP

UK domestic tourism appears poised Demand for all holidays and 43% of all nights taken to surpass the high point of 2009 if at the coast in 2018, unchanged from the forecasts of a Brexit-related boom domestic holidays previous year. prove right. appears to have Strikingly, there appears no great pick- Consumer research for this report up in demand by domestic holidaymakers SUBS risen across all suggested a five-point rise year on year for homestay options. to 71% in UK adults taking a domestic age groups, while VisitBritain data suggests less than holiday over the past 12 months and an local authorities 2% of holidays taken in commercial eight-point rise to 45% in the proportion accommodation and no more than 2% of taking two or more domestic breaks. warm to merits nights involved homestay bookings in Seven out of 10 respondents said they 2018 – a proportion dwarfed by hotel,

ART of tourism taxes were likely to take a domestic holiday in caravan, campsite, other self-catering and 2020 with 41% ‘very likely’ to do so, up even guesthouse and B&B bookings. six percentage points year on year. Demand for domestic holidays seems LOCAL TOURISM TAXES to have grown across all ages and in all UK industry leaders are considering regions but appears especially strong proposals that could see the sector ease PRODUCTION among families. Three out of four adults its opposition to, or even swing behind, with children said they planned a domestic introduction of local taxes on tourists if break in 2020. However, under-25s and these are matched with a post-Brexit cut over-55s showed the sharpest increase in in VAT on hotel stays. However, they also take-up over the past 12 months. want VAT applied to all accommodation Overall numbers fell a little year on providers, including homestay rentals.

CLIENT year in 2018 to 58 million, as did total Umbrella industry group the Tourism nights to 200 million, despite the June- Alliance has been working on proposals July heatwave – the joint-hottest summer for local authority taxes on visitors in on record. But numbers were back up by return for a reduction in the 20% VAT 1.5% to the end of July 2019, despite poor rate. Tourism Alliance director Kurt weather in May and June and the year- Jansen told Travel Weekly in June: on-year comparison with the heatwave “If the government reduced VAT on months. Holiday trips in the month of accommodation to 10%, then added a 5% June 2019 were 14% down on 2018. tourist tax, customers and destinations The British seaside remains a prime would both win. The government could draw for domestic visitors with 36% of make up the shortfall by lowering the

The Deloitte view Domestic travel accounts for more than The UK travel sector should also be how much they use digital devices in daily 80% of UK travel and tourism spending, credited for its hard work in offering new life. The domestic sector can offer the above the global average of 73%. experiences. ‘Screen tourism’ and heritage chance to connect with nature, people and More and more British holidaymakers offerings continue to attract visitors to a places in real life. opted to take domestic breaks this summer range of destinations, while many seaside Younger consumers, in particular, are ripe and, according to some reports many towns have focused on updating their for taking more domestic short trips. The consumers also had longer domestic breaks strategies. These efforts are critical in ‘Micro-gap’ campaign by VisitBritain is a great in 2019 than in previous years. ensuring strong demand for domestic example of how a combination of experiences While affordability can be a reason to breaks continues. and the chance to learn and explore can favour a domestic holiday, arguably the Some interesting trends are emerging bring excitement to domestic travel and, perception of convenience has also helped. that could also help the sector. Deloitte hopefully, induce long-term growth. There are fewer unknowns to consider when research on smartphone use shows █ Alistair Pritchard, lead partner, Travel travelling in your own country. consumers increasingly concerned about and Aviation

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BLACK YELLOW MAGENTA CYAN 91TRS1951137.pgs 02.12.2019 15:19 Domestic VERSION REPRO OP

threshold for the accommodation sector FIGURE 26: UK DOMESTIC to £5,000 [and] pull everyone into paying HOLIDAYS, 2006-18 VAT – [including] if you’re renting out If the government a place full time on Airbnb.” He noted: Holidays Nights 250 “There has to be an industry-wide [VAT] reduced VAT on SUBS threshold in the EU. Outside the EU we 218

accommodation 208 Nights (million) would have the ability to be inventive.” 197 203 198 195 202 200 200 192 190 MPs on the All-Party Parliamentary to 10%, then 187 188 185 Group for hospitality noted “increasing 60 added a 5% 150 59m 59m 58m enthusiasm within local councils” for 57m 56m 56m 58.4m 57.7m

tourist tax, 54.7m 40 52.9m 51.8m 52.2m

tourist taxes, given “significant gaps” in 50.4m ART funding, in a report in May. Edinburgh customers and 100 council voted to introduce a tourist tax in 20 February, although this requires legislation destinations Holidays (million) 0 by the Scottish Parliament. Local would both win 2006 2008 2010 2012 2014 2016 2018 authorities in Bath, Liverpool and Cumbria have also shown interest in introducing

PRODUCTION FIGURE 27: taxes, as have Mayor of London Sadiq UK DOMESTIC Khan and Conservative-controlled HOLIDAYS, H1 2012-19 Westminster council in London. The issue Holidays Average Average appears certain to rise up the agenda. spend nights The rapid turnover of tourism ministers per night resumed following a period of relative 3.13 3.12 3.06 3.24 3.03 3.08 3.21 3.06 80 CLIENT stability through 2018 under Michael Ellis. £76

He moved on in May 2019, replaced by £74 £74 £73 £73 Total spend (£bn) Rebecca Pow, who was duly replaced by £71 £70 70 £68 Helen Whately in September, only for the 30 government to be dissolved in November A SMALL decline in the domestic 60 ahead of the general election. Whately holiday market in 2018 (Figure 26) 20

gave way to growth in the first 27.1m 26.4m 25.8m 24.6m 23.6m 23.9m 23.6m may return, of course, but the shelf life of half of 2019 (Figure 27). Hotels, 23.3m 10 UK tourism ministers appears overly brief caravans, camping and other 50 forms of self-catering appear Holidays (million) in light of government insistence that it vastly preferred to homestays for 0 UK domestic holidays (Figure 28). values the sector’s contribution to the The seaside remains the premier 2012 2014 2016 2018 2019 economy (see Inbound, page 18). attraction (Figure 29) Source: GB Tourism Survey

FIGURE 28: FIGURE 29: DOMESTIC ACCOMMODATION, 2018 DOMESTIC DESTINATIONS, 2018 Includes VFR holidays Excludes VFR holidays Holidays Nights Holidays Nights Non-commercial Non-commercial Small Small accommodation town 13% accommodation Countryside town Countryside Homestay 20% 14% 14% 2% Homestay 18% Hotel 22% 2% 27% Seaside Seaside Caravan/ Hotel 36% 43% campsite 41% 21% Caravan/ campsite 27% Self-catering Self-catering City/large town City/large town 16% 21% Guesthouse/ Guesthouse/ B&B 30% 21% B&B 5% 7% Source: VisitBritain

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BLACK YELLOW MAGENTA CYAN 91TRS1951138.pgs 02.12.2019 15:24 Cruise

VERSION Cruise Ocean passengers top two million REPRO OP

Cruise remains a small percentage The sector destinations such as the polar regions, of the total outbound market, but its the Galapagos Islands and Antarctica”. growth has been remarkable. continues its This remained under 2% of the total and UK and Irish ocean cruise passenger upward trajectory it will be interesting to see whether the numbers topped two million in 2018, trend strengthens. SUBS but emissions almost double the number of the mid- UK river cruise passenger numbers 2000s. Growth has been largely steady, rules are likely rose 10% year on year to 232,000, with with passenger numbers increasing even to tighten bednights up 12%, pushing the average through the financial crisis of 2008-09, duration to almost eight days. unlike the mainstream UK market. European cruise numbers rose 3% to The average age of UK passengers 7.2 million, with Germany extending its ART rose a year to 57 in 2018, confounding the lead as Europe’s biggest ocean cruise drive to pull in younger, new-to-cruise market with more than 2.3 million clients. More than half of passengers passengers. The average passenger age in were over 60 and cruise association Clia FIGURE 30: Germany was lower than in the UK at 49, EUROPEAN CRUISE reported four times as many additional MARKET, 2018 but average duration was a day less. passengers aged over 60 as those under. Worldwide, passenger numbers rose % of passengers PRODUCTION The numbers are no less impressive by source markets 7% in 2018 to 28.5 million. for that and the rate of returning passengers is astonishing. Clia found nine +3% ENVIRONMENTAL PRESSURE out of 10 passengers intended to book 15% +3% Such growth is likely to see the sector a cruise the following year. It noted an +3% come under increasing pressure over 31% average lead-in time for UK bookings of 7% 7.17m its environmental footprint. Cruising’s CLIENT 32 weeks, up from 28 in 2017, and average +4% EUROPEAN contribution to ‘overtourism’ in high- 7% duration of 10.1 days, although the single CRUISE profile destinations such as Venice is only PASSENGERS most-popular choice was seven days. one aspect of this and, in the medium +8% 12% 2018 Mediterranean cruises were a little +2% term, one of the more manageable. less popular in 2018, with passenger 28% Ships will be subject to International numbers to the central and western Med Maritime Organisation limits on sulphur down 10% on 2016. But numbers were up Germany Spain emissions from January 2020, which cut 17% for northern Europe and 10% for the UK & Ireland France the permissible sulphur content in fuel Caribbean over the two years. Italy Rest of Europe from 3.5% to 0.5%. The limits, adopted Clia also noted a “significant increase % change in passenger four years ago, are likely to be just the in the number of cruises to exploration numbers on 2017 Source: Clia start of new environmental requirements.

The Deloitte view The cruise industry is going through an the product to a wider range of segments single travellers, honeymooning couples and exciting period of growth, innovation and and expanding capacity. multigenerational family groupings alike. opportunity. Globally, the sector saw almost The number of new ships is astounding While some growth can be achieved by 7% growth in 2018. The UK and Ireland cruise with several cruise companies set to persuading existing cruisers to cruise more industry touched a new milestone with more welcome additions to their fleets between frequently, filling the capacity is going to need than two million passengers in 2018, and in 2019 and 2022. new-to-cruise consumers and new source 2019 it is forecast to generate £3.2 billion. However, the sector will need to continue markets. New destinations will help attract Looking ahead, the signs are equally to innovate to keep demand growth in step new consumers. positive. The number of ocean cruises taken with supply. The growth in expedition cruising has by UK and Irish travellers is expected to There is also still more to do to change shown consumers’ keenness to explore can grow by 22.5% between 2018 and 2023. consumer perceptions of cruise from being be a powerful driver. The sector has responded by continuing a travel experience for the ‘silver generation’ █ Alistair Pritchard, lead partner, Travel to invest heavily both in terms of tailoring to a holiday that suits youngsters, older and Aviation

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Clia said its members are “well on the FIGURE 31: UK & IRISH OCEAN CRUISE PASSENGERS, 2003-18 way to full compliance with the sulphur cap”. Broadly, there are three ways of 2.5 Total achieving this: switching from heavy fuel Fly-cruise 1.97 2.01 to lower-sulphur marine fuel oil, investing 1.9 SUBS 20 2 1.79 in liquefied natural gas (LNG) technology 17.4% 1.70 1.70 1.73 1.62 1.64 or installing exhaust cleaning systems. 1.48 1.53 1.5 1.20 1.34 15 % change year on (total) There are issues with all three. 12.4% Switching to marine diesel oil cuts the 1.03 1.07 10.9% 10.6% 0.96 0.94 0.97 0.97 0.98 1 0.71 0.87 0.89 0.88 0.91 8.8% 0.9 10 sulphur content but the fuel still contains 0.75 0.92 Passengers (millions) Passengers 0.68 6.7% 0.67 0.95 many times more pollutants than vehicle 5.8% 5.2% ART 4.8% diesel, which is polluting enough. 0.5 4.1% 3.8% 4.3% 5 Using LNG reduces sulphur emissions 1.5% 2% 0% n/a almost entirely and can cut nitrogen oxide 0 0 by 85% compared with HFOs. But the primary component of LNG is methane, -4.8% -5 an accelerant of global warming. So it 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 PRODUCTION addresses the pollution problem but not Source: Clia UK & Ireland the climate emergency. There are also limits to LNG infrastructure, with fuelling FIGURE 32: stations only slowly being established UK & IRELAND RIVER CRUISE MARKET, 2018 in Europe. Only about 30 ships will be % of passengers equipped with LNG by 2025.

CLIENT The problem with exhaust cleaning 2.5% 5% 2.5% systems or scrubbers is that they remove Rhine/Moselle sulphur from emissions by dissolving Danube 25% it in seawater which is returned to the 11% Rhine & Danube ocean as sulphuric acid or held on ship Rhone/Seine to be disposed at a land site. China, Hong UK AND IRELAND ocean cruise m Douro numbers passed two million in 2018 10% 232,000 Other Europe Kong, Singapore and some Caribbean RIVER CRUISE (Figure 31). River cruise numbers Nile rose 10% year on year (Figure 32). PASSENGERS islands have already banned the release Mekong Seven-night cruises remained most 11% 25% of water from scrubbers and there is a call popular, but one in two passengers Other non-Europe for them to be banned. Yet 90% of cruise chose longer durations (Figure 33). 8% Growth in Germany again Source: Clia ships are expected to install them. outpaced the UK (Figure 30) UK & Ireland

FIGURE 33: UK & IRELAND CRUISE MARKET, 2018 % of passengers by % of passengers by % of passengers destination region cruise duration by age

+1 -2 +2 -1 0 0 0 0-19 14% 40 7% 36% 20-39 28% 35 10% 8% 30 25 57 W/central Med 21% 20% 20 60+ AVERAGE E Med 15% AGE OF 15 54% 40-59 N Europe/Baltic PASSENGERS 7% 10 29% Caribbean 7% 6% 7% 5 3% Canary Islands 28% 0 Other regions up to 3 4-6 7 8-13 14 15-20 21-plus days days days days days days days Source: Clia UK & Ireland

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Corporate travel buyers appeared Upbeat sentiment France appeared flat year on year in 2018. divided on the impact of Brexit on Trips to the US were down, likely owing corporate travel demand in early 2019. of buyers and to the unfavourable exchange rate, while Travel buyer Rudiger Bruss of TMCs belied increased time spent in China and Hong automotive manufacturer Continental Kong was reflected in a sharp rise in total SUBS by 2% drop in warned in February: “Costs will go nights. Yet the figures do not suggest down because demand will plummet.” UK outbound a break from previous trends, merely a Speaking at the Business Travel Show in business trips degree of caution on spending. London, he said: “I see demand dropping None of this reflects on the health of significantly to and within the UK.” travel management companies (TMCs), However, fellow German Florian Storp, which continue to see strong demand, ART of German travel association the DRV, attested to by the investment interest in insisted: “We don’t see a slowing of the sector (see Investment, pages 26-28). transactions between the UK and EU.” UK corporate travel leaders also NDC ‘MILESTONE’ appeared relaxed. Steven Norris, Flight Development of Iata’s New Distribution Centre Travel Group corporate managing Capability (NDC) technology, which PRODUCTION director for Europe, reported in February: promises to transform third-party “We had our largest year-on-year growth distribution of airline tickets and a to date in the UK.” Clive Wratten, then core part of travel management, moved head of travel management company forward with collaboration between Amber Road and now chief executive of the FIGURE 34: airlines, TMCs and technology providers UK CORPORATE Business Travel Association (BTA), said: TRAVELLERS to facilitate the first live bookings. CLIENT “We’re not seeing any hesitancy. We’ve American Airlines, American Express Overseas trips, 2018 got past the point of ‘All aircraft are going Global Business Travel and Amadeus % point to stop flying’.” That was before the Brexit +1 change -1 announced completion of their first date moved not once but twice, of course. on 2017 NDC bookings in August, hailing a Men Women ONS figures showed a 3% decline year “critical milestone”. Yet the companies on year in UK outbound corporate trips acknowledged “full functionality of end- in 2018 and a 2% fall in the 12 months to 76 % to-end booking flow and service” would June 2019. Indeed, the ONS data shows a depend on “reaching scalable production progressive decline since 2016, the year of levels”. Gianni Pisanello, vice-president of the Brexit referendum. 24% Amadeus’ NDC (X) programme, noted the UK business trips to Germany and Source: ONS technology was not at the point “where

The Deloitte view Business travel companies have faced corporate travel sector, although there Concierge Travel in Australia while also challenging conditions in recent years, with were fewer transactions in 2019 than in strengthening its position in the UK wuth UK corporate trip volumes declining. the previous three years. Of the ‘big three’ the acquisition of Business Travel Direct. However, market analyst Mintel forecast TMCs, only American Express GBT has Specialist Key Travel expanded its market business travel activity would stabilise in been active this year, acquiring a majority share with the acquisition of Raptim 2019. Corporate travel spend in the UK stake in Kanoo Travel and the business Humanitarian Travel late last year. professional services and legal sectors travel arm of German group DER Touristik. Although private equity has taken a remains largely untouched by uncertainty This diversification into the SME corporate back seat this year, it’s worth noting all around Brexit, while other sectors have market may be a future M&A trend among three businesses mentioned are private benefited from localised trends, including an the large, global players. equity-backed. We expect to see further increase in oil and gas exploration activity. SME operators such as Reed & Mackay consolidation in 2020. The last few years have seen consolidation continued to expand their international █ Nigel Bland, partner, and Janice Clement- and geographical expansion in the networks, in R&M’s case by acquiring Smith, assistant director, Corporate Finance

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travel agencies can shop, book and FIGURE 35: OVERSEAS BUSINESS TRAVEL service NDC bookings at scale and match FROM UK, 2008-19 current performance”. 10 -26% Iata conceded in July that it had 8.9m Change in 8 overseas “underestimated the complexity” 7m 7.15m 7.16m business trips,

SUBS 6.9m 6.8m 6.6m 6.7m 6.7m 6.8m 6.6m 6.4m of developing NDC. But the airline 6 2008-18 association set an ambitious target. 4 Senior vice-president for financial and 10 Trips (million) Trips distribution services Aleks Popovitch 2 6% 5

told the BTA conference: “We have 21 3% % change year on 0 2% 0 -1% 0% 0% airlines on our leader board and by the -3% -2% ART -3% end of 2020 we’re confident 20% of [their] -4% -5% -5 indirect sales will be via NDC.” -10 That target was questioned by senior -15 corporate travel figures. BTA chair Suzanne -20 Horner, chief executive of Gray Dawes, -23% -25 *12 months to told Iata: “There are still major headwinds.” June 2019 PRODUCTION Ken McLeod, Advantage Travel Partnership 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019* Source: ONS director of industry affairs, suggested there was “no way” Iata would hit its target. He FIGURE 36: said: “The GDSs say they are 70% of the LEADING BUSINESS DESTINATIONS FROM UK, 2018 way there, but the remaining 30% is the By visits most difficult. The corporates are growing

CLIENT 0% 0% +5% -2% -9% +4% -1% -23% % change impatient, [while] TMCs are frustrated by OUTBOUND corporate travel on 2017 the lack of airline products and services.” numbers appear becalmed amid 1,000 the general business uncertainty Leading European airlines continue (Figure 35). A sharp drop in 836 831 800 to restrict fares available via GDSs while numbers travelling to the US may be cost-related (Figure 36). Domestic business travel also 617 adding fees to GDS bookings and signing 600 553 agreements with TMCs to develop NDC barely picked up (Figure 37). The 508 gender imbalance in the sector 401 technology in return for full content. remains marked (Figure 34) 400 341 Visits (thousand) Visits 286 200 FIGURE 37: UK DOMESTIC BUSINESS TRAVEL, 2007-19 0 Business trips and total spend US (2017 position France Spain where this Germany Italy (7) Belgium (8) has changed) £5.3bn £5.2bn £5bn £4.2bn £4.8bn £4.8bn £4.6bn £4.3bn £4.2bn £4.5bn £4.2bn £4.4bn Spend adjusted for Irish RepublicNetherlands inflation (£ billion) 20 By bednights 18.6m 18.9m 18.1m 17.6m 17.8m -31% -32% -3% +37% -7% -6% +4% +53% % change 17.5m 16.8m 15 16.3m 15.9m 16.5m 16.5m 16.3m on 2017 15 4 3.9m +14% 12

10 % change in trips YoY 3m 9 3 2.7m

Trips (million) Trips 5 6 2.2m 1.9m +4% 3 2 1.8m 1.7m +2% +2% +3% 1.6m 0 0 Nights (million) -1% -1% -3% -3% -2% -3 1 -6% -6% -6 -9 0 US *Excludes -11% -12 France Germany Spain (5) Thailand, 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019* India, Pakistan Irish Republic (9) Netherlands (8) Asia excl China* (7) *Jan-June 2019 Source: GB Tourism China & Hong Kong (10) Source: ONS

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There was a sharp slowdown in the ‘Persistent entrenched” and Deloitte noted: rate of mergers and acquisitions “Investment has slowed dramatically since (M&A) in UK travel and tourism uncertainty’ dulls the EU referendum.” However, the evidence in 2019, in marked contrast to the investor activity from Deloitte’s Q3 Consumer Tracker was previous year when “deals flowed that consumers “appear more confident SUBS thick and fast”, according to the 2018 but post-Brexit about their personal finances than the edition of this report. upturn predicted state of the economy . . . the leisure sector No one took this as a sign of investors continued to perform well . . . spending losing interest in travel and tourism or in on holidays was slightly lower than in M&A. Globally, M&A activity continued Q3 2018, [but] spending on big-ticket to surge, with deals in travel and leisure experiences rose compared to a year ago”. ART worth $7.39 billion in July alone. However, UK Office for National ECONOMIC UNCERTAINTY Statistics data showed a contraction Noting how few M&A deals the sector had in the value of deals involving UK seen in 2019, Deloitte corporate finance companies across all sectors, with a peak partner Nigel Bland said: “It’s been hard in transactions abroad by UK companies for anyone to be comfortable buying or PRODUCTION in 2017 (total value £77 billion) falling to selling amid so much uncertainty. £24 billion in 2018 and £7.5 billion in the “The uncertainty throughout the first half of 2019. Transactions in the UK year affected consumers and businesses. by overseas companies peaked in 2016 at Investors have been reluctant to commit £190 billion, falling to £79 billion in 2018 to transactions in this environment.” and £26 billion in the first half of 2019. He identified three ‘inhibitors’, saying:

CLIENT The reason was not hard to identify. “One is Brexit, the second is consumer Deloitte’s regular assessment of UK spending volatility and the third would be chief financial officers’ sentiment, its the travel business failures we have seen.” Q3 CFO Survey, noted “slowing growth THE CORPORATE view of Bland said: “Brexit is going to remain and persistent uncertainty” and “an Brexit has not improved: belief uncertain, so it’s hard to see a busy first it will worsen the business intense focus on cost control”, with the environment reached a new high half of the year for M&A in 2020.” But proportion rating cost reduction a strong in 2019 (Figure 38). Almost half he added: “If Brexit gets an answer, it’s of major businesses reported priority “higher even than in late 2009”. difficulty recruiting (Figure 39). entirely possible we will get a consumer Yet consumer confidence Bank of England research suggested remained broadly on a par with spending bounce in January. Then we “current uncertainties have become three years ago (Figure 40) could see some M&A deals.” His colleague, financial advisory FIGURE 38: partner Gurm Dhillon, noted: “Linked to BREXIT IMPACT: UK BUSINESS VIEW that will be the value of the pound.” % UK CFOs believe environment better/worse post-Brexit Bland agreed: “Sterling reacted in % Worse 80 expectation of a [Brexit] deal. There may 100 Better +73 +73 +74 be some more bounce to come, but there % point worse v better +68 83% +68 70 +66 79% 81% is still considerable uncertainty.” 80 +64 +64 75% 78% 76% 72% 73% He suggested the travel sector failures 68% 65% 66% 68% 60 60% 60% would “cause anyone on an investment 60 +55 +54 +53 +52 50 board to pause. Even when the problems +46 were not common, it’s going to make a 40 +41 40 difference to investors.” 19% 20 13% 14% 14% 15% That said, he added: “Stock market 11% 9% 9% 10% 8% 6% 8% 7% 8% investors lost money, but private equity 0 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 investors have had a high rate of return 2016 2017 2018 2019 from the travel industry. There is an Source: Deloitte CFO Survey element of wanting to evaluate the

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market, wanting to assimilate the failure, Dhillon said: “We’ve seen more public- but the private equity community is to-private transactions this year than for focused on specialists in the industry – a while. Private investors see embedded on niche higher-growth businesses.” value in these companies.” Bland added: “Globally, there is growth SUBS DEALS BACKLOG in travel and tourism and deals have Dhillon suggested the private equity cycle become easier although there is volatility.” means many of the businesses involved in He noted: “There is an ongoing trend transactions in the past four to five years of consolidation in distribution. There is are likely to see changes of ownership in significant interest in UK domestic travel, the not-too-distant future. He said: “The where customer volatility has not been ART vast majority of deals in travel over the so great, and there remains interest in last two years have been private equity- corporate travel where we continue to see backed and businesses come into private cross-border and domestic consolidation.” equity ownership for a period of years.” Looking forward to 2020, Bland said: Bland agreed, saying: “When the FIGURE 39: “If Brexit gets off and the early-booking market comes back, there will be a WORKPLACE period goes well, we could see businesses

PRODUCTION RECRUITMENT backlog of private equity assets. We could coming up for sale in the second half of see more transactions in 2021.” % of CFOs reporting next year. We would also expect more difficulty recruiting/ Dhillon added: “There has been a skills shortage M&A activity in Europe as relations with general slowdown in M&A in leisure, % Europe settle down post-Brexit. We work yet the Deloitte Q3 Consumer Tracker 60 across the leisure sector and a lot of deals 48% 49% showed people are still spending on are waiting to happen.” 44% 42% 44% CLIENT leisure. The volume of deals has slowed, Dhillon agreed, saying: “My view is 40 but there are still some large deals.” 31% M&A in travel will resume next year.” One example was attractions group Bland foresees Brexit having limited Merlin Entertainments which was taken 20 impact on the leading financial position private in a £4.8 billion buyout completed of the City of London and the consequent in November by a consortium including availability of finance for deals. 0 private equity giant Blackstone, Lego Q1 Q2 Q3 Q4 Q1 Q2 He said: “There has not been the brand owner Kirkbi and the Canada 2018 2018 2018 2018 2019 2019 exodus everyone forecast, although the Pension Plan Investment Board. Source: Deloitte CFO Survey uncertainty is not over. I’m reasonably confident because of the scale and FIGURE 40: transparency in London. So long as rules UK CONSUMER CONFIDENCE, 2016-19 are clear, investors will be happy to invest.” ‘% point difference between those ‘confident’ and ‘not confident’ Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2019 ACTIVITY 2016 2016 2016 2016 2017 2017 2017 2017 2018 2018 2018 2018 2019 2019 2019 0 It would be untrue to say there were no major deals in the past 12 months. -5 -4 -6 -6 Two of the biggest were announced last -5 -7 -7 -7 -7 -8 -8 -8 -8 -9 -9 December and completed in 2019. -10 -10 -11 Gatwick Airport changed hands in -13 -14 -14 -14 -15 a takeover by Vinci Airports of France, -15 -16 -16 which acquired a 50.01% stake from -17 -17 -18 -19 Global Infrastructure Partners, with the -21 -20 -21 latter continuing to manage the airport. -24 The deal valued Gatwick at £7.5 billion. -25 Overall confidence Travel technology group Travelport Confidence in disposable income was taken private in a $4.4 billion buyout Source: Deloitte Consumer Tracker by Evergreen Capital, part of US hedge

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fund Elliot Management, and Sirus Capital Onex acquired Canadian airline WestJet Group – a takeover completed in May. for £2.9 billion in May, and Air Canada A third significant deal, in November When the market agreed to acquire Quebec-based Air 2018, saw technology group Sabre agree Transat for C$520 million in June before to acquire travel tech firm Farelogix. comes back, raising its valuation to C$720 million SUBS However, that deal was subsequently held there will be a (£450 million) in August. In Asia, Cathay up by the US Department of Justice and Pacific agreed to pay $628 million for low- UK regulator the CMA. backlog of private cost carrier Hong Kong Express in March. The process of consolidation in equity assets. The global hospitality sector saw fewer the travel technology sector also saw deals, but Indian group Oyo scooped Amadeus acquire Australian airport In 2021, we up smaller hotels at an unprecedented ART technology firm ICM in March. could see more rate and Marriott International acquired Among airlines, British Airways Elegant Hotels for £101 million in October. parent IAG swooped for Air Europa in transactions November, agreeing a €1 billion deal UK ACQUISITIONS pending regulatory approval. In the UK, Phoenix Equity Partners sold Virgin Atlantic joined Southend Devon-based holiday lettings agency PRODUCTION airport owner Stobart Group and US Travel Chapter to ECI Partners in January, hedge fund Cyrus Capital in acquiring having bought the agency in 2016. Flybe, to be rebranded Virgin Connect BREXIT remains the ‘greatest risk’ Holiday park operator Away Resorts from 2020. The cut-price deal, involving to UK business, according to a changed hands, sold by private equity survey of chief financial officers, a debt takeover and capital injection of but concern about geopolitical firm LDC in May to Swiss fund Bregal risks and trade conflict has risen £65 million, saved the regional carrier. sharply (Figure 41). Reducing costs Freshstream. Vitruvian private equity CLIENT Toronto-based private equity firm is a clear priority (Figure 42) acquired Sykes Holiday Cottages from Livingbridge in October for an FIGURE 41: FIGURE 42: undisclosed sum – reported to be GREATEST UK £375 million. And new parks operator RISKS TO BUSINESS CORPORATE PRIORITIES Lakeshore Leisure Group, set up in August UK CFO average rating, 1-100 % CFOs rating as priority in next 12 months by Kings Park Capital, took over two 66 58% holiday parks in Devon in October. Brexit 67 Reducing 53% 58 costs 41% There were fewer deals among tour Weak 62 48% operators, but Swiss-owned Hotelplan 56 Increasing demand 53 48% acquired Flexiski from Travelopia in May cashflow 35% 59 for an undisclosed amount. Travelopia Trade wars 53 30% 38 New products/ 37% also sold several brands, including World markets 39% Class Vacations and Educatours, to Geopolitical 59 53 19% risks 33 WorldStrides in November. Reducing debt 16% 53 10% Tui, former owner of Travelopia, sold Poor 47 productivity 43 15% two of its specialist German operators Asset disposal 13% to German private equity firm Genui 51 5% Euro crisis 43 for €100 million in August. In the same 35 14% 49 Acquisitions 20% month, Great Rail Journeys – owned by Financial 49 20% UK private equity firm Duke Street – bubble 45 11% acquired Chicago-based Vacations by Rail. 45 Capital 14% Rate rises 51 expenditure 17% In corporate travel, Gray Dawes bought 49 Q3 2019 Q3 2019 Amber Road, a TMC, from private equity 39 8% Emerging Q3 2018 Raising Q3 2018 39 9% Q3 2017 firm Endless for an undisclosed sum in markets crisis Q3 2017 dividends 15% n/a September, while American Express GBT 0 10 20 30 40 50 60 70 80 0 10 20 30 40 50 60 acquired Frankfurt-based DER Business Source: Deloitte CFO Survey Source: Deloitte CFO Survey Travel from DER Touristik.

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Growth in air traffic moderated over European carriers government loan and the Scandinavian the course of 2019 following a 6.3% operation was reborn as Sunclass Airlines. rise in global passenger numbers in rein in expansion Aigle Azur of France and Adria Airways 2018 and 6.6% rise in Europe. as overcapacity of Slovenia also ceased flying in September, Airline association Iata reported 3.8% as did XL Airways France – 11 years after SUBS growth in global passenger traffic in bites but major one-time parent XL Leisure folded. September 2019, but with traffic in Europe global airlines UK regional carrier Flybmi called in increasing only 2.6%. Iata noted September continue to post administrators in February, as did Berlin- marked “the eighth consecutive month based Germania. Icelandic carrier Wow of below-average demand growth” and hefty profits Air – which flew from Gatwick, Stansted Europe’s figures were “the weakest this and Edinburgh – folded in March. In India, ART year”. This was no bad thing given clear the country’s second-largest carrier, Jet overcapacity in Europe’s short-haul market Airways, was grounded in April. and increasing pressure on carriers to Leading airline bosses forecast further curb emissions growth. The volume of air failures. International Airlines Group (IAG) freight also fell for an 11th consecutive chief executive Willie Walsh told an Airlines month in September. for Europe summit in March: “There are PRODUCTION Brian Pearce, Iata chief economist, told airlines in a very weak position.” Lufthansa the Airlines 2050 conference in London chief executive Carsten Spohr agreed: in October: “Business confidence has “There is an unhealthy element in Europe’s dipped sharply. Europe has seen a series of airlines.” And Ryanair chief executive bankruptcies. The industry has lost the ability Michael O’Leary suggested: “The industry to recover its cost increases. Air cargo is is moving inexorably towards five airline

CLIENT collapsing. In revenue terms it has fallen 10%.” groups controlling 80% of traffic in Europe.” The 2018-19 edition of this report noted Norwegian Air remained the subject of growing pressure on yields and increasing speculation after IAG confirmed in January number of airline failures even as major it had no interest in pursuing an acquisition carriers in Europe and North America and sought to retrench following rapid reported substantial profits. growth. Founder Bjorn Kjos stood down as Those trends continued in 2019, chief executive in July. although increasingly the failures stood The number of failures led to renewed out. Thomas Cook Airlines ceased flying UK AIR passenger numbers focus on insolvency and repatriation appear poised to pass 300 million in September when its parent group (Figure 43). Airport passenger arrangements. In the UK, the Airline numbers have risen without a went into liquidation, although German corresponding increase in the Insolvency Review, set up in the wake carrier Condor continued flying with a number of flights (Figure 44) of Monarch’s collapse in October 2017,

FIGURE 43: UK AIRPORT FIGURE 44: TRAFFIC INCREASE AT PASSENGER NUMBERS, 1998-2019 UK’S BIGGEST AIRPORTS, 2007-18 292m 295m 300 287m 0% Heathrow +15% Flights 271m +8% Passengers Gatwick +31% 250 240m -2% 238m Manchester +29% 221m +5% 215m 211m Stansted +18% +16% 200 +2% Luton +70%

Passengers (million) Passengers 180m +3% 158m % change Edinburgh +59% 2018 v 2017 0% 150 Birmingham +37% % change 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2019* 2007-18 -10 0 10 20 30 40 50 60 70 80 All passengers, to nearest million *12 months to August Source: CAA Airports handling 10 million-plus passengers a year Source: CAA

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recommended a new flight protection as annual passenger numbers hit 142 scheme financed by bonds or insurance and million with the takeover of Vienna-based backed by a small levy on all flights. The Flights will Laudamotion. The carrier made O’Leary proposals sparked predictable reactions, group chief executive as it rebranded its with the levy idea welcomed by travel continue whatever operations in Poland as Buzz and in Malta SUBS trade associations and denounced by happens [but] as Malta Air, and O’Leary emphasised the airline bodies. The government delayed opportunity in the situation, arguing: “As responding, only for Thomas Cook’s failure there are head- weaker European airlines are sold and fail, to require repatriation of 150,000 UK winds facing the airports are competing to attract Ryanair.” passengers. Yet full implementation of the That did not make Ryanair immune review’s proposals appear unlikely. industry that aren’t to the need to curb expansion. In August, ART due to Brexit O’Leary announced plans to cut 1,500 jobs AIRLINE PROFITS by the new year. He told employees: “It’s Leading carriers continued to report been a challenging summer and we face a substantial profits despite the challenge of difficult winter.” diminishing yields. Rival easyJet also reined in expansion, In the US, Delta Air Lines reported FIGURE 45: though with less drama and while

PRODUCTION LONDON & UK a pre-tax profit of $5.2 billion for 2018 REGIONAL AIRPORT relaunching tour operator brand easyJet despite a $2 billion rise in its annual fuel TRAFFIC, 2018 Holidays. Having increased capacity 10% bill. United Airlines followed profits of 80 for the 12 months to September, easyJet $2.7 billion in 2018 and $3 billion in 2017 by announced capacity growth in 2020 would 61% 60% appearing on course to break both figures 60 be nearer 3%. However, easyJet’s purchase of in 2019, while American Airlines weighed % Thomas Cook’s slots at Gatwick suggested

CLIENT in with a 2018 profit of $1.9 billion. 40 40% 39% chief executive Johan Lundgren sees In Europe, British Airways and Iberia scope for growth. The carrier reported a owner IAG reported a pre-tax profit of 20 £427 million profit for the year to September. €2.9 billion for 2018, 44% up on 2017, and BA celebrated a 100th birthday of sorts 0 was on course to report similar for 2019. London Regional in August as it launched its first Airbus The group could agree a €1 billion takeover airports airports A350 flights and unveiled a new Club Suite of Spanish carrier Air Europa in November. % of passengers business class. But in September, it’s first- Ryanair reported a full-year profit % of passenger flights ever strike by BA pilots cost it €137 million. of €1 billion for the 12 months to March Source: CAA Virgin Atlantic revealed designs on

The Deloitte view The introduction of any technology brings deserves more debate. It refers to For unmanned aviation to develop disruption as well as benefits. This is automation of the airframe as well as the further in its applications and to realise the certainly true of unmanned aviation, airspace management tools and finance benefits it can offer, the financing models, covering everything from drones to ‘urban models that govern them. At present, along with the supporting regulatory air mobility’, including air taxis. While airlines pay a fee for airspace use which frameworks, should be revised. Rather drones have been in the headlines for the is passed on to consumers. This funds the than looking at unmanned aviation as a disruption caused, their benefits arguably national air navigation service providers burden on the airline charge, there is an offset their occasional negative impact – for and their operations and funding structures opportunity to change a system of which example, in delivering life-saving supplies to are heavily regulated. the principles have not changed in the last remote areas. However, with projected aircraft 50 years. Once achieved, more people and Drones are a catalyst for three major movements set to increase more than companies can access, enjoy and benefit opportunities: automation, electrification tenfold in the next five years, it’s not from the airspace, thereby lowering the cost and democratisation of low-level airspace. feasible for passengers to continue to pay per aircraft movement and making it better While the first two are well documented, for the airspace use of both manned and for everyone. the democratisation of low-level airspace unmanned aviation. █ James Cranswick, director, Aviation

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becoming a “second UK flag-carrier” under the Airlines 2050 conference: “Airlines are chief executive Shai Weiss who took over ONE IN TWO UK adults flew in perhaps in a better place on Brexit than a lot in January. The airline led the takeover the past year, but only one in of sectors.” UK Department for Transport five took more than two flights of regional carrier Flybe in March – in a (Figure 46). Concern about aviation director Dan Micklethwaite consortium with Stobart Group and US the environmental impact of assured the same conference: “Flights will SUBS flying has risen (Figure 47). hedge fund Cyrus Capital – and revealed Holidays are by far the main continue whatever happens.” But he noted: Flybe would be rebranded Virgin Connect. reason for flying (Figure 48). “There are headwinds facing the industry London dominates the UK air passenger market (Figure 45) that aren’t due to Brexit.” ENVIRONMENTAL ISSUES There remained considerable environmental FIGURE 46: and community-based opposition to a FREQUENCY OF FLYING, 2019 ART Heathrow third runway – leave aside the Number of flights, All UK previous opposition of Boris Johnson, the Never all those flown in adults 8% % UK adults last 12 months man most likely to be returned as prime More than flown in last 30 30% 4 years ago/ 51% 12 months 29% minister in December, and the hostility don’t know 25 of Labour Party leaders. There is also 24% 20 the significant obstacle of ground-level 15% 15% PRODUCTION 15 emissions restrictions to surmount. 14% 10 11% 11% Aviation’s environmental impact 7% loomed increasingly large amid growing 17% 5 4% 5.5% 5.5% 2% awareness of global warming. 0 1-4 years ago Figures rounded One Two Three Four Five More One Two Three Four Five More It was unfortunate in this context that Source: CAA than five than five one of the most fuel-efficient short-haul CLIENT aircraft in the world, the Boeing 737 Max, FIGURE 47: CONSIDER IMPACT OF FLYING, 2016-19 spent nine months of the year grounded ‘I think about the impact of flying on the ‘I would pay more for flights to reduce following the second of two fatal crashes environment when purchasing flights’ the environmental or noise impact’ in October 2018 and March 2019. An 50 50 automated flight control system designed to Disagree 48% 41% 41% 41% prevent stalling was implicated in both.The 47% 47% Agree 40 43% 40 37% Max remained grounded as the year drew 36% 35% % 40% % 32% to a close awaiting US regulatory clearance. Airlines, like the rest of us, still awaited 30 30 24% 31% 31% 30% 29% clarity on Brexit and what comes after. 22% 22% 28% 22% 22% 22% 28% But the industry was “in a good place” on 20 20 the issue, according to Iata UK and Ireland area manager Simon McNamara, who told Oct 2016 Mar 2017 Oct 2017 Apr 2018 Oct 2018 Apr 2019 Oct 2016 Mar 2017 Oct 2017 Apr 2018 Oct 2018 Apr 2019 Source: CAA FIGURE 48: MAIN PURPOSE OF LAST FLIGHT All flown in last 12 months Airline used Flight satisfaction, 2016-19 20% 20% Business Other 20 100 6% 2% 15 % 12% % VFR 90% 19% 10 9% 90 88% 87% 7% 86% 5% 5% 5% 5 4% 83% Holiday 82% 81% 73% 0 80

easyJet Ryanair Jet2.com Emirates Mar 2016 Oct 2016 Mar 2017 Oct 2017 Apr 2018 Oct 2018 Tui Airways Airways Apr 2019 British Airways Thomas CookVirgin Atlantic Flybe/Connect Source: CAA

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A decade-long boom in hotel Hotel supply That view was confirmed by Robin investment in Europe may be at Rossman, managing director of hospitality its peak, according to Andreas outstrips demand industry analyst STR, who told the Scriven, Deloitte UK lead partner for in leading European Hotel Industry Conference in hospitality and leisure. London in November: “Demand growth is SUBS Scriven said: “We’re at the top of the markets, while less than supply growth in many markets.” cycle or in slight decline in Europe in a UK’s biggest STR recorded a sharp fall in revenue number of markets – earnings results concern is filling per available room (RevPAR) in the confirm that. Different markets are Spanish islands of Majorca and the trading slightly differently. entry-level roles Canaries. RevPAR reflects the average “The UK leads the way as usual in daily room rate and occupancy. It had

ART post-Brexit hospitality. We’ve seen a slowdown in fallen 6% year on year in Palma, 4% in the UK regions, yet the cost base has Tenerife and Gran Canaria and 11% in continued to increase. You have business Fuerteventura. rates, the rising costs of food and Scriven added: “The recent travel beverage, the increase in the UK national collapses are a major issue for the whole minimum wage and the apprenticeship Mediterranean, especially for independent PRODUCTION levy. We start to see some pressure hoteliers. There is significant exposure especially on hotel businesses that are among family-owned, independent hotels aggressively structured. in Spain, Greece and Turkey.” “In Germany, there is concern that Of Turkey, he said: “The market fell growth is coming down. Secondary city off a cliff [in 2016]. Turkey has clawed its markets there are seeing hotel supply way back, but there is still a legacy and

CLIENT increases of 15%, 20% or 25% in the next the collapses are not helpful.” two to three years but don’t have the depth of demand of London or Paris and BREXIT’S IMPACT are hugely dependent on conference and Yet despite the possible stall in growth exhibition business. There is a degree and uncertainty around Brexit, Scriven of volatility in how investors view the noted: “London has remained robust. European hotel market. The UK and There is not the same amount of Chinese Ireland are at the top of the cycle or capital [flowing into London] as three to post-peak. There is a question mark over THE STATE of the economy four years ago, but that is more to do with has replaced Brexit as the Germany. The Mediterranean market chief concern among UK hotel macroeconomic factors. It has little to do investors, with the shortage has some room to grow. Investors see of skilled labour also a leading with Brexit. London will remain one of the opportunities in Italy and Portugal.” concern (Figure 49) most-attractive places to invest in a hotel.”

FIGURE 49: TOP-5 RISKS TO HOTEL INDUSTRY IN NEXT FIVE YEARS 80 Hotels in UK 80 Hotels in Europe Lack of economic growth 67% 66% Brexit 60 59% 60 Skilled labour shortage Weaker currency 47%45% Political tension 41% Break-up of EU 40 39% 40 38% % % Resentment of tourists Competition from new entrants 26% 24% 25% 22% 21% 21% 21% 19% 17% 2019 20 20 14% 10% 2018 7% Source: Deloitte European Hotel 0 0 Industry Conference survey, November 2019

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Deloitte’s annual European Hotel Being told to check in at a kiosk at a Industry Survey, released to coincide with luxury hotel would be unacceptable.” the conference, indicated Amsterdam At the same time, he said: “There remains the number-one choice of hotel are hotel companies which still receive investors in Europe, with Paris in second printouts of bookings and someone has to SUBS place ahead of London. Yet Scriven type them into the system. The industry pointed out: “London remains the largest needs to allow staff to deal with the hotel investment market in Europe, worth customer experience.” £6.3 billion in the last 12 months.” Key to this is customer data. Scriven The biggest concern he sees is “how said: “Data is not the most exciting [topic], businesses will resource their operations. but how many times do guests show up at a ART Will they be able to recruit? Will people hotel and it gets their data and preferences be able to come to the UK?” wrong? It’s an everyday experience. The sector has already seen “a major “Predictive analytics is clearly where it drop in those coming to the UK from is heading – understanding the consumer eastern Europe”, he said, with the impact ONE IN TWO UK holidaymakers and reaching out to them in a more plan to stay at a four or five‑star felt most strongly in London. “A lot of hotel for their next holiday targeted way.” But he said: “We’re at the PRODUCTION hoteliers say the only way to get enough (Figure 50). The research beginning of that journey. Personalisation suggests no overall increase good people will be to pay more.” in preference for homestay or has got better but has not reached a ‘peer‑to‑peer’ accommodation He forecast: “Labour and the quality among UK outbound mature state. I can’t point to anyone of labour will be top of the agenda for the holidaymakers since 2015 who has made a leap forward in the last next five years. There is a supply of good candidates for middle management. The FIGURE 50: CLIENT issues are around entry-level positions. LIKELY ACCOMMODATION: NEXT OVERSEAS HOLIDAY People don’t want to stay on the national All holidaymakers Those with children minimum wage. The industry needs to be +1 Cruise 1% better at communicating the career paths Other/don’t Camping/caravan 2% +1 Other/ Camping/caravan 2% +1 know 6% in the industry. It needs to be able to say, don’t know -1 Cruise 6% +2 9% ‘You can start at entry level and progress’. 0 0 Homestay 3% B&B Businesses try to bring in qualified people Homestay 4% 6% -1 but at the lowest possible cost.” Hotel Self-catering Hotel B&B 4% 4/5 star- 4/5 star- However, he said: “The industry villa/ plus plus apartment -1 has proved hugely adaptable. It needs -3 50% 14% 55% Self-catering +4 +1 to ensure a voice at the table with villa/ apartment Hotel +1 government but can’t just rely on the 13% 2/3 star % change 13% government. It needs to step up how it Hotel 2/3 star 12% +1 year on year attracts, recruits, trains and retains people.” By age

AUTOMATION AND DATA % +6-2 +1 -2 0 +4 +2 0 +6 -2 -5 -2 -1 +5 -4 +1 +7 0 -6 0 % point change y-o-y Technology is ever-more important in 60 55% 56% the sector. Yet Scriven insisted: “Where 52% 50 48% 4-5 star hotel automation is important is behind the 2-3 star hotel 40 42% scenes – less in the category of robotic Self-catering vacuum cleaners or robots on the front 30 Homestay desk than the back office.”

He dismissed some high-profile 20 17% 17% 16% 15% tech innovations as “gimmicks’, saying: 13% 13%12% 10 9% 9% 10% “Robotics on a check-in desk does 6% 5% 4% the industry the biggest disservice. 3% 1% 0 Source: Kantar/ Interaction with a bot does not add value. 16-24 25-34 35-44 45-54 55+ Service Science

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12 months. We still all get spammed by FIGURE 51: EUROPEAN FIGURE 52: HOTEL offers after visiting Spain or somewhere.” HOTEL SUPPLY GROWTH SECTOR CONSOLIDATION Part of the difficulty, he said, is that Annual % increase in room supply Independent v chain hotels, 2018

“you interact with a hotel chain a few % % point increase in chain hotels, 2008-18 times each stay. Compare that with how SUBS 1.5 1.4% 80 +5 +5 +8 +11 +7 much you interact with major online 1.2% 67% 1.2 60% 61% retailers or streaming providers”. 60 57% Independent 53% Chain The industry must also balance its 0.9 0.9% 47% 0.8% 40% 43% thirst for data with “how much guests 0.7% 40 39% want to share their data”. Scriven said: 0.6 0.6% 0.6% 0.6% 33% “We’ve seen some highly publicised 20 ART cyber leaks in the last 12 months, and 0.3 what you give a hotel is more personal 0 0 2012 2013 2014 2015 2016 2017 2018 2019* than the data you give your supermarket. North Europe Africa *Year to August Source: STR Central & The attractiveness of the data – card AmericaMiddleEast/ Asia Pacific S America details, dates of birth – means hospitality companies will remain targets. There PRODUCTION needs to be constant investment. Yet a lot challenge. There is a levelling of the of times the weakest link is human.” playing field, but people are competing Robotics on a with very different budgets.” RESERVATIONS SYSTEMS check-in desk He suggested: “Companies need Hospitality companies are at different to recognise they are not technology stages of trying to evolve their systems, does the industry companies and decide where to compete. CLIENT he said. Some “are struggling with legacy the biggest That might mean embracing online travel systems. They know what they want to do agents (OTAs) and saying, ‘We’re OK with but can’t do it. Costs can be prohibitive. disservice. the cost of booking through the OTA.’” “Systems can be 30 years old and Interaction with At the same time, he said: “Players will companies are competing with platforms try different things to get direct bookings that have hugely bigger IT budgets. Then a bot does not – through targeting or incentives. There there are start-ups that can buy and bolt add value is a huge incentive to do that because the on systems with open architecture that 15%-20% [OTA] commission falls away, did not exist five years ago. although hotels do need to comply with “The heavy hitters face this giant their rate-parity agreements with OTAs. I expect most hoteliers to keep on fighting FIGURE 53: for direct bookings.” ‘P2P’ ACCOMMODATION Scriven sees less conflict in the PLATFORM USE competition between traditional Highest rate in EU/ Highest rate in hospitality and the rising homestay % UK: Ireland (26%) EU/UK: UK sector. “Home-sharing platforms are 25% 25 24% 24% eating into the hospitality market, but not 21% 21% EU to the degree people sometimes think,” 19% 19% 19% 20 18% France 17% he said. “It varies by market and by [the 16% Germany 15% extent of] regulation. There are five to 15 Italy HOTEL supply growth in Europe hit Spain a record high in 2019 (Figure 51). six million listings on the major home- 10 UK Despite continuing consolidation in share platforms, available 20-30 days a Ireland the sector, the majority of hotels in Europe remain independently year on average, whereas hotel rooms are 5 owned (Figure 52). Use of available 365 days a year. The number ‘peer-to-peer’ accommodation 0 platforms in the UK is among of directly relevant products is much Used any site or app Used dedicated site the highest in Europe (Figure 53) smaller. There is competition, but it is not % all adults or app despite the preference for Source: Eurostat hotels on holiday (Figure 50) as great as people dress it up.”

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Digital technology continues to Increased data better. If you take a wider view of transform all aspects of travel, in the transport, including rail and freight, back office and front, in operations, collaboration organisations increasingly want to processes, analytics, sales, customer could accelerate share data, to better understand how to service and management. improve.” But in aviation, he said: “There SUBS Deloitte travel and aviation partner the implementation is still a lack of willingness to share data Andy Gauld identifies three key trends of AI, robotics between providers. More collaboration is over the past 12 months. First, he said: and biometrics needed. Not a lot has happened [in this “There is a wider adoption of artificial respect] in the last 12 months.” intelligence (AI) where humans and One area of collaboration where robotics work well together. The travel there has been movement is at airport ART and airline industries are starting to wake borders, where Gauld said: “There is a lot up to the possibilities here. happening. The technology is there for a “There has been a shift in smart border. The issue is the processes understanding robotic process automation. the technology needs to adhere to.” Organisations have seen how this can His Deloitte colleague Martin improve back-office systems. Now we see Bowman, travel and aviation director, PRODUCTION robotics driving into the operational space, agrees. He said: “Collaboration across for example in aircraft maintenance.” multiple stakeholders is a priority to He expects to see more of this over better utilise the insights data give us.” the next 12-18 months. However, Gauld The limits to collaboration are partly describes use of robotics in the ‘front reflected in investment. Bowman said: office’, for example at airport check-in “It’s a challenge to make the case for

CLIENT desks, as “dabbling” to date. technology change. The investment case Gauld said: “This stalled in the last 12 is still largely dependent on the benefits. months. You still have check-in assistants Aviation is a sector entirely dependent on helping customers use check-in machines.” its component parts – airports, airlines, Part of the reason, he suggested, is air traffic control. But when anyone “people like human interaction”. makes a case for investment it is based on He said: “Passengers are a diverse the business case for one component.” group. They don’t necessarily want to use technology.” Even millennials, he THE PROPORTION of UK adults BIOMETRICS purchasing goods and services suggested, “are not all as millennial as online must have reached almost An area of aviation which is seeing as high as it can go in 2019, collaborative working is biometrics. some think. You can split them into those certainly among those who like technology and those who don’t.” under 45 (Figure 54) Bowman said: “Biometrics is really The second trend Gauld highlights is the use of drones. “More and more airlines FIGURE 54: are starting to use this technology for pre- ONLINE PURCHASING, ALL GOODS AND SERVICES, 2019 flight checks, and there is talk of airports % UK adults purchased % 2009-19 By age, 2017-19 % using drones to check passenger flows 80 82% 2017 2019* 97% 78% 97% 100 at airports,” he said. However, he points 94% 91% 89% 89% 77%77% 88% out there are potential security issues 74% 74% 84% 77% 80 with use of drones at airports – one of 70 72% 75% 67% 60 the tensions between rapidly developing 66% 54% technologies and cybersecurity (see 62% 45% 60 61% 40 Cybersecurity, pages 49-50). Third, Gauld identifies “use of 20 smart, digital ways of working”. On the 50 0 operational side, he said: “There is a 2009 2011 2013 2015 2017 2019* 16-24 25-34 35-44 45-54 55-64 65+ need for airlines and airports to share * UK adults purchased in last 12 months Source: ONS

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starting to come to the fore. We see woken up to the challenge of capacity. increasing use across the industry and There is a need for optimisation and collaborative projects. efficiency, to unlock capacity and to make “Biometrics is not new. We see it the capacity there is more resilient.” already at immigration facilities and For airports, Bowman identifies a SUBS check-in. But now we’re starting to see second priority, saying: “The passenger integrated processes with biometric experience is high on the agenda – a tokens passed from one part of the long-term driver of investment and one of process to the next and between airlines the big drivers of biometrics and for less and domestic agencies. There is an [human] contact. There is a correlation increase in collaboration among airlines, between the customer experience and ART airports and government agencies. At an THE UK and Spain lead Europe’s retail spending, between happy customers main markets on rates of industry level there is so much potential accommodation bookings online, and their willingness to spend.” for process improvement and efficiencies, which are way ahead of overall retail rates online (Figure 55). The and a single stakeholder trying to do it rate of higher-value purchases AUTOMATION CAUTION online in the UK is the highest of Developments in AI and robotics hold cannot realise the potential opportunities. Europe’s major markets and far “At the operational level, everyone has above the EU average (Figure 56) great promise, but Bowman sees a major PRODUCTION check on how far developments may go. FIGURE 55: He describes AI as “the combination of E-COMMERCE analytics and machine learning to enable ACCOMMODATION BOOKINGS, 2018 data to give insight” and said: “We’ve seen % of turnover, enterprises with 10-plus staff a pick-up in the area of ‘digital twins’, % Highest EU rate: Highest EU rate: Norway (50%) Ireland (28%) taking attributes of the physical world

CLIENT 50 EU and using data science and analytics to 45% 44% France create a digital twin to derive insights. 40 Germany 32% Italy “For example, one US airport is 29% 30 Spain building a digital twin, or copy, of all 22% 22% aircraft movements and decision points 20 UK 14% Norway – flow on taxiways, runways, stands, 11% 11% 12% Ireland queueing – to analyse the time aircraft 10 5% 6% are on the ground and how it could be 0 Accommodation Retail sales* reduced. We could create a digital copy of bookings *All sales excluding motor trade Source: Eurostat 2018 airspace to analyse how better to manage it.” At the same time, Bowman said: “We’ve not seen a rise of AI in operational FIGURE 56: processes. The industry is still feeling its % UK/EU ADULTS PURCHASING HIGHER-VALUE PRODUCTS ONLINE, BY AGE way. The emphasis to date has been on how 30 Purchases in 3-month period, all adults to utilise data and analytics to make better 26% EU 25 decisions, with humans still in the loop. UK “I don’t see a major tipping point in 20 20% automation of decision-making processes 17% in operations for some time. Decision- 15% 15% 15 13% making augmentation is a priority, but 12% 11% there is nervousness about automating 10 9% too much – a nervousness that we may 7% 7% 6% 6% 5% 5% 5% become too dependent on machines.” 5 3% 3% 4% 3% 2% For example, he said: “Full automation 1% 2% 1% 0 of air traffic control is just not on the 16-24 25-34 35-44 45-54 55-64 65-74 16-24 25-34 35-44 45-54 55-64 65-74 agenda. The regulatory regime and safety €500 to €1,000 €1,000-plus Source: Eurostat are geared around people having safety

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responsibility. Even if automation could AIRLINE DISTRIBUTION take the place of human decision-making, When it comes to consumer-facing the regulatory regime would not allow it.” The critical point technology, Gauld said: “We’ve not seen He insisted: “We’re an awfully a lot of movement or airlines looking at long way from this changing. Over is what is an new ways to interact with customers over SUBS time, technologies will converge – the acceptable rate the last 12 months.” Part of the reason is driverless car, the remotely piloted “budgetary concern”. He said: “There has flying taxi, the drone delivery network. of failure? We’re been a lot of nervousness around Brexit, But we’re years away from any of these miles away from and not just among UK airlines. Everyone things happening. Every driverless car is has been taking stock.” capable of autonomous driving now, but acceptance of Gauld added: “There is still the fight ART there is no regulatory approval for them. computers failing over [who owns] the consumer, but The critical point is what is an acceptable nothing has really turned up the dial in rate of failure? We’re miles away from the last 12 months.” acceptance of computers failing.” He suggested this extends to airline Deployment of these technologies also development of Iata’s New Distribution poses challenges. He said: “There are more Capability (NDC), which aims to enable PRODUCTION drones now than commercial aircraft. How online retailing, including personalised do you blend these airspace users into a fare offers, through intermediaries. Airline system of safe management? It’s a level of association Iata has said 21 airlines will complexity the industry has never seen.” be taking 20% of their bookings via NDC channels by the end of 2020, although there is a degree of scepticism about this FIGURE 57: CLIENT UK ONLINE TRAVEL target in the corporate travel sector. PURCHASING, 2012-19 THE PROPORTION of UK Gauld said: “NDC is losing momentum % adults purchased adults purchasing travel and Travel arrangements accommodation online has grown, in my view. There has been a bigger uptick % Holiday accommodation according to ONS figures, but not on it in Europe and lower in the US, but 50 steeply (Figure 57). Yet growth in 50 smartphone bookings and a fall I can see a technology player offering a 44% 43% 42% 42% 40 in face-to-face bookings in travel viable alternative to NDC. It would be a 40 43% agencies appears clear from 36% 37% 40% 39% 33% 38% consumer research for this report compelling proposition to tap into that data.” 32% 37% 36% 30 30 32% (Figure 58). The sharpest change on He believes it’s only a matter of time 33% 2018 appears regional, with those 20 20 intending to book with an agent in before “one of the big tech giants comes the North (16%) down six points into the [travel and aviation] space”. 10 year on year and in the Midlands 10 (12%) down 10 points (Figure 59) Gauld said: “One or two airlines have 0 0 2012 2013 2014 2015 2016 2017 2018 2019 FIGURE 58: FIGURE 59: By age, 2019 LIKELY METHOD ONLINE BOOKING OF NEXT HOLIDAY % point OF BOOKING NEXT change +5 -6 +8 +7 +5 -3 +7 -3 -3 -6 +4 +5 By age, social class, region on 2017 OVERSEAS HOLIDAY 59% 60 % point +2 +4 -5 +2 -2 Desktop/laptop Smartphone/tablet Travel agency % 52% change YoY % 56% 51% 50 % 80 50 45% 52% 54% 67% 80 66% 65% 65% 63%

41% 40 60% 59% 58% 56% 40 62% 60 57% 60 38% 30

31% 42% 30 28%

40 40 34% 31% 30% 30% 20 29% 24% 27% 27% 24%

20 23% 17% 16%

20 16% 15%

13% 20 14% 12% 11% 11% 11% 10 7% 11% 10 4% 7% 0 0 Online: Online: In By Other/ 0 0 desktop smart- travel phone don’t 16-24 25-34 35-44 45-54 55+ ABC1 C2DE North Midlands South 16-24 25-34 35-44 45-54 55-64 65+ or laptop phone agency call know Source: ONS Responses exceed 100% Source: Kantar/Service Science

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been working with a tech giant. We’ll see LEGACY SYSTEMS one or two make a move in a big way – One of the biggest issues many airlines whether that involves acquisition of an face is matching technology advances to airline or getting agreements with airlines the legacy systems they use. Gauld said: or airports to share data and the tech “Most airlines have systems that take an SUBS giant becoming the ‘concierge’. age to upgrade. The question is whether FIGURES from EU data agency “Someone who could take away Eurostat suggest growth in UK the benefits [of upgrading] can justify the the heavy [technology] lifting would online travel bookings may have level of investment required.” stalled in 2018 in all but the 25-44 change the airline business model. The age group (Figure 60). Those aged Bowman said: “The industry has interaction with the customer would 25-54 are most likely to make grown up with legacy systems and higher-priced purchases online, but change. The airline would not book your ONS figures suggest a significant these deliver core functions. They are ART excursion or re-map your trip when there fall in more expensive purchases so intertwined [with operations] that among over-35s in 2019 (Figure 61). is disruption. The tech giant would be the Major companies have multiple phasing these systems out is hugely end-to-end vendor.” digital priorities (Figure 62), complex. The priority is less legacy- meaning investment in digital He calls this “tech vendor travel” and transformation attracts a minor system replacement than interoperability. said: “Airlines have been worrying about part of budgets (Figure 63) despite If systems can be made more being viewed as ‘fundamental’ this for some time. I expect to see a major (Figure 64). Implementation in interoperable and easier to access and to

PRODUCTION many technology areas appears disrupter [in the sector]. We’re potentially not as far forward as often extract date from, it becomes easier to at a tipping point.” suggested (Figure 65) mine data and insights.” He added: “There will always be a mix of technologies.” This tension between ‘old’ and new FIGURE 60: UK ONLINE PURCHASE OF TRAVEL & ACCOMMODATION BY AGE, 2018 technologies is reflected in approaches % Change YoY to tech development and use of cloud

CLIENT -2 +1 +3 -4 -5 -2 -7 0 +1 -6 -3 -1 -1 +1 +5 -7 -7 -1 80 computing in aviation. 67% Bowman said: “There is a focus on the 64% cloud around infrastructure rather than 60 56% 53% 54% 49% 51% as an enabling capability. The industry 47% 45% 47% 48% 43% is focused on how to replace its internal 40 39% 37% 37% 31% 32% hardware footprint. But cloud providers 27% 20 talk of the cloud as an enabler with a whole series of tools and capabilities. 0 “There is not a lot of evidence of 16-24 25-34 35-44 45-54 55-64 65-74 16-24 25-34 35-44 45-54 55-64 65-74 16-24 25-34 35-44 45-54 55-64 65-74 airports and airlines making this leap to Source: Eurostat Travel Accommodation Travel & accommodation ‘What does the cloud enable us to do?’

FIGURE 61: VALUE OF ONLINE SHOPPING % UK online consumers’ Higher rates of spending by age spending in 3 months -1 % change on 2018 -3 % +9 +5 -14 -8 -14 -2 % change on 2018 in +2 50 47% 47% spending £500+ 9% 15% 44% 45% 41% 41% -1 40 35% 36% 35% 17% 14% 30 Green bars £1,000+ 21% 20% 20% in this chart 20 19% 18% 17% £500-£999 for £500+ 11% 12% include £100-£499 10 10% the % +3 spending £50-£99 44% above <£50 0 £1,000 Total not 100% 16-24 25-34 35-44 45-54 55-64 65+ as figures rounded Source: ONS

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He added: “The historical approach FIGURE 62: DIGITAL a foundation for data sharing. A lot of to tech development has been that of big TRANSFORMATION technologists are keen to do something systems, meaning top-down deployment PRIORITY with blockchain, but it’s still early days. of ‘waterfall’ projects – big projects with All sectors The way blockchain was pitched, as almost large capabilities and four-to-five-year as important as the internet, was hype. Is SUBS Cloud programmes. The digital world does not Other 17% blockchain likely to be as big a catalyst move at that pace. There is a conflict 12% [for innovation] as the internet? No.” between the two. We start to see the Other technologies are on the cusp Block- AI aviation industry pick up on some of chain 15% of transforming aspects of the sector. the more-nimble approaches to tech 14% In aircraft maintenance, 3D printing Data delivery, using the Agile process which analytics and connected aircraft offer a new ART Operational tech is fine for developing digital capabilities, 14% Internet 14% and potentially more efficient way of without the massive costs-exposure of the of things delivering parts. Bowman said: “All the 14% traditional way of developing. We work big equipment manufacturers are looking on a three-month project basis when at this and the opportunity to blend it typical systems deployment can be two to FIGURE 63: DIGITAL with digital insights.” three years. We’ll see a lot more adoption TRANSFORMATION: Voice technology is being used by air PRODUCTION of these types of processes.” % OF CYBER BUDGET traffic control (ATC) organisations “to assess All sectors task loads and stress levels of controllers, BLOCKCHAIN Zero – 1% Don’t know using a data view of conversations – 1% One area where progress has been slower 10%-plus between ATC and flight crew”, he said. than forecast, despite huge interest, is 9% On the consumer side and blockchain. Bowman said: “There is still operationally, the rollout of 5G mobile

CLIENT the sense of a technology looking for a phone networks holds great promise. problem rather than a problem needing a 1%-5% Bowman said: “The more 5G is adopted, technical solution. 56% the less dependency there will be on 6%-10% “Players in the aircraft leasing market 33% internal networks which can be resource are active in blockchain. There is work heavy, certainly in an airport. Content on blockchain in the spares market and will be so much more consumable.” in traceability of parts because of safety Base: 500 executives with Gauld sees the key issues in 2020 as cyber responsibility, annual requirements. The fact that blockchain revenue $500m-plus largely unchanged from the previous cannot be overwritten makes sense Source: Deloitte 2019 12 months, namely: “How to enable AI [in this area]. A group of airlines and robotics to improve efficiency, and the airports were looking at blockchain as need to be nimble on digital agendas.”

FIGURE 64: EXECUTIVE FIGURE 65: TECHNOLOGY IMPLEMENTATION, 2019 VIEW OF DIGITAL TECHNOLOGY, 2019 All sectors % % All sectors 100 100 87% 85% 81% 82% 75% 80 80 70% Scaling/ 65% 65% production 60 52% 60 56% Experimenting 44% Paused/ 40 40 unimplemented 28% 25% 24% 28% 17% 15% 20 20 10% 11% 14% 10% 12% 7% 7% 5% 4% 0 0 Figures rounded, Data not always 100% Robotics Internet Artificial Invested in AI analytics of things Biometrics Blockchain Base: 158 senior executive Digital changeCost reduction Will investby end in 2020 AI Virtual reality ‘fundamental’driving strategyin ‘early stage’ intelligence Source: Deloitte 2019 Digital development

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BLACK YELLOW MAGENTA CYAN 91TRS1951115.pgs 02.12.2019 15:33 VERSION CyberSecurity Cybersecurity, 1 travel firms hit by fines for data breaches REPRO OP

Cybersecurity poses multiple The threat of the size caught people by surprise. challenges and no little risk. Historically, there have been bigger Breaches no longer threaten just hefty fines for breaches. sensitive data but brand reputations cyber breaches “It caused a lot of clients to revisit and hefty fines. this and ask ‘Have we taken the GDPR SUBS has propelled British Airways and Marriott seriously? Do we really know where the International may have been unfortunate cybersecurity data is? Do we know how protected the to be first in the line of fire when the UK up boardroom data is? Do we need to invest more?’ Information Commissioner’s Office (ICO) Some had taken superficial steps. There is issued notice of its first major fines for agendas a realisation now that there is a lot more data breaches in July 2019 since Europe’s to do. I know organisations which had ART General Data Protection Regulation cyber budgets turned down previously (GDPR) came into force in May 2018. which now have budgets signed off.” BA was notified it faces a fine of The fact that the two headline £183 million after hackers accessed the breaches involved travel and hospitality data of half a million or more customers in companies, Gooch sees as “coincidence”. 2018. Marriott learnt of the ICO’s intention But he noted “the relative immaturity of PRODUCTION to fine it £99 million for the breach of the sector” as a factor, saying: “Travel and its Starwood subsidiary, also in 2018, hospitality is probably less well-protected before Marriott acquired it. Those fines than some sectors. The financial sector, contrasted somewhat with a €50 million pharmaceuticals, defence and aerospace fine imposed on Google by the French tend to be more secure.” data protection agency in January for He added: “Travel and hospitality is

CLIENT breaching GDPR rules on transparency. less regulated from a cyber perspective Peter Gooch, Deloitte cyber and and has not invested so much. Awareness privacy partner, said: “We’ve seen is heightened now. There has been an regulators flex their muscles with some uptick [in interest] in the last six months. sizeable notices of intent to fine. The Boards are asking, ‘How would we regulatory pressure is very real now. We respond to a breach?’” But he noted: “The did not have a benchmark before.” industry still has low margins.” He said: “The ICO notices sent shock At the same time, Gooch said: “The waves, showing the ICO is willing COMPANIES suffering cyber threat of operational disruption from breaches report loss of revenue to impose large fines. There was an and loss of trust as the biggest denial of service attacks is still there. expectation of significant fines, but impacts (Figure 66) Organisations remain fearful of an attack that could take out their operations.”

FIGURE 66: MOST-RECENT CYBER BREACH FRAMEWORK APPROACH All sectors % Biggest impact of breach When advising organisations on cybersecurity, Gooch said: “It’s a lot In past 25 year 21% 21% about providing a framework – being able 9% 20 to break it down and make it manageable. 17% 16% “There are half a dozen common 15 14% 1-2 12% frameworks. We have a hybrid framework 2-plus years years ago: 10 which helps to understand where the ago: 48% threats are coming from and what an 43% 5 organisation is most vulnerable to. We 0 pick a system or network connected to the Revenue Loss of Reputation Leadership Regulatory Share price loss customer loss change fine fall internet and carry out threat and impact trust assessments to prioritise areas to look at.” Figures rounded, not 100%. Base: 500 executives with cyber responsibility, annual revenue $500m-plus. Source: Deloitte 2019 The process can be open-ended, he

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said: “Normally, there is a lot to address FIGURE 67: FIGURE 68: – technological controls, procedural CYBER RISK: CYBER BUDGET ALLOCATION controls, cultural controls. We work with BIGGEST CHALLENGES % All sectors partners to determine a ‘target state’ that All responsible for 20 is proportionate.” He added: “We do have cyber security, all sectors SUBS % clients who see technology as an answer 16% 35 34% 15 Data security to everything. That gives false comfort. 32% 14% 14% If you don’t address training, you only 30 13% Infrastructure security address part of the problem.” 25 11% 11% Cyber transformation 10 10% 10% Identity solutions Third-party suppliers provide 20 Shadow IT 18% Cyber Application security additional security challenges. Gooch said: 16% transformation Incident response ART 15 “The GDPR helped boost documenting Cyber Technical resilience 10 5 and assessment of third parties.” However, ‘hygiene’ Threat detection Hybrid IT he identified at least two challenges: 5 “One, many programmes are tick-box 0 0 exercises. They provide evidence that an organisation has been through a process,

PRODUCTION FIGURE 69: but is it really getting value from the CYBER MANAGEMENT: process? You need a risk-based approach.” BIGGEST CHALLENGES Second, he said: “There is a need for due diligence around third parties when % All sectors there is an acquisition or an organisation 20 Data management takes on a third party. It could be this Risk prioritisation

CLIENT 16% introduces new vulnerabilities.” 15 15% 15% Rapid IT changes ‘SHADOW IT’ unmanaged by 14% 14% Yet the biggest challenge in 13% Lack of skills IT departments and cyber 12% cybersecurity remains “the breadth of the transformation top the risks Management alignment topic”, he said. “It’s a genuine struggle for identified by cyber professionals 10 Lack of funds (Figure 67). Data security is only Inadequate governance organisations to get their heads around. one of the challenges (Figure 68). Boards put cyber at the top of the risk The speed of change, lack of skills and inadequate funds hamper 5 agenda, but it is massively complex. security (Figure 69), when 90% It’s difficult for a board to know ‘Is this of major companies suffered a ‘sensitive data disclosure’ in the 0 money well spent?’” last 12 months (Figure 70) He also noted: “Cybersecurity is a fragmented and very competitive market, FIGURE 70: and there is a recognised shortage of CYBERSECURITY AS BOARDROOM ISSUE cyber skills in the UK.” boardFrequency agenda on cyberTop-3 threats dataSuffered disclosures* sensitive At the same time, Gooch said: in last 12 months “Developing threats are a challenge. You have to be constantly re-evaluating your % % Ad hoc 1% Monthly 4% 35% security. The technological landscape 35 50 49% 32% 31% can change. What was good two years Annually 30 41% 15% 40 ago may no longer be good enough. 25 Data None integrity There may be a big shift to the cloud or 30 One to five 20 Employee to outsourcing. You may need to ask for action Five-plus Half 15 more money. It’s not an environment in yearly Tech 20 which you can ever say ‘Well done’.” 31% 10 vulnerabilities Quarterly 10 10% However, he identified one sign of 49% 5 improved understanding of the risks, *In testing/ 0 0 development saying: “I rarely have to explain what I do these days.” Base: 500 executives with cyber responsibility, annual revenue $500m-plus. Source: Deloitte 2019

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Future of work Future of Work, 1 automation need not mean wholesale job losses REPRO OP

Change in the workplace is a given Business should lifetimes, and people born in the late – from increasing use of technology 1990s and 2000s joining the workforce. and transformation of roles and skills focus on the “Third, the barriers to entry in business to increased diversity among the human in seeking are fewer. You can run a business from workforce. your mobile phone. You can run a taxi SUBS to manage The numbers in work have never been business without owning any cars. Smaller so high, yet warnings of the impact of technological and players can disrupt bigger businesses. technology on jobs are widespread. Bank demographic “Fourth, the socioeconomic changes of England chief economist Andy Haldane around the world mean no group of warned in late 2015 that up to 15 million change in the people is unaffected.” jobs in the UK – half the workforce – are These changes raise questions about

ART workplace at risk of replacement by technology. “what this means for work, for workers There was no sign of half the and the workplace”, she said. “The first workforce disappearing at the end issue is how adaptable are you and of 2019, but concerns about people your organisation? How quickly can an being displaced by a ‘fourth industrial organisation respond to external events? revolution’ based on data, artificial “Second, customer and employee PRODUCTION intelligence (AI) and robotics remain. experiences are becoming inseparable. Shivani Maitra, Deloitte partner in The ‘experience’ an organisation offers human capital, is optimistic about the is not just about the customer but about impact on work but suggests fundamental the worker. Third, organisations need to changes are already under way. She said: focus on outcomes, value and purpose “We talk about the future of work, but it’s rather than processes and profit. Fourth,

CLIENT happening now and the pace of change is organisations and people need to focus on not going to slow. Technology is driving a capabilities rather than skills.” lot of this, but there are other factors. “First, the rise in the freelance or AUTOMATION OF JOBS contingent workforce is having a big Maitra says forecasts that “45% of jobs impact. Second, this is the first time will be gone in 10 years” are inaccurate there has been such a multigenerational as new jobs will be created and others workforce. There are the millennials augmented by technology, but she [born in the 1980s and early 1990s], the warned: “Businesses are going to be baby boomers [born post-war], veterans heavily impacted by automation.” who are working longer because of longer Citing Deloitte survey data, she said: “Up to 41% of businesses are already using FIGURE 71: automation extensively and 60% soon AGE COMPOSITION will.” In the airline industry, she added: OF WORKFORCE, 1995-2017 “Most of our clients expect workforce 50 % of European workers by age group capacity benefits from automation. [They view it] as a way to cut costs and 42% Under 35 40 40% 40% 35-49 streamline repetitive processes.” 38% 38% 37% 34% 50-74 Maitra notes a significant difference 31% 32% 30 between attitudes to automation among 26% 22% business leaders and workers. Among the 20 20% latter, Deloitte research found 60% believe progress in automation will be slow and 10 few appear to think automation will THE AGE composition of the eliminate their own jobs. 0 Source: Eurostat/ average workforce in Europe But she argued: “The half-life of 1995 2002 2010 2017 Deloitte European has been transformed since Workforce Survey 2018 the 1990s (Figure 71) technical skills is decreasing rapidly.

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The focus needs to be on capability their development and maybe providing – 30% of businesses we speak to are a budget for them to develop their increasing investment in the capabilities capabilities. There are many strategies. of their workforce through learning and There is a shift from classroom learning development. There has to be a shift from to e-learning and micro-learning. SUBS functional and technical skills [among “More and more organisations are also staff] – which over time robotics can pick talking about employee ‘experiences’. up – to human-focused capabilities.” EMPLOYEE perceptions of the By the employee experience, I’m not just By capabilities, Maitra means “social rate of change at work appear talking about engagement but culture at odds with business forecasts – skills, social intelligence, emotional three out of four across multiple – recognising crucial moments when intelligence, adaptability and pattern sectors don’t foresee rapid employees interact with an organisation,

ART changes at work, with a slightly recognition”. She added: “This is not higher proportion in transport and not just full-time employees but really about training but providing and hospitality (Figure 72). across the contingent workforce because Only one in four executives feel learning experiences – for example, skills in their business match in a world of user reviews and ratings its digital requirements and work in cross-functional teams, letting two-thirds consider staff training your company could be rated [by people take personal responsibility for inadequate (Figure 73) employees] as well [as customers].” Maitra insisted: “Automation is here PRODUCTION FIGURE 72: to stay. But having said that, automation RATE OF CHANGE AT WORK is about augmenting not replacing the EXPECTED IN NEXT 10 YEARS workforce. It is replacing jobs but also All sectors In hospitality/transport creating jobs. How many of us talked about data scientists three years ago?” Job won’t Other/ Job won’t Other/

CLIENT don’t know don’t know DEMOGRAPHIC CHANGES exist 3% 2% exist 2% 2% Require No change Require No change A shortage of ‘talent’ in travel and different 13% different 16% skills skills hospitality is a key issue, and one likely 21% 19% to be exacerbated in the short term in the Change Change UK by Brexit. Maitra said: “There were a little a little one million job openings in travel and 31% 31% hospitality in 2018. So the sector needs to attract talent.” Evolve slowly Evolve slowly 30% 30% An ageing population adds to the challenge – a problem that extends beyond Source: Deloitte European Workforce Survey 2018 the UK and well into the medium and long term. Alexander Boersch, chief economist FIGURE 73: at Deloitte Germany, told the European BUSINESS DIGITAL STRATEGY Hotel Investment Conference in London in Matches workplace Supported by learning/ talents development November: “In the next 10 years, Europe will lose 20 million people of working age. Don’t know 4% Don’t know 3% This will have tangible effects on business.” Disagree Agree Disagree Agree Maitra argues the issue can partially be strongly Agree strongly strongly strongly 9% 25% 2% 11% Agree 4% addressed by “leveraging the contingent 32% workforce” and deploying “an augmented workforce” – meaning full-time employees augmented by freelance workers. She said: “The growth in freelance working is faster than the growth in Disagree Disagree employment. Deloitte research suggests 71% 65% Base: 158 senior 64% of full-time workers are looking to executives Source: Deloitte, 2019 earn extra income, and older workers

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BLACK YELLOW MAGENTA CYAN 91TRS1951144.pgs 02.12.2019 15:41 VERSION

future of work Future of Work, 3 automation need not mean job losses REPRO OP

increasingly look to alternative work what skills from time to time? Businesses arrangements to allow them to continue are less reticent to use alternative working. In some organisations up to 25% Organisations workforces. Even traditional sectors like of the workforce is already contingent pharmaceuticals are becoming more open to [freelance]. By 2020, 47 million people in need to figure the idea. The shift the travel and hospitality SUBS the US will be contingent.” out how to sector needs to make is strategic.” Maitra concedes freelance working is not new, but argued: “It has become manage diverse DIVERSE-AGE WORKFORCE widespread and cuts across professions, generations Maitra also views the advent of a skilled and semi-skilled occupations.” For multigenerational workforce as “an example, she said: “One of the tech giants opportunity to access a broader talent ART recently acquired a network of freelance pool”. But to make it work, she said: data scientists to augment its workforce.” “Organisations need to figure out how to Travel and hospitality already employs JOB SECURITY and pay top manage diverse generations. Millennials significant numbers of ‘contingent’ workers. employee concerns at work expect organisations to have a clear social (Figure 74). On-the-job learning But Maitra said: “Are they using this is the preferred form of training purpose. Generation X [in their late 30s to among all age groups. Online workforce in the right way? Do they know training options are less favoured early 50s] want career advancement, but PRODUCTION what workforce they need full time and by all ages (Figure 75) parents may want to work flexibly or to know how they will be supported when FIGURE 74: they return to work after having a child. WORK: WHATÕS MOST IMPORTANT? “For ‘veterans’, how do you make them % cite as important feel part of a team when a business runs on Job security 87% technology?” One way could be “reverse

CLIENT Pay 85% mentoring”, she said, adding: “Some Co-worker/client trust 84% organisations have changed the shop floor Clear responsibilities 83% so workers don’t have to stand for so long.” Competent management 82% There is also a need for long-term Clear purpose/goals 81% strategies on gender diversity, especially Matches values 76% at the top of the industry, Maitra said. Develops skills 75% At one level, she argues: “We have Clear opportunities 70% gender diversity – there are more women Flexible hours 67% than men graduating from university. But 0 20 40 60 80 100 on policies such as parental leave, very Source: Deloitte European Workforce Survey 2018 few organisations give the same leave to men and women. Can we start to take for % FIGURE 75: TRAINING AT WORK granted that a man might take time off for 80 Preferred modes: by age childcare? Childcare [provision] is better 78%78%77%79% Under 35 in countries where it is state-sponsored. 70 69%70% 68%68% 66% 35-44 64% 45-54 So is there a role for government? Often 60 58% 56% 54%53% 55+ people leave work for a time [when they 50 50% 45% 46% 45% 46% have children] because financially it makes 43% 41% 43% 40 40% 38% no sense to work. When a woman returns 37% 37%35% 30 31% to work it’s often assumed they want 28% 26% 26% 20 21% part-time work and can’t travel. Improving gender diversity needs structural change.” 10 But Maitra insisted: “I don’t think it’s 0 doom and gloom. The future of work is On the Small Formal Job Online Reading Online Mobile more about people than technology. If job group work course rotation course material video app organisations focus on the right things Source: Deloitte European Workforce Survey 2018 they can create better jobs.”

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BLACK YELLOW MAGENTA CYAN 91TRS1951145.pgs 02.12.2019 15:41 VERSION SUSTAINABLE TRAVEL Sustainable Travel, 1 Aviation flies into climate storm REPRO OP

Venice was severely flooded and Consumer and This, unfortunately, has to be the “catastrophic” bushfires were raging starting point for discussing travel and across eastern Australia as this report investor pressure tourism sustainability. neared publication. puts emissions The environmental impact of flying While these events unfolded, the moved sharply up the political agenda, SUBS International Energy Agency (IEA) issue at top of spurred by teenage campaigner Greta issued its annual World Energy Outlook, airlines’ agendas Thunberg and the campaign of ‘flygskam’ noting reliance on fossil fuels remains or ‘flight shame’ in Sweden, and swelled “stubbornly high”. by Extinction Rebellion protests in Britain. A report for the UN Climate Action It certainly hit home in the industry. Summit in September 2019 underlined the Iata chief economist Brian Pearce told an ART “growing gap between agreed targets to Airlines 2050 conference in London in tackle global warming and the reality”. October: “Climate is now a material issue Entitled United in Science, it noted global for airline investors.” carbon emissions hit a new record in 2018 Dale Keller, chief executive of the and that 2015-19 “is on track to be the Board of Airline Representatives UK, told warmest [five years] on record”. the same conference: “The message from PRODUCTION “Widespread and long-lasting Extinction Rebellion has got through to heatwaves, record-breaking fires and the industry.” devastating events such as tropical Senior aviation figures appear to agree cyclones, floods and drought have had but retain a tendency to argue aviation major impacts . . . Arctic summer sea-ice emissions are a fraction of the global extent declined at 12% per decade during total, leading Department for Transport

CLIENT 1979-2018. Sea-level rise is accelerating. aviation director Dan Micklethwaite to Seawater is becoming more acidic. tell the conference: “Aviation contributes “Levels of carbon dioxide, methane and 2.6% of global carbon emissions now, but nitrous oxide have reached new highs. THERE appears no change in the by 2050 it will be the lion’s share.” proportion of UK holidaymakers There is still no sign of a peak in global concerned about sustainability. emissions . . . Despite extraordinary growth More than half register some TOP OF THE AGENDA concern, but more than one in in renewable fuels, the annual increase three admit to none (Figure 76). Deloitte sustainability services manager However, the research found a Chris Thompson agrees climate change in global energy use is greater than the significant rise in concern about increase in renewable energy.” flying, albeit still among a minority is now “right at the top of the agenda”. He said: “The consequences are starting to bite now. There has been a real FIGURE 76: HOLIDAYMAKERS’ SUSTAINABILITY CONCERNS, 2019 shift. We’re starting to see clients take substantive action around sustainability % UK adults planning overseas holiday in 2020 and reducing emissions, and we’re starting to see investors take notice. +1 +6 +2 0 +3 +1 “EU and UK regulators are pushing a Don’t know 0 9% 25 % pt change on 2018 market-based approach, forcing investors 21% 20% 20% 20 18% to consider climate issues and to embed 17% Any 16% concern 15 this in investment decision making. 55% % There is a real awakening. This will have 10 0 a growing impact on the travel industry 5 as the consequences of climate change No concern and low carbon transition are priced into 36% 0 financial markets.” Water use Thompson added: “We have clients Impact of flying Waste disposal % point change on 2018 Do locals benefit? considering how air travel will change. Impact on destination Staff wages/conditions Source: Kantar/Service Science There has to be a cap on emissions at

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BLACK YELLOW MAGENTA CYAN 91TRS1951108.pgs 02.12.2019 15:47 VERSION SUSTAINABLE TRAVEL aviation flies into climate storm Sustainable Travel, 2 REPRO OP

2020 levels and, if current growth rates Yet Thompson expressed confidence in air travel continue without significant that technology “is not going to remain reductions in emissions intensity, Despite static”. He said: “Aerospace manufacturers companies are going to feel the financial are putting a lot of investment into consequences.” extraordinary alternative propulsion. SUBS He said: “The options for reducing growth in “There is going to be a political aviation emissions through technological conversation around behaviour and innovation show some signs of promise, renewable fuels, taxation of heavy carbon activities. The but they are not projected to bring the the annual rise in question will be how can government industry down to net zero [carbon]. This address public concerns around climate is creating calls to change consumer global energy use change without introducing measures ART behaviour, and this could become a real is greater than that are perceived to be unfair by challenge for aviation. segments of the electorate? How can “We already have a former secretary the increase in we make taxation equitable and not just of state for energy and climate change renewable energy increase the cost of goods and services? talking about banning domestic flights. “The real challenge is how we Engaging with ‘flight shame’ in a positive maintain living standards while PRODUCTION way will be a real challenge.” addressing the carbon challenge. Our lives Dutch carrier KLM made an effort to are carbon-heavy. Is it realistic to expect do this with a campaign launched in July changes in consumer behaviour? Travel calling on passengers to ‘Fly Responsibly’. is a hallmark of the affluent lifestyles of Chief executive Pieter Elbers said: “Do you the developed world and, at present, that always need to meet face to face? Could is inherently unsustainable. How do we

CLIENT you take the train? We’re not saying, don’t get to a point where we undertake travel fly. We’re saying fly responsibly.” activities that are sustainable or lead to a level of behaviour change?” BIOFUELS Climate expert Dr Gabrielle Walker told EMISSIONS TARGET Abta’s Travel Convention in October: Asked if the industry is doing enough, “Aviation is the elephant in the room. Thompson said: “The challenge is how This industry is in the crosshairs because CONCERNS about overcrowding to frame the business model around in destinations appear to have UN agreements have left out aviation fallen among younger adults sustainability. There is not a viable and shipping.” She added: “Biofuels can’t (Figure 77), despite awareness alternative fuel yet for aviation. of sustainability in general rising provide the answer.” among the young (Figure 78) “Electric flight will probably be

FIGURE 77: CONCERN AT FIGURE 78: ANY TOURISM OVERCROWDING IN DESTINATION SUSTAINABILITY CONCERN, BY AGE % UK adults planning an overseas holiday, 2020 % pt change -1 -9 -1 -3 +3 +2 -1 -1 -5 +7 % +13 +7 -4 -8 0 +2 % point change y-o-y 2019 v 2012 20 80 18% 71% 71% 17% 17% 68% 68% Oct 2019 61% Oct 2018 15 60 58% 57% 56% 57% 55% 55% 13% 13% 52% 53% 12% 49%49% Oct 2012 11% 44%42%44% 10 9% 10% 10% 40

5 20

0 0 All 16-24 25-34 35-44 45-54 55+ Child No ABC1 C2DE 16-24 25-34 35-44 45-54 55+ ABC1 child Source: Kantar/Service Science Source: Kantar/Service Science

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BLACK YELLOW MAGENTA CYAN 91TRS1951109.pgs 02.12.2019 15:43 VERSION Sustainable Travel, 3 REPRO OP

feasible by 2050 – not an electric Thompson describes implementation equivalent of the current fleet, but electric of Corsia and airline association Iata’s modes that make certain types of flights support for it as “a turning point”. feasible, say between the Scottish islands.” But he also notes there is a level of However, Thompson noted: “The scepticism among experts over its likely SUBS real challenge on alternative aviation effectiveness. fuels is around trade-offs and secondary Despite the scale of the challenge, environmental impacts. These fuels can Thompson sees reason for optimism. He just shift emissions, substituting another said: “The unknown element in this is the carbon source.” development of new technology.” Leading airlines are committed to the ART Carbon Offset and Reduction Scheme for TOURISM MANAGEMENT International Aviation (Corsia) agreed by Beyond aviation, plastics dominated International Civil Aviation Organisation corporate commitments on sustainability members, due to come into force from THE INCREASE in concern about with no end of pledges to remove single- 2021. This aims to peg overall airline flying since 2012 is striking and use plastic items. This is welcome, and the appears reflected in all age carbon emissions at the level of 2020 for groups (Figure 79). The growth sooner most plastic items are removed, PRODUCTION in concern in the past 12 months, the better. But a report on the “invisible a period and reduce emissions to half the especially among younger level of 2005 by 2050. adults, is clear (Figure 80) burden” of tourism, published in March, suggested far more is required for the FIGURE 79: industry to be sustainable. RECOGNITION OF SUSTAINABILITY ISSUES The report, Destinations at Risk, % point change in recognition: 2019 v 2012 warned tourism rests “on shaky % CLIENT +15 foundations” in many destinations. 15 +14 +14 +13 All Produced by The Travel Foundation, +12 16-34 12 +11 +11 +11 +11 sustainability consultancy EplerWood and +10 35-54 +9 +9 +9 Cornell University, it argued “a lack of 9 +8 +8 +8 55+ +7 +7 +7 analysis of the cost of managing tourists” +6 6 left destinations “financing additional +4 infrastructure without recompense”. 3 +2 +1 Introducing the report, Travel 0 0 Foundation chairman Noel Josephides Impact Waste noted: “Not enough is changing in the Impact on Do locals Water use of flying benefit? Staff wages/ disposal destination conditions Source: Kantar/Service Science way we manage tourism.”

FIGURE 80: SUSTAINABILITY CONCERNS BY AGE, 2019 % of those planning overseas holiday in 2020 % point change year on year % % 24% 24% 24% +9 +9 16-34 25 22% 23% 10 21% 35-54 19% 20% 20% 8 18% +6 +6 20 17% 17% 17% +5 +5 55+ 16% 16% 6 15% +4 +4 4 +3 +3 15 +2 11% 11% 2 +1 +1 +1 0 10 0 5 -2 -4 -5 -5 0 -6 -6 Impact Waste Impact Waste Impact on Do locals Water use Impact on Do locals Water use of flying benefit? Staff wages/ disposal of flying benefit? Staff wages/ disposal destination conditions destination conditions Source: Kantar/Service Science

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Research Partners Partners - TNS/GfK REPRO OP

Service Science brings insight and GfK is a leading provider of market insight SUBS expertise together into the way people think, live and shop across multiple sectors including travel Service Science is a specialist market research agency focused on the hospitality, leisure, tourism We offer the most-comprehensive and accurate and travel sectors. We work with clients to bring picture of forward bookings for the outbound actionable findings, from their customers and holiday market covering what people are doing via ART people, to help improve the customer experience. point-of-sale services and why they are making We have four practice areas: these decisions. ● Think Like Your Customers: using behavioural science The point-of-sale service is updated weekly with techniques, qualitative and quantitative, we provide insight transactional data from tour operators and travel agents to help understand and influence customer behaviour. covering where, when, what and how consumers ● Online Reputation Management: through the monitoring book. This aggregated and confidential data helps our PRODUCTION and management of online reputation we provide the means clients better understand both their own and the overall to increase loyalty and maintain clients’ competitive edge. industry performance. ● Service Quality Measurement: through mystery The data is used at a tactical level, supporting shopping, brand standards audits and survey tools we clients to make the best product, pricing and marketing ensure clients deliver exceptional service. decisions at destination and holiday-type levels. Accurate ● Employee Engagement: our innovative approach booking statistics are vital for clients to benchmark their

CLIENT ensures our clients’ teams are motivated and engaged so performance and to help identify long-term strategic they deliver service that sets them apart. opportunities. Service Science was founded in 2010 by Clive We have enhanced this point-of-sale service by Nicolaou, a market researcher with 26 years’ experience combining it with GDS flight sales, creating a second in the hospitality, leisure and tourism sectors. Prior to view of the market, covering nearly one in every two that Clive was head of hospitality and leisure at Kantar leisure passengers leaving the UK by air at an individual TNS having previously been a successful operator in booking level. the hospitality sector. He is a fellow of the Institute of Our Travel 360 consumer survey complements the Hospitality and a member of the Market Research Society. point-of-sale tracking services, providing details on Tom Costley is the most experienced researcher in motivation and factors affecting bookings with a full the team with almost 40 years’ experience in market demographic breakdown. research from both a client and agency perspective. He These products, coupled with our industry expertise, has wide-ranging experience but especially in travel, help clients navigate the evolving world of travel. transport and tourism research. Prior to joining Service Science in 2018, Tom headed the travel and tourism team for Kantar TNS, the UK market leader in travel, transport and tourism. His client portfolio included national tourism organisations, leading operators, airlines, hotel groups and travel firms. He is a member of the Market Research Society and a fellow of the Tourism Society.

Clive Nicolaou Tom Costley managing associate director, director, Service Science Service Science David Hope clive@ tomjcostley@ senior client insight director, GfK servsci.com gmail.com [email protected]

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Travel and tourism resilience is Jamaica or security-related incidents had the attracting growing interest and study. shortest average recovery time.” Recovery The first Global Tourism Resilience centre heralds following a political crisis on average and Crisis Management Centre, increased focus took twice as long. The report concluded: established in Jamaica at the start of “Civil unrest is far more damaging to a SUBS 2019, was due to open at the turn of on contingency country’s travel and tourism sector than the year. planning as study one-off terror attacks.” The founder, Jamaica tourism minister suggests tourism The study drew on the World Edmund Bartlett, noted the world faces Economic Forum’s 2019 Global Risks “a future of extremes and we must today recovers Perception Survey and research learn to increase the resiliency of our suggesting 22% of travellers rank

ART quicker from industry”. An assessment of hurricane terrorism as “the greatest threat”, despite and seismic resilience will be among the crises than in 2001 there being statistically almost no risk of first projects undertaken by the centre, attack. It noted: “Terrorism can impact along with a programme to track the the sector due to the perception of spread of sargassum seaweed – linked to risk . . . linked to recent terrorist attacks ocean warming and agrochemical run-off [in] areas popular among tourists. PRODUCTION – and study efforts to tackle it. Satellite “The data suggests the scale of a resilience centres are planned – the first terrorist attack is less important in in Nairobi – along with the launch of a determining its overall impact than the tourism resilience barometer. context in which it occurs. Terrorist The hurricane assessment project attacks in major European cities was timely after hurricane Dorian including London in 2017 and Brussels

CLIENT smashed across the Bahamas in August – in 2016 had relatively limited impact on the most powerful storm to hit the islands overall tourism.” on record. The authors contrast the impact of The centre will work in tandem with THE LEVEL of holidaymakers’ bomb attacks in Indonesia in 2002 and concerns about terrorism appears the Global Travel & Tourism Resilience to have plateaued (Figure 81) 2005 with the Madrid rail bombing of Council, chaired by former UN World after peaking in 2016-17 around 2004, noting: “The Indonesia attacks the height of Islamic State’s Tourism Organisation secretary general activity and terror attacks in were different in scale [and] in terms of Taleb Rifai, which aims to provide “a Sousse and Paris (2015) and the death toll, yet the visitor impact was Brussels (2016). However, the platform for sharing solutions”. Rifai ‘plateau’ is at a higher level than significant – 891,000 lost arrivals in 2002 before this period. Concerns have noted: “Tourism is a vulnerable industry generally fallen, but not it appears and 402,000 in 2005.” By contrast, Madrid but recovers well from crisis if it has a among adults with young children “recovered within weeks”. strong base.”

CRISIS RECOVERY FIGURE 81: UK HOLIDAYMAKER ATTITUDE TO TERROR THREAT That view was confirmed by a World % say terrorism ‘a concern’ Terror ‘a concern’ by age, 2019 % Travel & Tourism Council report in -7 -12 +14 -1 +1 -7 -2 -15 -2 -8 +8 -4 -3 -11 % point 40 Oct 2014 % November which analysed 90 ‘crises’ 36% 37% change on 35 Oct 2016 35 34% 2018 of recent years: 32 natural disasters, 29 Oct 2017 33% 2017 terrorism or security-related events, 12 30 28% 28% Oct 2018 30 29% 29% 26% Oct 2019 disease outbreaks and 17 episodes of 25 25 24% 23% 21% political instability. The study suggested 20 20 the average time it took tourism to 15 15 recover following a crisis fell between 10 10 2001 and 2018 from 26 months to 10. 5 5 The report noted: “Of the four crisis 0 0 categories, political instability proved 16-24 25-34 35-44 45-54 55+ Child No child the most challenging, while terrorist Source: Kantar/Service Science

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The report also noted: “Lower frequency and magnitude, with the international visitor losses tend to be number quadrupling between 1970 found where minimal structural damage Civil unrest is far and 2016. Hurricanes and cyclones are occurred or when travellers were quickly becoming increasingly common disasters, reassured that a destination is safe and more damaging whose severity is projected to increase SUBS the situation under control.” to a country’s in coming decades largely due to climate It suggested: “People are becoming change and human settlement patterns. more resilient to shocks especially when travel and Sea level rise will cause higher storm they are familiar with a destination.” tourism sector surge levels . . . tropical cyclone rainfall and intensity rates are likely to increase.” DISASTERS AND DISEASE than one-off On the impact of disease, it concluded: ART The study found recovery times following terror attacks “Epidemics and [disease] outbreaks have natural disasters showed the greatest become the new normal. The rise in range, “from just one month to 93 population density in large urban areas months, due to the wide variation in and enhanced international mobility and severity of natural disaster events”. EXECUTIVE confidence in travel have led to higher exposure to organisations’ ability to handle The report noted: “Natural disasters crises appears unmatched by rates novel diseases and increased potential for PRODUCTION have dramatically increased in both of crisis simulation (Figure 82) transmission.” However, this is not the biggest problem when it comes to recovery from FIGURE 82: CONFIDENCE IN CRISIS RESPONSE a disease outbreak. Former World Health % senior executives involved in crisis management Organisation director general Margaret Chan noted: “Rumours and panic spread

CLIENT 100 Confident in response faster.” The World Bank estimates 90% 90% 88% 87% 86% 79% 79% Simulated crisis of economic losses during a disease 80 76% 72% 71% 70% 70% outbreak result from uncoordinated 60% 60 public efforts to avoid infection. 50% 53% % The report advised: “Effective 40 37% 33% management of a crisis requires 20% 22% 22% 22% the rapid activation of emergency 20 17% 16% 12% 12% plans as well as quick, accurate and 0 transparent communication.” It suggested System Corporate Cyber Corporate Health Industrial Transport Societal Political Product Natural Terror governments “engage with the private failure scandal attack failure scare accident accident activism unrest recall disaster attack sector to improve crisis preparedness, Base: 523 crisis management, business continuity & senior executives Source: Deloitte, 2018 Global Crisis Management Survey management and recovery plans”.

The Deloitte view There is a sense of déjà vu in risk and crisis efforts to repatriate and refund passengers that relies on access to these, should have management, as many of the issues raised maintain appropriate levels of security, plans ready in case these become no longer in this report a year ago remain valid. regardless of the inevitable consumer or available. This means having plans in place How the UK’s exit from the EU will impact media pressure to resolve things quickly. not only to reschedule passengers but also the sector is still to be fully understood, and Other, more traditional crisis to deal with the various consequences such economic challenges remain. The sector has management activities continue to be situations might have. seen a major travel company collapse, with important in a sector that regularly faces None of these activities are an impact across the industry. new challenges. straightforward but, if not handled In the crisis sense, ‘bad actors’ are always Recent aviation sector incidents have sensitively, have the potential to precipitate looking to exploit ambiguity and fissures in highlighted how third-party risk needs to be further challenges for the industry. systems. It is consequently vital to guard managed carefully. Every travel company █ Tim Johnson, partner, Risk Advisory; against company failure risks and ensure with a large fleet of assets, or a business Bob Judson, senior advisor, Risk Advisory

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Deloitte Deloitte Partners Insight annual report partner REPRO OP

Deloitte is an industry leader in the travel and that matters. We bring world-class capabilities and aviation sector with a dedicated team offering a high-quality services to our clients. range of integrated services from financial, risk With our unrivalled knowledge of the industry and advisory, taxation, accounting and consultancy the business challenges facing companies, we are able advice to help clients evaluate complex issues, to bring together experts to help clients. We work with SUBS develop fresh approaches to problems and most of the world’s leading companies in the sector, with implement practical solutions. a focus on maximising value for our clients and enabling Deloitte is led by a purpose: to make an impact them to make informed decisions. ART PRODUCTION

CLIENT Alistair Pritchard Andy Gauld Andreas Scriven lead partner, partner, lead partner, Travel and Aviation Consulting, Travel and Aviation Hospitality and Leisure

Contributors

Alistair Pritchard lead partner, Travel and Aviation [email protected] Andy Gauld partner, Consulting, Travel and Aviation [email protected] Andreas Scriven lead partner, Hospitality and Leisure [email protected] Bob Judson senior advisor, Risk Advisory [email protected] Tim Johnson partner, Risk Advisory [email protected] Janice Clement-Smith assistant director, Corporate Finance [email protected] Peter Gooch partner, Cyber and Privacy [email protected] Danielle Rawson director, Travel and Aviation [email protected] Shivani Maitra partner, Human Capital and Future of Work Lead, Private Sector [email protected] Martin Bowman director, Aviation Technology [email protected] Nigel Bland partner, Corporate Finance [email protected] Jim Cranswick director, Aviation [email protected] Gurm Dhillon partner, Financial Advisory [email protected] Chris Thompson manager, Sustainability, Risk Advisory [email protected]

deloitte.co.uk/THS

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Annual Report 2019-20 CLIENT

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