Iceland volcano crisis will hit European airlines worse than U.S.

Smoke and lava are seen as a volcano erupts in Eyjafjallajokul. REUTERS/Lucas Jackson

The eruption of an Icelandic volcano last week has caused unprecedented travel chaos, leaving thousands of British travellers stranded abroad and costing the economy an estimated £500 million.

This will add to the travel industry’s woes, following difficult times in 2009, which saw British travellers reduce their spending by -8.4% from £43.8bn in 2008 to £40.2bn last year. The news comes at a time when recovery was in sight, and UK spend was forecast to see a modest uplift of 2.4% (£1bn) in 2010 to £41.1bn, according to Kelkoo’s European Travel Index.

The “European Travel Index”, commissioned by Kelkoo and carried out by the Centre for Economics and Business Research, provides a comprehensive review of travel trends in Europe over the past five years.

The new report issued today by Kelkoo reveals that the online travel sector is better equipped to deal with the financial impact of the disruption and will continue to buck industry growth trends this year. According to the study, the UK has the highest online travel expenditure in Europe and the sector is solidly on course to sustain its recession-busting performance throughout 2010, with spending projected to rise by £2bn this year from £15.6bn to £17.6bn compared to £13.2bn in 2008 – a 33% increase over the past two years. Over the same period, overall travel sales will have decreased by -6.4% from £43.9bn in 2008 to an estimated £41.1bn by the end of 2010.

The Eyjafjallajokull volcano pumps ash into the sky. Photograph: Jon Gustafsson/AP

UK online spending will account for 42.8% of total UK travel sales or 25% of the European online travel market by the end of 2010 – the largest share of any EU member country. British consumers are among the most web-savvy in terms of holiday planning, with 69% using the internet to research and buy holidays compared to the European average of 54%.

2009 was the ‘annus horribilis’ for the European travel industry, and the UK was no exception. Travel expenditure is traditionally volatile and never more so than during times of economic hardship when consumers tend to cut back on discretionary spending. According to the study, almost every European country reduced their travel spending last year as the global recession took hold, and the economic meltdown combined with high unemployment undermined consumer confidence and eroded consumer demand. The UK travel sector endured a £3.7bn or -8.4% year-on-year decline in sales from 2008 to 2009, the second largest decline in Europe behind Poland(-19%). The advent of the ‘staycation’ in the UK also had an impact, resulting in a -8.5% cut to individual travel budgets from an average £717 in 2008 to £656 last year.

In 2009, British holidaymakers accounted for 12.6% of total European travel expenditure, with Spain, (including the Balearic Islands) ranking as the most popular destination for UK tourists – accounting for 20% of British holidays. The research also shows that British holidaymakers are more likely to travel abroad than their French counterparts. Last year, British tourists spent 9.6 days abroad which is three times more than French tourists. In total 66% of British holidays were spent on trips outside the UK, compared to the French who spent just 21% of their holidays abroad.

The Kelkoo Travel Index predicts a more positive outlook for the European travel sector in 2010, although forecasts could be affected by the volcanic ash disruption which could cost the airline industry £164 million in losses worldwide for each day of lost business. Although UK sales are anticipated to remain sluggish, spending is forecast to stabilise as the impact of the economic recovery feeds through. 2010 should see the annual rate of decline in travel sales improve significantly from -8.4% in 2009 to 2.4% this year, as consumers make up for recessionary cut-backs. In spite of this, with the sterling exchange at a record low and having lost -7.5% of its value against the euro in the past year, the UK will experience the lowest growth rate in percentage terms out of any European country.

Overall, France (£82.3), Germany (£76.8) and the UK (£41.1) will remain the countries with the highest travel spend during 2010, accounting for 58% (£200.2bn) of total European sales. However, while the UK has the third largest overall expenditure, it also appears to have one of the tightest budgets while on holiday. In 2010, it is anticipated that British tourists will spend £669 per person on travel, less than half as much as the Norwegians (£1,578), the French (£1,272) or the Danes (£1,254) – Europe’s biggest spenders. Whilst on holiday travellers from Denmark are expected to splash out the most per day (£107) on accommodation, food, and attractions. Those from Norway (£91) and Switzerland (£77) hold second and third place. The tourists that spend the least per day are the Poles (£20), the Spanish (£33) and the British (£51). These differences in travel expenditure stem from key factors such as local income levels, the price of domestic holidays, and the general state of each country’s economy.

Bruce Fair, Managing Director of Kelkoo UK, comments: “The recession cost the UK travel industry £3.7bn in 2009 and it looks like the sector will need to buckle its seat belt for another bumpy ride in 2010. Just as forecasts were indicating a modest financial recovery, with sales set to increase by 2.4% (£1bn) this year, the Icelandic eruption threatens to throw cinders on the travel industry’s recovery. Meanwhile, the online travel sector has proved resilient during the downturn, and is expected to continue to thrive in the post–recession era with a record turnover of £17.6bn forecast for 2010, the highest online travel expenditure in Europe.

“The good news is that travel operators have reacted positively to the situation offering substantial discounts and driving down the cost of travel for UK and European consumers. We expect this trend to continue in 2010 as travel companies and airlines aggressively compete with one another and the online sector to entice new customers. The internet offers consumers lower prices and greater choice. The web is also an invaluable research library offering travellers instant access to information such as independent reviews, recommendations, guides, travel tips and advice.”

The Icelandic volcano crisis has wreaked havoc on passengers and airports across Europe, and it may drive a few European airlines into bankruptcy. But analysts expect the crisis to cause far less economic damage to carriers in the United States.

Read also: Iceland volcano crisis will hit European airlines worse than U.S., experts say.

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