The Daily Telegraph - Saturday - Travel
Are we seeing the beginning of the end for cheap travel?
This week’s hike in departure fees at Heathrow plus rising fuel costs and recruitment woes could be a perfect storm
A few months ago I predicted that, while we may see some excellent value in the short term, the cost of travel is almost certain to increase in the longer run. It’s a tricky prediction to test because it is hard to track price rises in the early stages. Airfares in particular are heavily affected by demand, which differs by route, season and date. It will take time before we really know the impact of the pandemic on holiday finances.
However, there are some costs that affect all fares and, this week, we saw evidence of the upward pressures on these. Heathrow, which made a loss of £2billion in 2020, was given permission by the regulator (the CAA) to raise its fees for departing passengers from £19.60 per person to £30. This will be imposed on all flights from New Year’s Day onwards and represents a 53 per cent price increase. It’s only an interim measure – the results of a CAA review of charges from next summer will be announced in a few months and the price might rise further after that.
Only an extra £10, you might think, but there are other pressures which look as though they will start to bite soon. The cost of travel is largely determined by two key factors – fuel and people – and both these are also looking significantly more expensive.
First, the cost of aviation fuel has more than doubled in the past year (up by 124 per cent in Europe) to reach a six-year high. True, airlines normally hedge against rises, but those arrangements only last a fixed amount of time, and if prices stay high then the next hedge will be that much more expensive. That will inevitably feed through to fares.
Secondly, we are already realising that there is a significant labour shortage in this country. The Government’s reaction has been to celebrate our transformation into a “high wage” economy. But if airlines and airports, along with other travel companies, have to pay more to recruit staff, the customer will eventually have to foot the bill through higher prices. And it’s important to remember that your own wages may not rise enough to compensate.
Two imponderables could still combine to prove my prediction wrong, however. The first is the cost of accommodation (and here I am thinking about overseas, not the UK). If the number of people travelling remains suppressed – not just British tourists, but those from all over the world – then it will be harder for hotels to fill their rooms and that will put downward pressure on prices.
The second is the value of the pound. That affects both the cost of fuel (which is priced in dollars) and all the costs that we have to pay when we are overseas. Recently, sterling has held up pretty well – if that trend continues, it will certainly help our holiday cause. But if inflation starts to bite here, and does so at a worse rate than in Europe or the United States, that will hit the pound and we could start to slip into a vicious circle of rising travel costs.
There is some good news, though. Assuming Covid infection rates don’t get too much worse for too long and we don’t see too many countries – like Morocco this week – banning direct travel from the UK, then we are still in a travel sweet spot. Book a trip before Christmas and you can still find some real bargains, especially for short breaks to Europe. It is low season and there are prices to match, but continental cities seem to be in the mood to catch up on lost time. I have already experienced the autumn vibe in Paris and I am in Oslo at the moment, which removed all restrictions only a few weeks ago. Such is the atmosphere here that you would hardly believe that there is still a pandemic out there somewhere.