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March 29, 2022

Increased cost of living could result in holiday surcharges

To stay profitable, many businesses may be forced to levy additional surcharges increasing the cost to the consumer, potentially slowing the travel industry’s recovery from the effects of the pandemic.

By Globaldata Travel and Tourism

Holiday surcharges for travellers between 2022 and 2023 could become a reality as the cost of living continues to increase around the globe.

More specifically, fuel and energy costs are the leading cause for concern as travel agents, tour operators, and lodging and transportation providers all continue to battle with rises. To stay profitable, many businesses may be forced to levy additional surcharges increasing the cost to the consumer, potentially slowing the travel industry’s recovery from the effects of the pandemic.

Fuel and energy charges will significantly impact operational overheads

Soaring fuel and energy prices affect all corners of the travel industry. The rising fuel cost is causing a significant financial impact on airlines, rail operators, and car rental firms as oil prices fluctuate. Ultimately, this issue feeds into operational costs and reduces the average profit per booking. These travel and tourism companies are now under substantial pressure to ensure their business remains profitable. As a result, they will have little option but to pass on at least some of the additional cost directly to customers or travel intermediaries. The latter could force tour operators and travel agencies to potentially add more costs onto already booked itineraries, causing dismay amongst their customers.

However, it is not just transportation companies that are affected. The global cost of living and energy prices will have a major impact on the lodging sector. The increased cost of gas and electricity will increase room rates to ensure these price hikes are covered. Rising costs of food, beverages, and imported goods will also cause a headache for hospitality managers looking to balance the books while trying to offer guests value for money. The budget sector is likely to suffer the most, where profit margins will be put under considerable pressure, resulting in reduced services and higher booking fees.

The possibility of surcharges will deter some travellers

According to the British energy regulator Ofgem , in the UK alone, the energy price cap will increase by 54% in April 2022. Although, the energy cost increase will vary from one country to the next. This will depend on the country’s reliance on imported energy, level of renewable energy usage, and strength of government regulations regarding price caps. Europe is likely to be the most affected due to the ongoing conflict between Russia and Ukraine and the subsequent economic sanctions on Russian oil and gas.

Nevertheless, this will undoubtedly harm a travel sector that is already battling pandemic recovery. According to a GlobalData Q3 2021 Global Consumer Survey, 58% of respondents said cost was the main deciding factor when booking a holiday. With the possibility of looming surcharges, many customers will likely be deterred from booking a holiday in 2022 and 2023. In effect, this will slow down travel recovery. This resurgence in the travel industry was expected to gain momentum in 2022. However, the rise in the cost of living is most likely to affect low-income earners, families and the middle class, which is the core budget and midscale holiday market.

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