Limitations to our flight movements due to the pandemic remain frustrating, but unrestricted personal air travel will have to resume – writes Savvas Savouri.

 

When it does, the eurozone’s tourist-hungry Club Med economies will have essentially lost two years of important hard-currency earnings. On top of such an unhelpful financial legacy, they potentially face strong recovery headwinds; up against a combination of higher air fares – uplifted by increased flight taxes and fuel costs – and competition from rival destinations for sun and sea such as Turkey, Egypt and Tunisia, not to mention Dubai and Florida.

Air travel costs could also be driven up by the inability of budget airlines to return to their old competitive pricing models.

Airport operators too could prove a cause of higher airfares if they try to make good what revenues they have lost and debts incurred over these past two extremely difficult years.

Airport owners could use their landlord powers to hike up rents and other fees charged to carriers; airside retailers and other concession holders would suffer the same fate.

Against this backdrop, there can be no doubt that Club Med eurozone destinations could only welcome a strengthening in sterling that would attract British holidaymakers.

When it comes to travellers from Asia, all of Europe – even destinations with less tourist-friendly climates – will be glad of the continent’s rising middle classes, particularly across ever more rapidly emergent China, and the elevation too in the value of the yuan.

Passenger air arrivals from Asia will receive a particularly strong boost for those European nations most attractive to generous fee-paying students.

Those who travel back and forth during their studies will consume airport facilities, while those who do not are likely to see their families make flying visits.

They will create their own demands on Europe’s airports and the region’s related internal travel sectors. Here the UK stands out, as it is already educating more Chinese students across its higher education institutions than do all of the EU27 combined. Indeed, in the years to 2034, the UK could easily see its annual intake of Chinese students rise by 150%.

 

‘From the perspective of Britons, the longer they are restrained from tourist travel to the Continent, the more favourable it is to the UK economy and the greater the expense to Club Med’

 

Returning to a rising yuan, as well as elevating wealth within China, it will almost certainly be accompanied by a decline in the dollar, whose weakness will not least be seen relative to the euro and to sterling.

Strength in these currencies against the dollar would have a number of consequences for the travel sector: on balance, being highly unfavourable for the eurozone’s tourist sectors and indeed its industries more widely.

After all, with the Turkish lira and Egyptian pound ostensibly managed against the dollar, weakness in the latter would see these countries fall further against their eurozone Club Med rivals in terms of tourism.

For the UK, a resurgent sterling would offer disinflationary benefits and keep the monetary landscape favourable.

In predicting challenging times ahead for all the eurozone’s Club Med tourism linked sectors, this warning extends to owners of all the considerable and extensive property assets linked to tourism. It also of course extends ominously to the banks which have long lent using such real estate as security.

From the perspective of Britons, the longer they are restrained from tourist travel to the Continent, the more favourable it is to the UK economy and the greater the expense to Club Med.

The UK would, after all, only further benefit from the retention of entrapped staycationers, spending pounds that would otherwise have been converted into euros and jetted off to create income on the Continent.

The statistical economic reality is that ahead of this crisis the UK had been running a circa £30bn deficit in its balance of tourism.

Naturally, then, any reduction in our travel to Europe or increase in arrivals into the UK from Asia (notably China) can only be positive for sterling.

Ironically, the longer that normality of movement is suspended, the greater the forward return premium of the UK over the eurozone; all the greater, sterling’s upside to the euro, and so the greater the urgency for Club Med to get Britons back.

In short, then, were tourist-laden aircraft not to land in the numbers recorded prior to this abrupt grounding, there should be no doubting that an economic blow would land upon Club Med economies.

True, there is an argument that reduced air traffic should be welcomed for the environmental good. An argument, too, that less carbon-intensive land travel could propel us on holiday.

As much, however, as road and rail are travel options for holidaymakers, all too often these come with a greater expense in money and time than does air.

The latter ensures road or rail could never fully take up the tourism volume lost by intra-European aircraft not taking to the skies in the numbers they did before coronavirus grounded us.

 

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