Package holiday demand dips as UK cost of living crisis hits budgets

Holiday bookings for three-star destinations are starting to drop as households hit by the cost of living crisis cut back amid rising bills, according to the travel company On the Beach.

The online travel retailer said that while premium bookings by customers with deeper pockets were proving “resilient”, holidaymakers who traditionally would book cheaper trips had been forced to rein in their spending.

“Those that are booking holidays at a higher price point – sort of £600-800 per person and more – are proving more resilient than those that would be booking holidays for £300-500 and less. So that tends to be the difference in three-star and five-star [destinations],” said On the Beach’s chief executive, Simon Cooper.

He said: “So those would be – potentially – the demographics that would be more squeezed from cost of living pressures, and who potentially have lower savings.”

The headline rate of consumer price inflation hit 11.1% in October – its highest level since 1981 – on the back of soaring energy and food bills. The rising cost of essentials has eaten into the spending capacity of UK households, some of which have subsequently rowed back on foreign holidays.

But On the Beach still reported lower-cost destinations such as Turkey, where customers could get more for their money, growing in popularity. Cooper said Turkey was “very affordable”, offering premium locations and “well-equipped hotels” for less.

However, the drop in the value of the pound, and the rise in the US dollar, had affected bookings for destinations such as the Caribbean. “And yet even against that backdrop, we have seen very strong sales for long-haul destinations again, perhaps as a result of pent-up demand coming out of Covid.”

It came as On the Beach swung back to profit in the year to 30 September, reporting pre-tax gains of £14m. That compared with the £18m loss logged in 2021, when pandemic travel restrictions were still largely in place.

Cooper said that compared with the disruptions the company faced during the pandemic, planned strikes by workers including Border Force staff were not particularly concerning. “We are not seeing any immediate impact from those strike headlines,” Cooper said. “We have handled a significant level of disruption over the last two and a half years and we will continue to do so.”

On the Beach also announced that Cooper, who founded the firm in 2004, would be stepping down from his chief executive role and would be replaced by the chief financial officer, Shaun Morton, within the next year. On the Beach shares were down 4.6% in afternoon trading.