When news hit the wires that XL Leisure was in serious financial difficulties it came as a shock to many outside of the industry but inside it was a different matter. Since the demise of the UK’s third largest holiday company was confirmed, Dermot Blastland has stepped into the fray and suggested that those within the industry knew the airline was in trouble some time ago. Mr Blastland is the managing director of TUI which is the number one holiday firm in the UK and incorporates First Choice and the Thompson operations. So what are the long term implications?
The fact that up to 90,000 customers were left stranded overseas has led to a flight to quality with the two leaders in the UK reporting very healthy enquiries and increased sales since the demise of XL Leisure.
While there has been talk of a rescue package for the group this seems very unlikely to succeed with the group’s reputation now in tatters and the ‘middle ground’ of the holiday sector now in turmoil. It seems as though the flight to fancy and the strength of some of the smaller niche players has heaped more pressure on those who operate in the ‘general’ holiday market and have no ‘unique selling point’.
Taking a longer term view point it seems as though the authorities will be forced into a major shake up of the holiday sector as this latest collapse has brought many of the industry’s weaknesses to the fore. Those who booked their holidays through ATOL registered operators and paid for their ‘flights only’ deals with a credit card should have their losses reimbursed. However, those who booked ‘flights only’ or organised their own accommodation and did not pay by credit card have literally lost the lot. There is now a crisis of confidence in the market with consumers unsure who is covered, what they are covered for and how they would get home if they were stranded overseas.
What are the implications for overseas property markets?
While the XL Leisure collapse has grabbed the headlines it is the under current within the industry which is causing more concern to the property investment markets. Access is a vital element of any successful property market and if consumers feel uncertain about flying to resorts and new property markets overseas this could dampen interest overnight. A dampening of interest would then filter through into the pricing of properties and could, in extreme circumstances, see some new and developing property markets cut off in their early stages of growth.
There have been many reports over the last decade that have highlighted the impact which new flight routes can have on an area, whether this be the South of Spain, Bulgaria, Brazil of even somewhere a little closer to home such as Scotland. Indeed there have been many reports of financial assistance for airlines (from local authorities) in order to make a particular airport look more attractive – such is the impact that it can and does have on the local community.
Many people will argue that access by air is only one of the elements required for a successful property market, and they are correct, however, growth in the budget airline industry in particular over the last decade has had a major impact. We are now at a situation where it can be quicker to fly to Spain from many areas of the UK than travel by road to London – such has the affordability and access to budget, and more traditional airlines grown in recent years.
What are the additional implications for the property market?
While less tourists will quickly translate into less demand for property from overseas investors and see prices held back there are also many implications for the local community. Many property markets around the world, especially the new additions to the property investment radar, are often built around the tourist market and overseas visitors. Falling numbers will see less income flowing into the local economy which then has longer term implications for employment and consequently local demand for property (or the affordability factor) can be dented.
As soon as one access element is removed from ANY property market the attractions of the area will diminish in the eyes of many investors. One example is Northern Cyprus which was for many years cut off from the ‘outside’ world to a certain extent with very few direct flights to the region. However, as relations with the South have softened (they are meeting later this year to try and broker a long term peace deal) we have seen more airlines announcing direct flights to the country. As you might expect this has had a major impact not only on the local community but property prices in the region.
The Demise of XL
The demise of XL Leisure has the potential to turn into a real crisis of confidence for the holiday and airline sectors with protection not always as strong as we are led to believe. But it is not just the overseas holidaymakers who have been spooked by the events, we are seeing more and more overseas travellers concerned about the security of the airlines they have been travelling with for many years.
This lack of confidence has the potential to explode into something a lot more serious for the overseas property market. Falling tourist numbers will impact directly on not only demand for property in many parts of the world but local economies and communities. It is very difficult (if not impossible) to make a substantial profit in a property market which is connected to a weakening economy – as we have seen in many parts of the world over the last 12 months.
The brutal facts are that the more visitors to a region, anywhere in the world, the more interest in local property (whether this is directly for holiday homes, or indirectly for hotels and resorts) and the more income will flow into the region. Cut off this supply of interest (whether for a short while or longer term) and there are major implications for employment, property and general prosperity in the area. Access is King and any property market which is affectively cut off from a supply of new blood will struggle to say the least!