June 30, 2008 / 12:38 AM / 9 years ago

Feeble pound shifts Britons' holiday targets

LONDON (Reuters) - Vodka, the famous Starowka quarter and the Palace of Culture commonly draw tourists to Warsaw, but John Bentley had a more mercenary motive for holidaying there recently -- it wouldn’t break the bank, despite sterling’s weakness.

<p>Tourists enjoy the warm weather on a beach in the Black Sea coast city of Varna, about 450 km (280 miles) northeast of the Bulgarian capital Sofia, June 25, 2008. As the summer holiday season begins, the sterling's frailty coupled with a mind-boggling rise in airfares due to soaring oil prices are bringing subtle changes to Britons' holiday plans in Europe -- by far their most popular playground. Picture taken June 25, 2008. REUTERS/Stoyan Nenov</p>

As the summer holiday season begins, sterling’s frailty coupled with a rise in airfares due to soaring oil prices are changing Britons’ holiday plans in Europe -- by far their most popular playground.

With Britain’s summer shaping up cold, wet and expensive, there is not much sign of a big shift to stay-at-home tourism: visits to Europe by UK residents in the year through to April slipped only by 1 percent to 55.2 million, official data show.

That figure is easily double the 23.6 million Europeans who holidayed in the UK during the same period, suggesting Britons for now at least remain keen to flock to Europe.

But while holiday mainstays like France and Italy -- euro zone countries whose single currency hovers near a record high against sterling -- remain a magnet for UK tourists, cheaper European destinations outside the euro zone are gaining in popularity.

Awaiting his flight at London’s City Airport earlier this month, Bentley said the weak pound was making it hard to travel in the euro zone.

“You feel it more than you did one or two years ago,” he said. “It definitely makes you think twice about costs when you get (to your destination).”

Sterling is stuck near an all-time low to the euro around 81 pence, nearly 20 percent weaker on the year. The pound has been pummeled by a slowing UK economy as a struggling housing market weighs on consumer confidence and growth.

A weak currency makes travel abroad painful, as tourists receive less when they exchange their money in many places. Travelers from the UK are already shelling out for fuel surcharges, as oil prices have nearly tripled in the last 18 months.

“UK tourists have woken up to the fact that the euro is stronger than it was last year, but it’s not dissuading people from going on holiday,” said Mark Nancarrow, managing director of financial services at UK leisure travel group Thomas Cook.

Travel website Expedia says it has seen a rise in popularity for eastern European countries that don’t use the euro among UK customers, as sterling is not as weak against their currencies this year as it is against the euro.

“Demand is definitely shifting,” said Dermot Halpin, president of Expedia in Europe. “Destinations outside the euro zone which are mid-haul rather than long-haul, such as Turkey and Bulgaria, are on the up.”

TURKEY, UNITED STATES

Travel to Turkey in particular has become more popular, in part because the accommodation costs remain affordable even as sterling hovers around a four-year low against the Turkish lira.

<p>A woman walks near an a advertisement billboard in the center of the Black Sea coast city of Varna, about 450 km (280 miles) northeast of the Bulgarian capital Sofia, June 25, 2008. REUTERS/Stoyan Nenov</p>

Turkish figures show UK arrivals to the country rose nearly 10 percent in May from the same month last year, having climbed 17 percent since January. The United States is also gaining in popularity because of a weak dollar, even though it is much further away.

The changes are not yet dramatic: it’s business as usual at discount carriers which mainly service short- to mid-haul European and UK flights, with Europe’s largest carrier Ryanair reporting a 22 percent increase in passengers on the year and No. 2 easyJet saying passenger load rose more than 13 percent.

“We are not seeing any impact from the euro in terms of demand,” said a spokesman at easyJet, although he did not rule out a knock-on effect in future.

At the same time, sterling’s slump -- in addition to higher inflation pressures -- has required UK tourists to spend more overseas, travel operators say, pointing out that currency transaction values have risen in the past year.

To some extent, companies are hedged: Thomas Cook says it locks in the prices for package trips -- which comprise roughly 40 percent of all UK trips to Europe -- a year or more in advance, which means that it has not had to pass on the impact of weak sterling to its customers so far.

Although the company’s currency exposure is fully hedged through the end of the year, Nancarrow said costs surrounding next year’s summer season had risen, mainly due to oil.

The prospect of higher prices in the future makes some analysts skeptical whether Britons will sustain their voracious appetite for travel.

“So far we haven’t seen any changes to annual (UK) booking levels, but the concern is that once long-booked summer holidays are out of the way the propensity to travel will decline,” said Douglas O‘Neill, transport analyst at Blue Oar Securities.

But for now, rather than pinching pennies, Nancarrow at Thomas Cook said UK tourists are spending more: the average euro transaction value climbed 29 pounds in roughly the past year to 344 pounds from 315 pounds.

During that period, the euro has rallied to 79 pence from 68 pence, meaning that Britons in the past 12 months have to pay more for food, entertainment and shopping when they get to their holiday destinations in the euro zone.

Even though the weak pound has not held Britons back from traveling abroad, Nancarrow said some people may cut down on short weekend stints abroad to save up enough to splash out properly on the annual summer holiday.

And Halpin was skeptical that the feeble pound would prompt more Britons to spend their summer holidays at home, where the cost of living remains among the highest in the world and petrol prices have risen 20 percent from last year to a record high.

“Staying at home (in the UK) doesn’t mean it’s going to be cheaper. It’s not a very cheap place to holiday,” he said.

“You’re still likely to get a bargain traveling, for example, to the U.S. or one of the non-euro zone countries.”

Additional reporting by John Bowker; Editing by Sara Ledwith

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