Give Me A Reason

A thought-provoking moment from the "Majorca Daily Bulletin" yesterday. Well, it provoked my thoughts; I can't speak about others. On the tourism front, a professor in Barcelona is saying that, while the top and bottom ends of the market should be fine next season, the middle market is more likely to shrink. He explains this by comparing tourism with the situation in the car sector where mid-range car sales have fallen but the top end is still growing.

It's an interesting comparison, but I'm not entirely sure I agree. Intuitively, one would anticipate that anything other than the top end would decline next year, but there are plenty of messages floating around that suggest otherwise. Firstly, that bottom end. One has to be careful as to definition, but locally (in Alcúdia at any rate) it seemed that this year it was the very economic market, typified by the exclusive all-inclusives, that was taking a hit. I'm not sure that Bellevue, only a third or so of it all-inclusive, had a particularly brilliant season either. Yet some other hotels in the same area that were offering half board or self-catering were doing fine thanks very much. Ok, that this was this year, but there is a general feeling that, despite the economic problems, people will still fork out for their annual holiday. The car analogy may not be that appropriate, as the purchase of a new car is something that can be deferred. So, you might say, could a holiday, but there is perhaps less rationality when it comes to buying holidays or not.

There was, though, the evidence in August of hotels that were making special offers; hotels like Molins in Cala San Vicente or the Daina in Puerto Pollensa. I guess you would define these hotels as catering for the middle market, but again one has to be careful with one's classifications. Alcúdia, it might be said, has a strong lower middle-market presence than does Puerto Pollensa, but that lower middle-market is not the budget end, which the professor is saying is one that is likely to grow. From what I understand, bookings within this market for 2009 are pretty good. Right down at the budget end of the market, let's be blunt, the contribution to the wider economy is relatively small, especially if much of this market heads to an all-inclusive. The crucial factor for next year, especially where the British market is concerned, could well be the state of the pound, and the exchange rate against the euro could yet get worse. If the Brit holidaymaker does decide to go ahead with his fortnight in Mallorca and Euroland, there must be some concern as to spend, more so than has been the case over the past two to three years.

One hears calls for bars and restaurants to take account of the exchange rate and to price accordingly. It's all well and good, but why should they? Indeed, how can they? Owners may be well aware of the sinking pound, but they are also aware of their own costs. It would surprise me if one were to find significant price hikes next season, but it would surprise me even more if there were to be reductions. This said, if the Brit holidaymaker has yet to decide on his destination for next year, that exchange rate could yet become the loser in the penalty shoot-out between Mallorca and the likes of Turkey or Croatia.

There is now also the issue of VAT. The two and a half per cent reduction may be designed to stimulate consumer spending, but will it make much of a difference to the holiday decision-making purchase? On a two thousand pound holiday, the element for VAT means that, net, the holiday actually costs a bit over 1700 pounds. With a reduction, the final cost would now make the holiday some 40-odd quid cheaper. An incentive? It would be questionable even if it were true. The VAT calculation is far more complicated than I have just outlined, owing to factors such as the tour operators margin scheme (and don't ask me to try and explain that). If there is any reduction it will not even be in this range, and chances are that it wouldn't be passed on anyway. Forget it.

Nope, the real issue - that shoot-out decider - is the pound in your pocket, or rather the pound in your pocket when it is removed and then presented in exchange for a euro. The problem is that you might get just a euro, or even less. That would be worrying; if it went below one euro that could be the point at which the holidaymaker crosses the psychological barrier, and crosses off Mallorca from his list of destinations. But there again, rational though that might be to do so, who said that the holiday decision was solely a reasoned one; the holidaymaker needs to be given little reason to have that holiday and in Mallorca, despite the state of the pound. The middle market may not grow next year, but it may also not fall. Or am I being irrational in believing so.


QUIZ
Yesterday's title - Kaiser Chiefs, "Ruby" (http://www.youtube.com/watch?v=JMDcOViViNY). Today's title - oh, no apologies, it is Andrea after all. So therefore ...

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