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Low oil prices don’t mean cheaper holidays

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But some very good savings are likely for 2016…

Falling oil prices should be leading to a fall in air travel and holiday prices, shouldn’t they? Not necessarily, writes Edward Robertson in TTG Digital.

The continued drop in oil has pushed the price of a barrel of Brent crude to a six-year low of $47.36. Journalists are writing stories about how holidays in 2015 will be the cheapest for years. Customers then turn to travel agents, demanding large discounts on their summer holiday.

Agents are suddenly the bad guys, as they attempt to explain that while the average selling price of a seven-day trip is around 2.5% down this year, consumers are unlikely to see the big discounts that have been predicted.

The biggest factor stopping summer 2015 prices from reducing is hedging, with operators and airlines buying both currency and fuel many months in advance.

“I don’t think there’ll be a lot of savings showing through for the summer, for the client spending money,” says John Tangney, chairman of the aviation committee of the UK’s Association of Independent Tour Operators. “Most operators will have hedged a huge amount of euros for this summer.”

Meanwhile, much of the contracting on hotels will have been done last summer when the euro was stronger than it is today. However, some agents may find better pricing in the dynamic packaging market, where both hedging and contracting can be more fluid.

“This year the prices are going to be higher than they could have been, but we’ll see some very good savings for 2016,” Tangney says.

The best deals may be available via smaller operators, which do not hedge as far in advance as giants such as Tui and Thomas Cook, meaning they can react far quicker to fluctuations in the market. Like many airlines, Cook hedges up to 18 months in advance for fuel, for example.

TTG Digital

[photo courtesy Finnair]

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