Written by Stuart Carrington FCA, Thomas Westcott
With the rise of one-click checkout, fulfilment centres and social media trends, we now rarely hear about supply and demand. Which, for someone old enough to have studied economics in the 1980s, is rather strange. Back then, it was the fundamental basic truth that underpinned prices.
Very simply, in the short-term, it means:
- If supply exceeds demand then the price will fall.
- If demand exceeds supply then the price will rise.
Supply and demand may have been fairly simplistic, but, special cases aside, it brought a sense of order and understanding to the accountants, economists and politicians of this world.
Despite its decrease in popularity, we could see an extreme example of how supply and demand can impact prices this summer.
The effects of COVID-19 on the tourism market
The ongoing COVID-19 pandemic has had many social impacts. One of these is an almost complete suppression of our ability to go on holiday. As a nation, we love holidays. Yet, since March 2020, there have been few opportunities to do so, either in the UK or abroad. There is now a huge pent-up demand as a result.
According to the recent Government announcement, the earliest that English demand can be met is:
- 12 April for self-contained UK accommodation.
- 17 May for UK hotels and B&Bs.
- 21 June for foreign travel.
That demand will only keep growing until these hoped-for dates are reached. Every day, or school holiday, that happens before restrictions are eased is another missed opportunity for a break away. This means that more and more holidays will be pushed back into an ever-shrinking pool of available dates later on this year.
And who can say that foreign travel will even be possible from 21 June?
The UK vaccine rollout is going well, but some destinations are way behind. Other countries have specific restrictions of their own and some have an expensive quarantine tacked onto the return home. Add to that the memory of tourists being caught on the wrong side of closing borders, and overseas travel may not be practical – even if it is possible. This puts even further demand on available UK holiday dates and providers.
The impact on British holiday providers
As these dates inch ever closer, supply and demand comes into play for British holiday providers
If supply outstrips demand, then the prices will go up. Logically, as the excess supply looks likely to be massive – the price increases could likewise be steep..
Obviously, the media will cry foul, but that completely misses the point.
That extra price will, in part, represent extra profit. However, we should not forget that any windfall will be desperately needed to pay back some of the eye-watering debt that the sector now faces as a result of losses last year. Supply and demand in holiday hot spots, such as Devon and the wider South West, could be a saving grace for providers this year.
For those of us with a more than passing interest in the economics of the tourism sector, it will be an interesting 2021.
I would be very happy to discuss the implications of these thoughts in more detail with any local accommodation providers. To discuss, or learn more, please do not hesitate to contact me or your local Thomas Westcott office.