Author: Charlotte Gill

In his last Budget, Chancellor of the Exchequer, George Osborne, announced tax changes that will affect many of those who invest in buy-to-let property in the UK – meaning a loss in higher rate tax relief for many of them, which could have the potential to wipe out their profits entirely.

From 2017, investors who pay 40 percent (or more) tax will no longer receive a reduction for finance interest at 40-45 percent. Instead, by 2021, these tax payers will only be able to claim 20 percent; this means the average 45 percent rate tax payer who pays £12,000 interest on a buy-to-let property will lose over £3,500 each year – around 30 percent. Depending on circumstances, this could actually lose the taxpayer money – especially if interest rates are hiked up before Christmas, as expected.

Many of these investors are now looking overseas for a return on their money, known as ‘fly-to-let’ – considering the current strength of sterling and the relatively stable recovery of the property markets in many parts of Europe.

Elaine Ferguson, Head of the Resource Centre at OverseasGuidesCompany.com, explains why:

“Many investors are waking up to the loss of their higher rate tax relief on buy-to-let investments in the UK, looking further afield for profit – an overseas market that has been a bit quiet in recent times.

“We see three key reasons why overseas property could be the answer for UK investors:

Better rental returns
Even before the effects of these tax changes come into play, recent reports have already suggested that the UK should be put near the bottom of the global league table for rental returns.

Better capital gains
The economies of many popular overseas destinations have been slower to recover than the UK, so are behind in both the business cycle and property price rises. In Spain, for example, property prices have only just started rising. In France, they seem to be finally approaching the lowest they have been in many years – meaning that bargains can still be had for would-be investors, especially when you consider how strong sterling has been throughout 2015 so far.

A sunnier investment
A fly-to-let investment also provides the considerable bonus of you and your family being able to use the property for your holidays.”

It is estimated that more than 23 million people will set sail aboard a cruise ship in 2015. Organisers are attempting to attract holidaymakers by adding thousands of port calls in “new, exotic locations, especially in the fast-growing Asian market”, according to the Cruise Lines International Association (CLIA) annual report.

Adam M Goldstein, CLIA Chairman and President/COO of Royal Caribbean Cruises, added: “From new ports around the globe to the investment by CLIA’s member cruise lines in new, innovative ships, it’s an exciting time for the cruise industry and cruise passengers. This year will prove to be another step forward for the entire industry as our members continue to strive to make cruising the best overall vacation experience.”

But not everyone seems to share Goldstein’s positive outlook. 61 percent of cruisers hail from the US, with the next biggest market behind that being the UK and Ireland, making up just eight percent. In simple terms, what this means is that there are a whole host of people from around the world that have never been, nor have ever shown any interest in being, a passenger on a cruise ship. And in a market that is struggling to attract a new generation of traveller, as well as having to contend with the fact that many of its loyal customers are ageing fast, it’s becoming clear that cruise industry has some fairly choppy waters ahead of it.

The speciality cruise market, which Branson’s vessels will join, is one of the few industry segments that has seen positive growth in recent years

Image crisis
Part of the problem, according to Arnold Donald, CEO of cruise company Carnival, is that those who opt out of jumping aboard a cruise ship do so based on “negative, preconceived notions of what cruising is”. A big obstacle that the industry is currently trying to overcome, therefore, is how to convince people to try something that they already believe they won’t like.

“It’s clear to me that as an industry we have not done a good enough job effectively communicating to the public… To those who don’t know what cruising is”, he told reporters in a conference call last year. “It’s not just 3,000 people at a buffet line and super crowding.”

It is also clear that the industry is going through a bit of an identity crisis – a fact made all the more obvious when Donald himself is unable to offer a definition to the contrary during the interview. “We just haven’t effectively conveyed [what the experience is]”, he continued. “And also we haven’t effectively conveyed the value of what cruising is compared to land vacations. Getting a neighbour or a relative saying, ‘Look, it’s not what you think it is—and you’re coming with us the next time’… There’s nothing more powerful than that.”

Put simply, if the CEO of a cruise company is struggling to tell people why they should spend their holiday aboard one of his ships – especially with so many other destinations and options out there for holidaymakers to choose from – then it is no wonder that the industry has found itself in such a difficult situation. But it is one that it must attempt to rectify, especially if it wishes to make ground in China’s burgeoning market, where few travellers have any idea what a cruise actually entails, or indeed what they should expect from one.

About-turn
But all is not lost, and if there is one man who can breathe some much-needed life into this image-conscious industry, it is Sir Richard Branson. The founder of the Virgin Group recently announced his plan to shake up the market, with his first ship scheduled to set sail from PortMiami in 2020 under the Virgin Cruises banner. To further emphasise his commitment to this new venture, he has already entered into a binding agreement with the Italian shipbuilding company Fincantieri and commissioned the construction of three new mid-sized ships.

“This is a very exciting day for Virgin and travellers around the globe”, Branson said in a statement on the venture. “We now have the right partners in place to build a world-class cruise line that will redefine the cruising experience for good. The Virgin Cruises approach will appeal to cruisers and non-cruisers alike, and we look forward to being in Miami and delivering an experience for people who want a new way to cruise.”

Five years ago, Royal Caribbean built the world’s largest cruise liner, known as the Oasis of the Seas, which weighs approximately 225,000 tonnes has the capacity to accommodate 6,300 passengers. Branson’s decision to build three smaller vessels rather than entering into the market with a super-sized cruiser of his own is an early sign that he has done his homework, as according to the CLIA, there is a growing trend towards ships that offer unique designs, amenities and experiences. In fact, the speciality cruise market, which Branson’s vessels will join, is one of the few industry segments that has seen positive growth in recent years, growing as much as 21 percent annually between 2009 and 2014.

Making waves
Rather than attempting, and then failing, to convey what Virgin Cruises is all about – like so many of its competitors are currently struggling to do – Branson and his team want customers to tell them what they want out of a holiday on the high seas, not the other way round. “We are committed to making waves in the cruise industry”, said Tom McAlpin, President and Chief Executive of Virgin Cruises, in an interview with Travel Weekly. “We’ve gone out to our customers to ask them what they want to see from our ships.

We’ve designed the shell and the skeleton of our ships and we have plans for what might feature on each deck, but we’re really keen to get feedback to see what people want us to create.”

Customers will have more than enough time to give their feedback, as the three mid-sized ships, which weigh roughly 110,000 tonnes each, are not going to be ready until 2020, 2021 and 2022 respectively. Virgin Cruises management might be waiting for the customer input in order to tailor the experience accordingly, but one thing that they are absolutely sure of is the market that they want to target.

“Virgin Cruises will be for the young at heart and we will be very focused on the customers we want to attract”, added McAlpin. “Too many of cruising’s larger brands try to be something to everyone and end up not standing out and diluting their message… We’re going against the grain because we’ve decided not to build larger ships – instead, we will have mid-sized ships that will be very intimate.”

The venture is still in the early stages and it will take some time before travellers will get a clear picture of what Branson and his team have in store. However, if there ever was a businessman and a brand capable of making waves in a market burdened by such a massive identity crisis, then Branson and his team will surely be the ones to achieve it.

Thomas Cook is attempting to capitalise on the growing outbound travel market in China by participating in a joint venture with one of the country’s biggest and most established conglomerates, Fosun International. The UK firm’s eagerness to get involved in the Chinese travel market is understandable: 140 million Chinese travellers are expected to take a trip abroad in 2015, and they’re likely to spend more than $188bn between them, according to researchers at Attract China.

Frank Meysman, Chairman of Thomas Cook, has expressed his delight over the newfound partnership with the Chinese powerhouse. He said that the merger is “designed to bring significant benefits to Thomas Cook and its shareholders”, and “represents a major milestone” in the company’s 174-year history. But this deal would not even be possible just a few years ago: until very recently, non-Chinese companies were not allowed to start a tour operator for Chinese people travelling abroad. Professor Wolfgang Georg Arlt, Director of the China Outbound Tourism Research Institute (COTRI), told Business Destinations: “The Chinese wish to hold onto their monopoly over the market. There are some joint venture companies like TUI, who were given a license a few years ago to establish their brand, but because nobody had heard of the company in China, it became very expensive to do so. Thomas Cook has decided to do something big in the market and they might well be correct for doing so, because sooner or later this monopoly of Chinese companies in the tourism market will fall.”

Getting to know a market that didn’t exist until a few years ago makes it difficult to know where to start

As the barriers to entry loosen over time, those companies that get in on the ground floor stand to make a lot of money. But getting into the market early is only half the battle: for those non-domestic travel operators who get a foot in the door, the next step will be getting to grips with this new demographic and tailoring their offering to suit their specific tastes.

Big spenders
But getting to know a market that didn’t exist until a few years ago makes it difficult to know where to start. In fact, according to Arlt, while the concept of travel was always a crucial part of the education process in Imperial China, “outbound travel has no tradition” whatsoever. During the Ming Dynasty, one of China’s most famous travellers and geographers was a man called Xu Xiake. Over the course of 30 years he travelled extensively throughout China, documenting his journey in The Travel Diaries of Xu Xiake. But, as Arlt explained, he was no Marco Polo – the Chinese explorer never venturing beyond China’s borders.

The concept of international travel is relatively new to China. Outbound travel may have begun in the People’s Republic in the late 90s, but the market has only really exploded in the last three to four years, with the potential to expand even further. 140 million Chinese tourists may sound like a big number, especially as most countries’ total populations don’t even come close matching this figure – however, that number only represents a little over 10 percent of China’s total population.

This group of travellers is comprised of the country’s emerging middle-class and other affluent citizens, who, due to the prolonged period of positive economic growth that China has experienced in recent years, have grown confident enough and wealthy enough to spend more than $8,000 on a trip of a lifetime. The fact that only the top 10 percent of the population possesses the necessary income to travel abroad not only exemplifies how far the Chinese economy has come in such a short space of time, but also how much further it has to go, according to COTRI’s director.

“[The numbers show] that in the last few years, the Chinese economy has been growing very quickly, but also that the wealth distribution is very uneven”, said Arlt. “If you look at the average GDP per person for the whole of China you would wonder how they ever managed to spend all this money on travelling, reflecting the massive income inequality that exists there.”

Balancing act
This massive inequality that is present in China is one of the reasons why its citizens outspend other international tourists by 21 percent. However, there are many other factors that contribute to Chinese tourists’ extravagant spending habits: “[China] is the biggest market in the world right now, and it continues to grow even though the economy is slowing down, because Chinese travellers are not going abroad for a holiday – they are not ‘holidaymakers’ in the traditional sense”, Arlt explained.

For starters, while Chinese travellers may possess a lot of disposable income, they are short of time in which to spend it: unlike in Europe, the amount of statutory annual leave in China is extremely low, and is primarily based on cumulative working experience. An employee who has spent more than one year, but less than 10, at a company will, on average, be granted just five days of holiday. International travel has also become an important component in the general lifestyle and consumption pattern of this affluent class, as in China the concept of keeping up with the Joneses is as strong as anywhere else on the planet.

“In China, ‘face’ is a metaphor for a person’s social standing among their peers”, according to an Attract China report. “Western brands and, more importantly, where they are purchased can help raise a person’s standing within their social circle.”

Moving with the times
Like all travellers, the Chinese want to visit cities that embody the essence of the culture and country in which they are situated. The UK city of York and its surrounding area is a popular site for Chinese tourists, because for them it is ‘quintessentially English’. The city has since marketed itself as such to specifically attract affluent Chinese visitors.

Earlier this year, one of the most famous pop stars in China, Jay Chou, got married in Selby Abbey in Castle Howard; a satellite town of York. Coverage of the event was splashed all over Chinese social media, and over the weekend of the ceremony there were more than 550 million searches on the Chinese equivalent of Google, called Baidu, about the wedding. Ever since, thousands of Chinese tourists – mainly made up of young women – have visited the abbey in order to get a glimpse of where their idol tied the knot.

In spite of the economic slowdown that the country is experiencing, Chinese outbound travel is expected to grow. So far however, both European and US tour operators have struggled to capitalise on this burgeoning market – mainly because they appear to not fully understand the Chinese traveller. “Nobody is doubting that this market is important, but still most tour operators are looking at package tours, when the market has in fact moved on considerably since then”, according to Arlt. “The majority of the tourism industry in Europe has always been two or three years behind the development of the Chinese market. The danger of this is that, now that the Chinese can travel everywhere, there is no country where they have any barriers to entry anymore.”

Last year, the amount of tourists visiting Europe doubled. However, if the region wants to see that number continue to grow, then travel companies need to stop concentrating on the low-hanging fruit and instead tailor their services to suit the tastes of this new market. It will be interesting to see how Thomas Cook’s joint venture in China will fare, but one thing is certain: there is still a lot of work to do and much money to make from China’s tourism.

For as long as there have been Americans, there has been American tourism in Europe. While people once flocked westward across the Atlantic in search of a better life in the New World, the ancestors of those making the trip had previously flowed in the opposite direction to observe a different life in the Old World. According to historian Christopher Endy, by 1885 over 100,000 people a year were already travelling from the US to Europe for the purpose of tourism.

The Hôtel George V in Paris became a popular destination for wealthy American tourists in the inter-war years and, before it became a popular destination for intra-European tourism (and while bitter feelings towards Franco’s regime still lingered in Europe), Americans were flocking to Spain in the years after the Second World War, recounts Endy in his book, Cold War Holidays. Lured by a perception of Europe as a historic place and a wish to visit the homeland of distant ancestors and relatives, Americans have continued to visit ever since. In 2013 alone, over 11 million US citizens travelled to Europe, more than any other region outside of North America, with the Caribbean coming in second with the significantly lower figure of around six million.

The path to parity
Americans paying a visit to the Louvre or Checkpoint Charlie in the past year have seen the costs of their trips significantly reduced as a result of a rising dollar and weakening euro. Goldman Sachs has repeatedly published and revised predictions concerning the dollar and euro reaching parity by the end of 2016 and, likewise, other analysts have made similar predictions: Hamish Pepper, a foreign exchange strategist at Barclays, said in an interview with The Telegraph in March, “I think it’s only a matter of time before we reach parity, and we will do so by the end of this year.”

The reason for this convergence is the result of two separate economic trends on either side of the Atlantic. The dollar has seen its fastest price appreciation in 40 years, with last year’s fracking boom helping to push its value up. Likewise, the US economy – while still not quite pushing ahead at full capacity – has experienced relatively decent growth in a world of comparative stagnation. In contrast, the eurozone has been suffering from a crisis within its own borders, forcing it to keep its currency devalued. To achieve this, the European Central Bank (ECB) engaged in quantitative easing and held interest rates low, with no chance of a rise in sight.

The move towards parity between the euro and the dollar looks even more likely, as the US Federal Reserve now seems almost certain to begin raising interest rates by the end of the year. This in turn will attract more foreign capital, increasing the demand for the dollar and causing it to appreciate further against the euro. At the same time, as the difficulties in Greece continue to unfold, the euro only looks set to depreciate further. “The European Central Bank will push the euro lower… if it takes further action to keep peripheral eurozone countries safe from the spread of Greek-inspired financial risk”, said money analyst website Pound Sterling Live. “This is because the prime driver of the euro remains the European Central Bank’s policy on interest rates, and, importantly, quantitative easing.” According to one report, the euro could even fall below the value of the dollar by 2017. This change is dramatic when one considers that the euro was worth $1.60 at one point in 2008, and was worth roughly $1.30 for much of 2014.

Tempting tourists
Conventional economic wisdom would have it that the rising strength of the dollar versus the euro coincides with an increase in US citizens visiting Europe for a holiday. The actual link between exchange rates and tourism demands remains relatively under-studied and under-researched. As a 2014 article by Glauco De Vita in the journal Tourism Management notes, “the paucity of research on the role of exchange rate regimes on international tourism flows is conspicuous, especially when one considers the research attention that the wider literature has already devoted to exchange rate regimes, in terms of their effects on trade.”

Despite the small number of studies, among those that do exist it remains mostly beyond dispute that foreign exchange rates are an important determinant of tourism expenditure and demand. Exchange rate “inclusion in the tourism demand equation, therefore, has never been in dispute”, De Vita wrote. “A devaluation of a country’s currency makes inbound international tourism less expensive, and, consequently, increased tourist flows to that country should result. Conversely, an increase in the value of a country’s currency will make international tourism more expensive and cause a reduction in inbound tourist flows.”

When looked on as a general trend, the purchasing power of the dollar has a strong correlation with tourism spending. As The Financial Times reported – making use of statistics from the Bureau of Economic Analysis – the US “tourism trade surplus collapsed between 1997 and 2002, which happens to coincide with the last major bull run of the dollar. Similarly, the restoration of the surplus seems to have been anticipated by the dollar’s subsequent depreciation, while the downtick on the far right side of the chart seems to coincide with the dollar’s recent surge.”

Likewise, The Financial Times continued, “increases in the purchasing power of the dollar flow through almost immediately to changes in net tourism spending by reducing the tourist spending of foreign visitors to the US and by pushing Americans to spend more money travelling abroad, while declines in the value of the dollar have the opposite effect”.

Continental purchasing power
This hasn’t escaped the attention of the American press, which is urging its readers to make use of the exchange rate difference between the two currencies. In March 2015, The Washington Post proclaimed that it was “a great time for Americans to travel internationally”. It went on to say that “the economic slowdown in Europe has led to an overall decline in prices… While prices rose slightly in Germany and France – 0.1 percent – prices were down in Italy, Spain, the Netherlands and many other countries. So shoppers can find bargains in accommodations, food and local products. Meanwhile, the stronger dollar makes the differences even bigger. The dollar is worth 21 percent more than it was a year ago against the euro”. Kurt Crowl, Senior Vice President of Connoisseur Travel in Washington, commented that, partly as a result of these differences, “on the leisure side, Europe is really, really hot”.

Taking advantage
Likewise, The Wall Street Journal also noted in March 2015 that the “strength of the dollar against the euro has created the best buying opportunity of the decade for Americans going to Europe. Even famously expensive cities like Paris have seen prices plunge”. These economic trends have significantly cut the costs for some: The Wall Street Journal cites the case of two retirees from Seattle, who said that they had “been searching our life away for a trip to Italy”. They estimated that a month-long holiday in Europe would cost them around $10,000 each. But thanks to cut costs, they have been able to book a trip to Rome, followed by a weeklong stay at a villa in Tuscany and a series of shorter visits to other Italian cities, before heading to Paris and then London, all for a grand total of $4,400 each.

As Professor Adam Blake, President of the International Association for Tourism Economics, told Business Destinations, “The price of a trip is a key factor when people choose destinations for travel, and particularly for holidays – significant changes in exchange rates are often very visible ways in which we as consumers can see prices changing”.

The holidaying website Eurocheapo outlines just how much cheaper American tourists will now find Europe. In 2008, a dinner for two when converted to US dollars would have cost roughly $104, whereas in January 2015 it would cost, on average, $76.05. Likewise, hotel rooms per night have slid from $192 to $140. Obviously such prices fluctuate throughout Europe, but in general US tourists have a lot more purchasing power now than they have ever had in previous years.

The answer to Europe’s crisis
Many have already taken advantage of the exchange rate difference: the number of Americans flocking to European countries so far this year seems to confirm that a strong dollar and weak euro makes for an enticing incentive to visit the Old World. The total number of US passports issued in 2014 was 14.1 million – one of the highest rates recorded in recent years – which has led to the total number of US passports in circulation reaching 121.5 million. These number increases are also being felt in Europe’s key tourist sites, with over nine million people expected to visit the Louvre this year.

“Europe feels like it’s on sale this year for Americans”, said Barrie Seidenberg, CEO of Viator, a US-based vendor for tickets to European attractions, in an interview with The Guardian. He went on to point out that advance tickets purchased by US tourists to visit the Eiffel Tower had rocketed 170 percent this year, as well as there being an increase in ticket sales for Rome’s Sistine Chapel. This presents an opportunity for eurozone countries to “improve service quality, develop a diversity of tourism products, prolong tourists’ stays and promote their tourism destinations to Americans”, said Dr ShiNa Li of Leeds Beckett University’s International Centre for Research in Events, Tourism and Hospitality.

History shows us two things: that Europe has always been a popular destination for US tourists, and that American demand generally seems to be sensitive to exchange rate price changes. For instance, back in 2007, when the dollar was at a relatively weak level compared to the pound – two dollars for every pound sterling – the number of Americans visiting London took a dive. As The Guardian reported at the time, London dropped off the list of top 10 tourist destinations for US travellers: “London is a perennial favourite destination for US citizens, however the unfavourable exchange rate has made the UK an expensive choice as the current comparative rankings clearly show”, as Cheapflights’ Group Managing Director, Chris Cuddy, was quoted.

Now, the opposite is true: just as Americans are less likely to travel to destinations where they will suffer a poor exchange rate, they are far more likely to travel to places where they can enjoy a strong one – as they can, and (according to predictions) increasingly will, with a strong dollar and weak euro. This will see more and more Americans roaming the continent’s narrow city streets, much to the benefit of Europe’s somewhat troubled economy.