Travel and tourism sector braced for further demand and margin squeeze

Headline revenue strength across the UK travel and tourism sector masks underlying fragility in demand patterns. An accelerating late-booking trend is delaying sales and reducing cash-flow visibility, causing operational and cost shocks – such as the recent Heathrow airport cyber-attack, jet fuel price hikes, and rising wage pressures – to cut more directly into margins. 

In August, Booking.com reportedly said searches in July for UK trips within the next six weeks were up 23% year-on-year, while Airbnb reports more Brits are “embracing spontaneous getaways close to home”. Advantage Travel Partnership, the UK network of independent travel agents and travel management companies, notes that the pattern is visible at both extremes – “ultra-late” and “ultra-early” bookings – driven by last-minute deals and early-bird discounts, signalling cost-conscious travellers. Travel within two weeks of booking has increased by 7% in 2025, compared to last year, Advantage Travel Partnership data shows, accounting for 11% of all bookings year-to-date.

The travel and tourism sector is keenly aware of these pressures due to its limited pricing power, as input costs continue to rise, with hikes in employer National Insurance Contributions (NICs) and the National Living Wage (NLW). In April, the earnings threshold for employer NICs was lowered from £9,100 to £5,000 while the employer NICs rate rose from 13.8% to 15%. Further NLW reforms are anticipated in the late-November Budget. Additional increases risk extending pay-compression effects for workers earning just above NLW thresholds, tightening margins and further constraining cash-flow visibility.

These conditions require operators to react quickly to swings in demand. Actions include matching staffing to anticipated demand rather than forward bookings, and investing in practical productivity improvements, such as straightforward automation and self-service check-in. As cash arrives later and wages drift higher, winter performance will hinge on managing the late-booking squeeze. Sales can be brought forward with time-limited offers while minimising margin sacrifice, and aligning working capital buffers with booking trends.

This underlying demand fragility was evident in the market response to Leeds-based travel operator Jet2’s decision in early September to cut winter capacity by 200,000 seats and guide to the lower end of its profit guidance range. Management cited a “less certain consumer environment” and “limited visibility” over bookings. The initial reaction saw Jet2’s share price plunge around 20% in early trading, which rippled through share prices of listed travel operators and airlines. Markets are signalling low tolerance for forecast error at a time when late bookings reduce visibility and lower conviction of sales forecasts. Companies also need to adapt to greater cash-flow lumpiness around peak weeks and rising consumer expectations of both early-bird and last-minute deals. 

Inbound travel is the brightest segment

Fragile resilience characterises travel demand across the UK’s outbound, inbound, and domestic markets, with significant contrasts shaping the sector’s outlook. Outbound UK travel is concentrated on budget-friendly winter sun destinations. TUI reports winter season sales up year-on-year, driven by strong bookings to affordable markets such as Egypt and Turkey. However, only one-third of customers have booked to date, signalling travellers want deals amid economic uncertainty. Operators are actively reorganising package holiday offers and ancillary services to align with these demand trends. 

Inbound UK travel shows the strongest momentum. VisitBritain projects 5.5 million US visitors holidaying in the UK this year, spending £7.2 billion. Canadian visitors are set to approach one million, spending almost £1 billion. During the summer, London hotels notched up record-high occupancy, which was partly attributed to the Wimbledon Championships and the Oasis reunion tour. 

By contrast, domestic travel is softening sharply. Overnight trips in England declined 18% year-on-year in Q2, while overall spending dropped 8%. VisitBritain reported that 7.3 million potential domestic holidaymakers were still undecided one week before the August bank holiday, underscoring affordability as a demand constraint. Delayed booking can complicate operational planning for UK attractions, hotels, and leisure destinations. Regional tourism strain was brought into focus in early September when Visit Kent, the regional tourism promoter, entered liquidation, citing soaring costs and public funding cuts that have widened an unbridgeable financial gap.

Further risk factors

Labour disputes, cybersecurity breaches, geopolitical tensions, and economic pressures all contribute to a fragile operating environment. In mid-July, EasyJet shares fell sharply after a £25 million profit hit, partly driven by escalating fuel costs and disruptive air traffic control strikes. CEO Kenton Jarvis admitted that “no measures will cope when French airspace effectively closes”, highlighting the acute vulnerability of the sector to strike action.

Digital infrastructure is a growing risk factor for the sector. In mid-September, a ransomware cyber-attack disrupted check-in and baggage handling systems across major European airports, including London Heathrow, Brussels, and Berlin. The attack led to weekend flight delays, cancellations, long passenger queues and significant operational costs, while underscoring the airport sector's critical dependency on a handful of third-party global IT providers. In the near term, such incidents risk eroding traveller trust and drawing greater regulatory scrutiny. Over time, they will prompt more investment in cybersecurity resilience and tighter supplier vetting.

Conclusion 

Overall, the sector is resilient – but there are risks that could quickly change outlooks, threatening margins and profitability. Operational resilience, therefore, is the key focus for businesses. For many operators, it looks like it will be another testing winter. BTG Advisory can help your businesses plan across multiple scenarios, refine business plans, support execution, and improve cost controls and efficiency gains. If your business would benefit from independent third-party advice, do not hesitate to get in touch with us today.