Scaling the heights: fundamentals of the leisure industry remain strong but the industry is far from near its peak potential writes Grant Hearn, Travelodge chief executive

Leisure Report, Feb, 2008 by Grant Hearn

2008 can be a year of change and a year of major growth for the UK leisure and tourism industry. Really.

Despite some commentators predicting difficulties ahead for the economy I am confident about the future prospects for the sector. Those instincts are conditional on three factors--a continuation of encouraging underlying trends, a new government approach and strategy for tourism and a further galvanisation of industry spirit to foster greater innovation and development.

Firstly, let us examine the fundamentals. International visitor numbers taking holidays in the UK continue to grow. Average growth in visitor spending in the UK has been 7% to 8% in the last three years. 2007 figures will drop slightly but the basic trend of attracting more visitors continues.

London at the moment is a tourism phenomenon. Enjoying some of the highest growth rates in living memory, the capital's hospitality sectors are in rude health. Brand surveys reveal that London is now a cultural, fashion, economic and sporting super city. Tellingly, visitor interest has remained strong despite the high strength of sterling and a higher tax regime for visitors compared to rival destinations.

Building on London's resilience, the city begins its four-year term as Olympic host when it receives the torch from Beijing organisers in August. By guaranteeing global spotlight on the city for a period of four years, a lucrative spin off will surely come as global event organisers seek to host events in the next host city. Between Visit London and VisitBritain, 100 events equal in size to the Tour de France leg that generated 110m [pounds sterling] for tourism, have been identified as future targets for London.

Sadly, a health-check of regional and coastal tourism unveils a less pleasing picture. London's supercharged performance distorts the national tourism performance masking continued decline in domestic holiday trips. We can only hope that a baseline has been reached in its decline and that a reversal in fortune is possible with enhanced investment in product and continued change in holiday fashions as consumers react to the effects of short haul aviation on climate change.

When you compare the leisure performance of regional cities like Manchester, Liverpool and Birmingham to 10 years ago you find compelling evidence that it is possible to reposition and regenerate old industrial locations for modern tourism. Tourism in the city market is growing at around 5% a year and the medium-term prospects brighter as Liverpool and Glasgow prepare to host the City of Culture and Commonwealth Games respectively.

Nowhere has this government failed tourism more than in the seaside resort market. To its shame the government, who preached the rhetoric of enterprise, has used over regulation when strategic intervention is what has been called for.

Its policy of subsidising cheaper air travel by not charging VAT on flights and promoting unlimited regional airports as a so-called economic tool has built up a network of gateways taking tourists and vital leisure spending out of the economy. A decade of Labour rule has saddled the industry with a tourism balance of payments deficit of almost 20m [pounds sterling], compared with 4.5m [pounds sterling] in 1997.

I do not believe the deficit is intractable but if a recovery is to be secured, it requires no less than a wholesale shift in national tourism. Neatly this brings into play my second pre-condition for longterm growth--a change in government leadership and national policy.

When Gordon Brown arrived at the Treasury in May 1997 he very quickly decided that tourism would be a soft source of easy taxes. The facts don't lie--Labour has failed the tourism industry. WTTC figures put our national growth rate in the bottom 5% of the world market and as a result our share of international tourism receipts is 9% lower today than 1996. In that time we have had seven tourism ministers and two strategies, a 10-year freeze in overseas marketing funding, failure to develop an adequate market intelligence system and a Cabinet that holidays anywhere but in Britain. To add insult to injury, Darling has cut the tourism marketing budget by 18%, a year before we begin marketing Britain as the host of the 2012 Olympic Games.

I choose my words carefully when I say Labour's stewardship of tourism has been lamentable. Worst of all is that the economics of making a tourism investment are so compelling a child could understand them. Official figures put the rate of return on tourism marketing capital expenditure at between 30:1 and 40:1. Astonishingly this is not attractive to the Treasury, which saw fit to cut both VisitBritain and the RDA's budget.

Instead of considering policies that drive competitiveness and profitability the Treasury has abolished HBA, flirted with a bed tax and withheld the funds that are absolutely critical to securing the 3bn [pounds sterling] tourism legacy forecast from 2012 Games.

Recently, I joined 10 CEOs in writing to the prime minister calling for an urgent and full review of the situation. He declared in the summer there was no better place to take a holiday than Britain. Now he has to make Britain the best place in the world to operate a tourism business.