Is travel set to get cheaper?

Several factors converged last year that should have a positive impact on travellers, especially those from Britain or the United States.

The divergent state of the global economic recovery left those relatively stronger economies in a better position than others. Low inflation meant that food and cost of living was less, low interest rates left little incentive to save and plenty to borrow. Comparative currency costs swung away from each other, with forex traders driving problem currencies ever lower and championing the dollar in particular. Taking a look at a currency trading website* can reveal some interesting insights.

Those with a penchant for Russian travel – and the perseverance to holiday in a country that’s far from devoted to tourism – have seen the biggest change. The rouble spent the last six months of the year losing value, and despite a late rally ended up worth around 40% less against the pound and 45% less against the dollar.

Several other destinations also saw huge moves, however. In the final four months of the year the Australian dollar fell over 8% against the pound and 12% against the USD. The yen saw similar movements against the euro, and several emerging or exotic economies.

That all happened last year, but is the picture set to continue in 2015 and beyond? One of the key characteristics of 2014 for investors was the question of whether the UK or USA might raise their interest rates above the current rock bottom level. So far, central banks in both countries have been obstinate in their refusal to bow to pressure, but as economic figures continue to improve calls for interest rates to rise will get only louder.

Which will be bad news for anyone looking to borrow in order to pay for their trip, but good news for anyone with a vested interest in the value of their currency. The long standing low interest rates around the world have quashed investment returns in all but the riskiest areas. With a dearth of alternative areas for investment, traders are likely to pile into any advanced economy that raises its interest rates first. If that happens in 2015, canny travellers could take advantage for a cheaper trip.

But, of course, spending money isn’t the only cost to consider when booking a trip: you have to get to your chosen holiday destination, after all. Happily, the news here was also positive in 2014. The last half of the year saw the value of oil go into a tail spin, tumbling almost 50% to around $55 per barrel at the end of the year.

A low oil price is good news for airlines, as it leads to massively reduced prices for aeroplane fuel. The fall in oil price provided a rare glimmer of hope for air travel in an otherwise poor year – 2014 saw budget airlines take evermore business off of their high end rivals, and saw several high profile tragedies rock the industry. The chance to pass on savings to the consumer could see both passengers and airlines have a positive year.

How long the lull in oil prices will continue is hard to predict, and dependent on a number of factors. Like with all currencies, getting the timing right for the best possible deal will be tough, but a volatile 2014 has left some great opportunities for travellers.

*Spread bets and CFDs are leveraged products and can result in losses that exceed your deposits. The value of shares, ETFs and ETCs bought through a stockbroking account can fall as well as rise, which could mean getting back less than you originally put in.

This information has been prepared by IG, a trading name of IG Markets Limited. The material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.