Where to holiday according to Economics

When deciding where to spend our hard earned savings on a summer holiday, we may turn to the more conventional methods to help guide our decision: travel reviews, luxurious pictures or perhaps recommendations from friends. However, when deciding where to soak up some sun or explore the best sights, economics may help us to make an educated decision. Far from the simple monetary value of a holiday, economics can help explain and direct our decision making.

If you’re looking for a good exchange rate and a great holiday destination all rolled into one, look no further

Exchange Rates

With the pound taking a pummelling against key currencies like the dollar and euro, travellers would be wise to avoid these parts of the world. A weak pound means less cents on the penny, ultimately forcing you to cut costs. With popular holiday destinations such as Barbados and Spain in use of the dollar and euro respectively, where should you turn to instead? If you’re looking for a good exchange rate and a great holiday destination all rolled into one, look no further than South Africa. Experiencing its own level of political turmoil, the Rand has suffered a deep depreciation of its own. With £1 bringing you in approximately 17 Rand, value for money is apparent. When the Rand depreciation is considered, £1,000 gets you an extra 1,500 ZAR now compared to 3 months ago. By holidaying strategically according to the pound’s strength, holidaymakers can increase the foreign value of their pounds.


As one would expect, holiday expectations are closely linked to economic prosperity – hardly surprising when one considers that a typical four-person holiday costs on average two month’s salary. With the notion of “you earn less, you spend less” firmly set in a prospective holidaymaker’s mind, income plays a critical role when choosing a holiday destination. With current UK wage growth sadly lagging behind inflation for the first time in 3 years, those looking to purchase their holiday will see their pounds not stretch as far. With this in mind, Brits may look to jet off to countries where their earnings growth far outstrip the rise in price seen in the country. Destinations such as Greece offer natural beauty and an abundance of history with an economy shrouded in sub 1% inflation rates. Here, UK wage growth beats inflation by over a percentage point, meaning that spending money will go further for longer. Furthermore, lower income countries like Greece, and also other Eastern European countries, are cheaper than the UK due to lower labour costs, meaning that sterling gets you more “bang for your buck” here than at home.

how do we seek to avoid the political turmoil while relaxing on holiday?

Political turmoil

While more of us than ever are boarding planes and jetting off to far flung destinations, the recent months of political turmoil seek to threaten that. When surveyed, 41% of Britons state that the sterling devaluation resulting from Brexit will force them to change their travel plans. Add this to President Trump’s travel ban rhetoric, and 8 million of us in the UK are instead planning a staycation (a holiday spent in one’s home country rather than abroad). However, for the determined jet-setters among us, how do we seek to avoid the political turmoil while relaxing on holiday? While Nepal may not immediately spring to mind, perhaps it should. After a tumultuous few years featuring Maoist insurgencies, royal massacres and a devastating earthquake, Nepal has settled and begun to thrive again. According to the York Asia Research Network, a multifaceted research organisation, tourists are reporting optimism and vibrancy as democracy grows in the country. If Nepal doesn’t fit the bill, more and more holidaymakers are turning to a stereotypically unfavourable destination: Iran. With inquiries into the country up more than 272% according to Responsible Travel it seems that nomads are willing to displace the common view of Iran in favour of its world class historical sites and unique cuisine. So, if you’re seeking to switch off from the political turmoil that seemingly envelops the Western world; contrary to common sense, you should widen your horizons and seek more alternative destinations.

Economic shifts

While online rental companies such as Airbnb have flourished in recent years, providing a genuine alternative to the big package holidays, this tide may be about to turn. The informal sharing economy is undergoing a major shakedown by governments of key holiday destinations. With the Greek government reporting that it believes itself to be losing €350m a year to this informal sector, it is set to introduce taxes to landlords for short-term lets. Across the pond, New York State has outlawed short-term lets for unoccupied apartments; directly impacting Airbnb’s business model. And for those of us planning a UK staycation, this looks set to get more expensive in the future as the government is to consult on ending tax relief for short-term rental lets. This shift in attitude towards the short-term letting industry will result in higher costs and perhaps a slowdown in the viability of this holiday option. All this means that those who have typically used sites such as Airbnb to find their dream holiday accommodation, may now turn to package holidays – a notion that is supported by Thomas Cook reporting a 9% rise in these types of holidays. Perhaps then, one should consider the classic holiday bundles over newer renting streams once more.

we often grossly overlook the price we’re paying

Behavioural economics

While behavioural economics cannot make our holiday decision for us, the insights it offers can guide our decision making and enable us to reach a rational decision. Big holiday and flight operators often employ the strategy of ‘scarcity value’ in order to sell over-priced holidays. This phenomenon asserts that when we perceive something to be scarce, it has a greater value in our eyes. Examples of this are in abundance in the holiday industry. One such example is airlines not only telling you how many people are viewing the same seats as you, but also how many of those are booking it too. This generates a sense of FOMO (Fear Of Missing Out) as we desperately try to grab our favoured flights and seats before anyone else. In doing so, we often grossly overlook the price we’re paying, ultimately at the expense of our bank balance. While there is nothing one can do about these tactics, an understanding of such economic behavioural factors may prompt us to think twice, lessen our anxiety of missing out and ultimately allow us to make a more educated – and hopefully cheaper – holiday booking.


Making a decision on a holiday booking is one that individuals labour over and spend a great deal of time on. While typical thought processes and markers are all perfectly well, one may do well to employ economic considerations into their internal decision making model as such considerations can help us to make more informed, cost effective and rational decisions.


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