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Foreign exchange for the travel industry
The travel industry is one of the most dynamic industries in the world, dealing with international transactions daily and being exposed to currency fluctuations. The unpredictable changes in currency movements not only affect tourists but also have serious effects on travel businesses. This article explores how currency movements can affect your travel business and provide some useful insights to help protect against exchange rate volatility.
What influences currency exchange rates?
There are many fundamental and technical factors that can cause exchange rates to fluctuate including changes in interest rates, the health of a country’s economy, supply and demand of currencies, and inflation. If you run your own travel business, you'll directly experience the effect of exchange rate movements with the strength or weakness of major currencies impacting your business traffic as well as revenue and profits.
How currency exchange can affect your travel business
One of the ways to guarantee that your business remains competitive and continues to grow is by anticipating and adapting to the challenges of the international payment market and consumer sentiment. Having worked with a range of travel businesses for a number of years, we are able to identify the common challenges they face when dealing with international transactions.
Time between booking and departure
Currencies fluctuate and can change from one moment to the next, which means that from the time one has booked their holiday to the time they arrive and check in, currencies are likely to have changed, impacting your business’ expected profit.
For example, companies such as travel agencies which sell tours, flights, accommodations, or cruises commonly set their prices months ahead. So, if currencies fluctuate considerably between the time a customer has paid in advance and the moment foreign suppliers will need to be paid, then the travel company may have to cover the difference, using funds from its own resources and creating potential losses. It could also hurt its reputation as it may require customers to meet the costs. Anticipating such challenges and managing foreign exchange risk is essential for travel companies.
Large volumes of foreign payments
Payments involving foreign currencies whose values may fluctuate sharply or unexpectedly could expose your business to economic uncertainties and make it difficult to protect your projected profit margins. Paying in multiple currencies also involves considerable time which incurs costs to businesses.
Fees
With more and more travel and tourist businesses having to accept more payments from foreign tourists via card or online, businesses have become more sensitive to currency exchange. When transferring currencies both parties must pay fees which means that a smaller amount of funds will arrive in your business account.
Seasonal travel patterns
Most people tend to travel depending on the season, with many families preferring travelling when schools are closed or during holidays. During these months, exchange rates can be unpredictable and can affect travel patterns and vacation planning and bookings.
Can currency movements impact demand?
Currency appreciation or currency depreciation can also impact where people travel to. When a currency appreciates, travel and tourism spending in the home country falls. On the other hand, if a currency is weaker, then more people from around the world tend to travel to that country. If for example the British currency is weaker, then more foreign tourists will come to the UK, as their spending power increases due to the fall in the value of the pound against their national currency. Travel businesses that operate in several global regions require this analysis and can even help shape their advertising and sales strategies.
Political and policy decisions
Political, economic and other policy decisions can affect the flow of travel and impact on your business. During periods of uncertainty and political instability such as the Covid-19 pandemic, foreign exchange exposure can be greater and lead to unpredictable margins. For example, during the pandemic, travel businesses had to deal with changes to travel restrictions, cancellations and refund demands which left both big and small travel businesses in a vulnerable position and unable to protect their revenue margins and forecast future cash flow. Geo-political tensions or conflict can also lead to a more complicated travel process which can send a ripple effect throughout entire regions.
How can your travel business respond to foreign exchange challenges?
Partnering with an international and reliable foreign exchange and currency transfer company can help travel businesses manage their finances and anticipate exchange rate fluctuations. A currency transfer business can provide protection against foreign exchange rate risks, simplify foreign currency flows, and save you time and fees. By having a clear and transparent view of your payments from start to finish, will allow for greater control of your operations and cash flow and help your travel business optimise their cross-border payments.