Partner Article

Forex main issue for Travel and Hospitality Companies

24 June, 2015 – According to UKinbound, the UK’s only trade association focusing on inbound tourism, exchange rates have become the main concern for many different companies within the travel sector. This finding comes from the association’s bi-monthly Business Barometer report, which is conducted by UKinbound members to determine the current state of trade within the industry.

77% of UKinbound’s members cite FX volatility as likely to have a major impact on future bookings and revenue. The sector is inherently exposed to fluctuating exchange rates and the cost of international payments.

“The country’s travel and hospitality sector is one of the fastest growing and is the third largest employer in the UK, but has come under rising pressure from the strength of the pound,” noted Deirdre Wells OBE, CEO of UKinbound.

While outlook for 2015 is positive, bookings from Eurozone markets – the primary source of visitors after the US – are under pressure. Indeed, the pound’s strength against the Euro has boosted the impetus to pursue other foreign markets, particularly in Asia, the Middle East, and South America. This has driven UK companies to accelerate efforts to tap into the emergence of travellers from these countries. Growth has been strong from these other regions, but total numbers are still small and not large enough to cover any fall from Europe.“

A further challenge is the changing nature of travel from being attraction-led to experience-led. Experience travel, while much less country-specific, is more likely to create repeat visits. It is also more price- and currency sensitive than attraction-driven travel. This dynamic means operators and attractions would benefit from negotiating better exchange rates, as well as adopting cheaper currency hedging products and foreign currency invoicing to help protect margins and reduce costs.

Insufficient advice and services have made it harder for operators catering to foreign visitors to remain competitive in the face of a stronger pound.

“A common complaint from smaller operators is that banking services are insufficient and expensive with regard to foreign payments unless a company transacts in larger volumes, or the financial director has negotiated favourable rates and fees”, said Jonathan Hyman, Chief Economist, FXcompared Intelligence. “Furthermore, relationship managers at most banks do not understand the drivers of currency movements or risk mitigation products, and so cannot always offer suitable solutions.”

Daniel Webber, Managing Director, FXcompared, added: “Currency presents a fundamental risk to travel and hospitality companies. Understanding how to manage international payments more efficiently, as well as how to access risk-mitigating currency products and services, will be key in limiting foreign exchange-related costs and boosting competitiveness.”

For further information on the research produced by FXcompared, please visit the ICAEW Tourism Special Interest Group page.

This was posted in Bdaily's Members' News section by Daniel Webber .