Planning a tour is no
simple task and neither is managing foreign exchanges in an
unpredictable foreign-exchange market. Travel professionals need a
Every day, nearly
$2 trillion worth of foreign currencies are traded in the global
foreign-exchange market, where volatility has become the norm.
Therefore, it is important for travel professionals to understand
the risk and the process of managing risk.
volatility in the foreign-exchange market creates uncertainty for
profits and budgets for travel and tour businesses. While the
volatility cant be controlled, travel professionals can take the
following steps to protect their businesses and increase their
foreign-exchange risk-management plan.
market for short-term opportunities.
when favorable market opportunities arise.
professionals look for convenience and low fees or rates when
selecting a foreign-exchange supplier. They usually buy when a
payment is due, compiling their accounts payable, and try doing
large transactions at once.
transportation, hotels, bus rentals, tours or recreation, it is
critical to plan how to hedge against currency risk. Because most
travel professionals fix the price of their travel packages at the
beginning of the season, they are prime candidates for hedging
tools like forward contracts.
contract, a management tool
Once a company has
established an obligation to pay an amount of foreign currency, its
costs are exposed to fluctuations in the foreign-exchange market.
These risks can be eliminated through the use of a forward
This enables the
purchase of a specific amount of foreign currency at a secured rate
of exchange for delivery on a set date, typically between a month
and a year in the future.
A secured rate
allows travel professionals to proceed with price listings and
budgeting plans without currency fluctuations eroding profit
What if hotel space
is reserved for a meeting in another country to be held in six
months, but the invoice wont arrive until next year? How will one
know the cost when the currency wont be converted until a future
date? By using a forward contract, a secured rate of exchange is
A&K Europe, a
subsidiary of tour operator Abercrombie & Kent, understands the
importance of leveraging risk-management tools to remain
When we price a
tour in U.S. dollars, if we lock in a rate through a forward
contract, we know how much the euros will cost, said Amanda Edlin,
finance manager for A&K Europe. This allows us to protect the
margin on our business and helps us to budget more
Over the past three
years, forward contracts have enabled A&K to thrive in a
volatile foreign-exchange market. Because it locked in rates early,
it was able to maintain competitive prices.
rates fluctuate from minute to minute, staying informed of relevant
world events and rate fluctuations is a basic means of managing
such as economic statistics, politics and social conditions, drive
the foreign-exchange market, affecting the amount youll pay and the
potential margin you could save when purchasing or selling foreign
professionals are not expected to be experts on the
foreign-currency market, but it is important that they choose a
foreign-exchange supplier that is.
Foreign exchange is
a service provided by banks and foreign-exchange specialists. As
with any commodity, market expertise, timely updates,
responsiveness, attention to detail, rates of exchange and service
fees will differ from one supplier to the next.
fees as well as exchange rates is an important consideration when
choosing a foreign-exchange supplier.
Savings realized by
a favorable rate of exchange can be quickly lost by poor service,
missing opportunities to buy or not managing risk.
relations typically are not affected by the decision to use a
foreign-exchange specialist, and you can always compare and use
more than one supplier for your international
foreign exchange exposure may be, seek the advice of a competent
foreign-exchange supplier that will tailor a program to meet your
Jane Budd is
assistant general manager for Ruesch International in London. Prior
to joining Ruesch in 1998, she worked for several years in the
travel industry, holding sales positions with an incentive travel
agency and a large tour operator. She can be contacted at [email protected].