China ops on yuan revaluation: No significant impact on biz

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NEW YORK -- Youd better make sure that slow boat to China youre booking isnt too slow.

In the not-too-distant future, tour costs are expected to jump as a result of the Chinese government ending the yuans peg to the U.S. dollar, enabling it to fluctuate against other currencies.

In the short term, tour operators are predicting that the move will not have a significant impact on their business. But looking farther down the road, prices for Americans traveling in China are almost certain to rise.

Some operators expect to be insulated from the change through at least 2006, thanks to contracts currently in effect.

One of the advantages of having our own offices in China is that all of our transactions are in U.S. dollars, so the revaluation has had no impact on us, said Pamela Lassers, a spokeswoman for Abercrombie & Kent. Our forward contracts are in U.S. dollars, so there would be no impact until prices for 2007 are negotiated.

In many cases, tour operators said they can offer a price advantage over what consumers or wholesalers can get by dealing directly with Chinese suppliers.

In terms of 2006, the yuan has only appreciated by about 2% so far, Globus CEO Phillip Gordon said. But there is some speculation from U.S.-based economists that it should appreciate more. Thats where its important for passengers to look at the advantage of an escorted product. Prices are fixed and firm for 2006, and since the price is all-inclusive, it applies to transportation, a tour director and services.

Ashish Sanghrajka, vice president of sales and marketing for Big Five Tours, called the price impact nominal so far, but he expects that to change. They [the Chinese government] moved it 2% just to make everyone happy. But it wont be long before [the U.S.] government is pushing them again. China is sitting on the worlds biggest trade surplus. In the next six months, there will be more adjustments.

To a large extent, the effect of changes in the value of the yuan may depend on the size of the operator. The greatest impact is likely to be felt by lower-price operators that maintain small margins to keep prices down.

If you are marketing China as a budget destination, if you are a price leader, this could work to your detriment, said Sanghrajka.

Indeed, Ritz Tours, which positions itself as the markets price and value leader, said the move would affect its prices for 2006.

Well have to ask ourselves, Whats going to happen next year? Will we have another fluctuation? said Evan Chan, Ritzs director.

Since Chinas economy is so strong, Chan said, the value of the dollar will probably come down again, from 8.1 yuan per dollar, where it is now, to 7.9. Many observers expect it to get down to the value of the Hong Kong dollar, which is pegged at 7.78 per U.S. dollar now.

But all in all, Chan said he did not see currency fluctuations as a serious threat to his operation.

Ritz Tours is having the best year in its history, he said, and a price rise of a few percentage points would probably not upset the trend.

Say you raise prices 10% across the board; thats $250 to $300, he said. Will the public think thats a lot? We dont know exactly.

Chan also predicted that high demand for Chinese destinations would probably have a more pronounced effect on the market than currency fluctuation. What affects the price most is Chinas booming market, he said. Everyone wants to get in there. Its not that the currency fluctuation is inconsequential, but most of the change will be from the land operators, hotels and airlines raising prices.

General Tours President Bob Drumm agreed that the greatest price pressures would come not from currency fluctuations but from rising demand, especially leading up to the Beijing Summer Olympics in 2008 and from the rising cost of fuel.

To contact reporter David Cogswell, send e-mail to [email protected].

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