Americans still traveling abroad despite weakened U.S. dollar

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Although an ever-weaker U.S. dollar is making travel abroad a more expensive proposition for Americans, tour operators, foreign tourist boards and others in the industry say outbound departures and forward bookings remain on the rise -- for now.

Operators report strong interest in Europe, Asia and South America for 2005, largely due to a release of pent-up travel demand, thanks to consumer optimism.

The change for the tours we sell in the $1,000 range is only $100 [off] last year, and I dont think thats a deal-breaker for most people, said Loren Siekman, general manager of Discover France Tours in Scottsdale, Ariz. Theres definitely anxiety on our side of the business, but I havent had anyone say theyre not going to Europe this year.

In fact, the European Travel Commission (ETC) in New York predicts record numbers of U.S. vacationers will visit Europe next year, matching levels not seen since 2000, when 12.8 million Yanks crossed the Atlantic.

But this rosy status quo could end if the bottom falls out of the long-beleaguered dollar.

The buck stops here

The dollar has been in decline against other currencies for three years. Since late 2001 it is off some 34% against the euro, 24% vs. the British pound, 20% vs. the Japanese yen and 25% vs. the Canadian dollar.

One bright spot can be found south of the border, where the dollar has gained 26% against an even weaker Mexican peso (see story, at right).

But the greenback has slowly lost ground even against the Indian rupee (-7%), Russian ruble (-10%), Brazilian real (-26%) and Australian dollar (-38%). Worse yet, its precipitous drop is intensifying.

Analysts at Merrill Lynch in New York said the U.S. dollar declined by 5% against the euro and the yen in November alone, trading at all-time and four-and-a-half-year lows, respectively, against those currencies.

A Nov. 22 report from Merrill Lynch warns that the dollar could dip further should the federal deficit worsen and the Chinese yuan -- now pegged to U.S. currency -- be revaluated.

So, how much further could the dollar fall? Lionel Barber, U.S. managing editor at U.K. newspaper the Financial Times, told delegates to the ETCs recent Transatlantic Conference in New York that the dollar still has 15% to 20% to fall.

Looking ahead, Merrill Lynch analysts are forecasting that from December through March the euro will appreciate from $1.29 to $1.33, the pound sterling will drop from $1.84 to  $1.82 and the yen will strengthen and trade at 100 yen for every dollar.

The impact

So, what has been the impact on global travel thus far, particularly in destinations where the dollar is weak? Not very significant, at least in Europe, which isnt surprising, said analyst Neil Martin of Donald Martin and Co. in New York.

In the 1990s, the dollar performed just as poorly against the pound and other currencies, yet annual U.S. arrivals grew from 1993 through the watershed 2000 and 2001 seasons.

Traffic grew in the 90s because the basic U.S. economy was strong and people could afford to travel, said Martin. So theres reason to be hopeful based on past experience.

VisitBritain CEO Tom Wright agreed that many things make us less susceptible to exchange rates nowadays, such as increased air capacity and a surplus of hotel rooms -- which put downward pressure on pricing -- as well as a trend toward shorter vacations by Americans.

Still, VisitBritain forecasts 5% growth for the year and a 3% rate for 2005, after recording a 13% increase in U.S. arrivals from January to September.

The areas most impacted are dining and shopping, Wright added. There is some erosion in the amount Americans are spending, but thats as much about shorter stays as it is about less shopping and eating out.

Supply-side story

Tour operators concur that Americans -- despite the poor exchange rates -- still seem to be in the grip of wanderlust.

Were up a lot going into 2005, and our numbers now for next year, although its very early, are up 25%, said John Galvin, chief financial officer at Col- lette Vacations in Pawtucket, R.I. He added that Europe, Canada, Australia and New Zealand all have sold well.

With tour operators, it seems larger outfits are better able to weather currency fluctuations.

Any large tour operator is likely to have engaged in hedging strategies to ensure pricing stability, Galvin said.

Executives at one European tourist board claimed smaller tour operators specializing in their destination are recalling 2005 brochures from printers so prices can be raised 10%. But some smaller firms seem to be able to hedge a bit, too.

Spanish Heritage Tours in Bloomfield, N.J., pays its vendors via Europe-based, euro-denominated bank accounts, according to Jose Barreiro, director of wholesale operations.

We bought euros before the dollar really started to drop and locked in at a rate of about $1.20, Barreiro said. So basically, we arent affected because the rate we contracted at is the rate we bought euros at.

Also, Spanish Heritage is requesting guaranteed U.S. dollar rates from hotels. Not everyone is willing, but for the hotel looking for U.S. business, its a way to be very competitive, Barreiro said.

London hotel Carlton Tower plans to introduce guaranteed dollar rates for the first time this January, despite working to reduce dependency on the U.S.

David Taylor, director of sales and marketing, said he is working to build U.S. business via travel agency relationships and offers that help more Americans visit, even while exchange rates arent in their favor.

Package power

Executives at top operators said the traditional escorted tour -- which has lost some ground in recent years to customized and FIT travel -- is now more attractive than ever.

Sometimes theres a benefit to these situations for us, said Scott Nisbet, executive director of sales and marketing at Globus & Cosmos, where bookings to Asia, the South Pacific and South America are outpacing Europe. A packaged tour is such a significantly better deal in times like these.

But Scott Supernaw, vice president of sales and marketing at Tauck World Discovery, sounded a note of caution.

Although [the poor exchange rate] makes our product more attractive to travelers who might otherwise try to build their own tours, what may affect us is the negative publicity among those to whom shopping is critically important.

A weak dollar also is forcing travelers to re-examine their travel plans in terms of destination, duration and price point.

Galvin of Collette Vacations said Americans often decide domestic travel is a better bet. Ashley Isaacs-Ganz, president of luxury operator Artisans of Leisure in New York, said her clients are looking farther afield for exotic but reasonably priced vacations, such as honeymooners who were considering Italy but are now looking at Thailand and Bali.

Although a smaller outfit, Artisans of Leisure has taken a hit to shield clients who are booking custom itineraries from recent currency fluctuations, but it may change some published prices soon.

On the plus side, operators such as Globus & Cosmos that sell inbound travel to the U.S. are set to make a killing. Its looking to be healthy double-digit growth from Australia and the U.K. right now, Nisbet said.

To contact reporter Kenneth Kiesnoski, send e-mail to [email protected].

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