Mark Pestronk
Q: A year ago, we began arranging a fall 2025 group trip to Italy for a high-end U.S. incentive client who, of course, pays us in dollars. Early this year, we entered into a contract with a Rome DMC under which we will owe a final payment of about 1 million euros this month. The euro has gone up almost 11% since the time we entered into our contract with the DMC, from about $1.02 to about $1.13. This means that we stand to lose most of our profit when the client pays us in dollars but we have to shell out euros. Can we collect the difference from the client? If not, what can we do next time to prevent this calamity?
A: Your contract with the DMC undoubtedly states the price in euros, so you obviously owe the price in that currency. Unless your contract with the corporate client allows you to pass through the additional costs arising from currency fluctuations, you have no legal right to collect more from your client.
There is nothing you could have done differently with the DMC. No supplier in a eurozone country would have allowed you to pay in dollars, in my experience.
To prevent this loss next time, you must turn either to the client or a financial institution that will let you buy euros in the future at today's price, a practice called currency hedging.
I have seen several client contracts that enabled the travel agency to pass on the additional costs due to currency fluctuation, so you should try to add a clause to your next contract stating that the client will reimburse you for any additional expenses arising from a change in exchange rates between the contract signing and trip dates.
Sharp clients will then request that the opposite also be placed in the contract: If the euro drops in value, you will reimburse the client for the savings that result. Since you would probably prefer to avoid all risks related to currency fluctuation anyway, you might as well agree to the client's suggestion.
I have also seen client contracts and disclaimers that are vague and simply state, "The agency is not responsible for currency fluctuations." Whether such a clause entitles the agency to pass on the additional cost is debatable, so you probably need to have a clearer and more specific sentence, such as, "The agency reserves the right to adjust the final price to reflect adverse currency fluctuations from the date the contract was signed."
If the client refuses to agree to any such clause and you do not want to take currency risks in the future, you can enter into a contract with a bank or currency trading company, under which you agree to purchase euros a year from now at an established price. Major tour operators engage in this practice. You will pay a premium, but you can build that premium into the trip price.
Alternatively, you could buy currency futures contracts through licensed financial institutions, subject to applicable securities regulations and risk disclosure requirements.