Strong dollar translating to demand for Europe travel

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An aerial view of Munich, Germany.
An aerial view of Munich, Germany. Photo Credit: Shutterstock

Just as the new year kicked off, the euro hit an 11-year low against the dollar, giving travel companies an opportunity to stimulate sales just as they head into the busy selling season.

“Clearly, this is a good time to travel to Europe,” said Steve Born, senior vice president of marketing for the Globus family of brands. “The dollar continues to strengthen versus the euro, meaning U.S. travelers, in essence, receive a discount when traveling in Europe.”

At the start of 2015, the euro-dollar exchange rate dipped below 1.20, and more recently it dropped even lower, hovering at around 1.14 for most of last week, a rate that Americans haven’t experienced in more than a decade.

Numerous economic factors are affecting the currency trend both at home and abroad, and it’s unclear if, or for how long, it will continue. But for now, it means that the dollar will buy more across the pond.

The dollar is strengthening against other currencies, as well. The British pound-to-dollar rate was down to 1.52 last week, from a high of around 1.70 last July, and both the Canadian and Australian dollars saw their U.S. dollar exchange rates dip down to and below 0.80 in the last week.

Initial reports indicate that the strength of the dollar is indeed prompting U.S. travelers to book more international travel. Trafalgar President Paul Wiseman said that bookings to Europe are up 10% over this time last year, and Delta Vacations noted that booked room nights in Europe are up more than 40% so far in the first quarter of 2015.

Seeking to capitalize on the enthusiasm surrounding the dollar’s strength, travel suppliers have been rolling out deals en masse in recent weeks. To what extent are promotions directly related to the strong dollar? That’s less clear.

Melissa Wisniewski, executive vice president of product at Collette, said, “As many other tour operators are experiencing, we’re in an unusual position regarding pricing because of how far out we work. Our team is on the ground in Europe right now to look at pricing for the end of next year and into 2017, as well.”

Tour operators and packagers hedge their currency buys and set rates with suppliers long in advance, which means their 2015 pricing was established when the dollar was considerably weaker. Nevertheless, some of them say that with a considerable rate change such as this, they are able to go back and renegotiate with some suppliers and pass along those savings to travelers, with more aggressive promotions than usual.

Also not to be overlooked are the more immediate savings to be had on the ground.

“The other benefit is to traveler savings once at their destination,” Born said. “We’ve seen about a 13% to 15% gain of the dollar now compared to last summer. That essentially means that travelers in Europe will receive a 13% to 15% discount on their restaurant, optional excursion, attractions and gift purchases.”

For travelers heading abroad in the very near future, the currency advantages will translate directly into paying less for hotels, car rentals and other vacation components.

Operators that do business in Russia are hoping the strong dollar against an ever-weakening Russian ruble might also help to restimulate travel to Russia, which has taken a big hit since last year’s rise in tensions between Russia and Ukraine.

“The Russian folk on the ground are even more welcoming to foreign visitors because they want to prove that their Slavic hospitality has nothing to do with politics,” said Samo Toplak, CEO of Value World Tours, which sells river cruises around the world and in Russia.

Viking Cruises, which is still operating three of its five vessels in Russia in 2015, said that it, too, is hoping that the favorable exchange rate against the ruble, combined with lower pricing in Russia, will increase demand.

The strong dollar’s downside

While the strong dollar already appears to be stimulating international travel, currency fluctuations aren’t necessarily a good thing for the market in the long term. Though some economists are predicting that the dollar could ultimately even out with the euro by next year if trends continue in their current direction, that would only mean temporary pricing relief followed by possible sticker shock further down the line, Trafalgar’s Wiseman said.

The other drawback is that while the strong dollar is likely to stimulate travel from the U.S., it has the potential to take a toll on inbound travel to the U.S. from countries with weakened currencies.

“The downside of a strong U.S. dollar is that it makes the destination expensive, and anybody coming into the United States is going to be affected by that,” Wiseman said.

According to Christian Wolters, deputy general manager of Australia-based Intrepid Travel, “There is speculation that international arrivals [to the U.S.] will decrease as travelers are intimidated by the strong dollar.”

In fact, some inbound operators reported that there has already been some softening in international travel to the U.S. For example, the online travel data provider Sojern released a report last week stating that the tumbling ruble means Russians are searching less for trips, with outbound searches from Russia down 38% in December compared with the previous year.

But Intrepid’s Wolters observed that any negative impact should be offset somewhat by growing tourist arrivals in the U.S. from China, a market that is expected to be relatively unscathed in the short term by the strong dollar.

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