A favorable dollar-to-euro exchange rate and growing flexibility on the part of suppliers have enabled tour operators to cut prices of their 2013 Europe product by between 2% and 18%, compared with 2012 prices.
"The dollar is much stronger, and that's a big part of it," said Marc Kazlauskas, president of Insight Vacations, which introduced its Europe brochure last month featuring prices that were, on average, between 7% and 8% -- in some cases as much as 18% -- below this year's tour prices.
As of last week, the euro was trading at about $1.29, which was in line with the weakness it has seen since the beginning of the year. While the euro hovered at $1.40 much of last year, it has been steadily below $1.35 through all of 2012, due in large part to the European Union's sovereign debt crisis.
Tour operators buy the currency they will need to pay suppliers, and they time the transaction to the point in time when they think the exchange rate will be most favorable for them to negotiate contracts and set their prices.
No tour operators would divulge the rate they ultimately got to pay their 2013 contracts with suppliers, but clearly it was better than in 2012. In fact, if they were either prescient or just lucky, they hedged sometime in July when the euro hit its low, at close to $1.20. Those savings are being passed on to customers, resulting in prices that operators are hoping will help reignite transatlantic travel after a challenging year.
Tour operators were also able to flex their contracting muscles in distressed destinations such as Greece, where political unrest and rioting against austerity measures have resulted in fewer bookings.
"There are some destinations that we got some price decreases in terms of the suppliers we work with, countries like Greece," Kazlauskas said.
Indeed, across the board, tour operators said they were able to cut prices for their 2013 Europe product. Trafalgar's 2013 prices are, on average, between 8% and 9% -- and as much as 13% -- below 2012 prices. And Globus was able to cut prices for its 2013 Europe trips by between 2% and 5%.
Trafalgar President Paul Wiseman said, "We're taking an aggressive pricing position. We think it's going to be a very mixed year."
Wiseman said he expects Europe's challenges to continue in 2013, which is why the company wanted to be very competitive in terms of pricing.
Consequently, good contracting, good currency hedging and some nipping at margins enabled Trafalgar to slash its prices, which the company hopes will also help get business on the books earlier in order to avoid the prohibitively higher airfares that have the potential to stifle later bookings.
Trafalgar was able to contract strongly in some distressed destinations, such as Greece, Spain and the U.K. While contracting was easier in Britain, as suppliers hope to capture post-Olympics business, the pound was less favorable vs. the dollar than the euro was. (Click on the image, right, to view a chart comparing the value of the euro to the dollar in 2011 vs. 2012.)
France was more of a challenge.
"Cities like Paris have been very difficult to get hotels," Wiseman said. "While tourism from the West is down, the BRIC countries [Brazil, Russia, India and China] are taking and filling rooms."
In a city like Paris, being a high-volume operator helps to secure space, Wiseman said.
While the lower prices to Europe next year are intended to be a strong selling point, they also mean slightly less commission per booking. But tour operators note that their product still offers higher commissions overall than competing products such as cruises, and they add that what agents lose in commission per individual booking, they'll make up in larger numbers of bookings.
"This is the year for Europe," Kazlauskas said. "The volume is going to come back, and obviously if you sell more, you make more."
Adding, subtracting capacity
While prices to Europe uniformly dropped for 2013, operators appear to have slightly different strategies when it comes to capacity.
Traflagar for example, is tightening up its departures for 2013.
"We're going to reduce capacity in areas where we think demand isn't going to be there," Wiseman said. He added that in order to increase the number of guaranteed departures it is offering for 2013, Trafalgar was decreasing the total number of departures in the system. Consequently, "2013 will be a very good year for the stability of the departures and the programs because it's not a year where we're aggressively adding."
Overall, Trafalgar is cutting capacity by about 20%, primarily in Europe, but the operator is actually adding capacity in the U.S. and South America.
"You'd be mad to add capacity for Egypt, or add a lot of capacity for Greece or Spain," Wiseman said. "We're seeing that part of the world depress [significantly] overall. It is a substantial part of our business. Egypt is 5% to 10% of our business. Greece has been very difficult, and now Spain is a question mark. Italy is holding up. We don't believe that area is going to recover, not in 2013. We think it's going to be tough."
With challenges in the marketplace, Wiseman said he'd be happy if the company saw 5% to 10% growth in 2013.
The Globus Family of Brands, on the other hand, is adding capacity for 2013.
"We're being bullish," said Steve Born, Globus' vice president of marketing, adding that the company is anticipating an increase in volume to Europe next year overall.
Consequently, Globus has added departures to existing tours and also added 11 itineraries to Europe for 2013, including several in Eastern and Northern Europe.
"We've been anticipating the pricing situation being a little better ... now we've gotten some reaction," Born said. And "overwhelmingly it's positive, and we're encouraged that next year is going to be better."
Follow Michelle Baran on Twitter @mbtravelweekly.