Three ways for travel companies to survive currency fluctuations

Major political and economic events across the world have seen currencies fluctuate dramatically – at times we saw the pound tumble to its lowest level in three decades.

This volatility has become the new normal, making it increasingly difficult for travel companies to predict the final cost of a holiday months in advance. They are already operating at tight margins and a sharp drop in the value of the pound could represent huge losses when it comes to settlement.

Unable to absorb the hit, many feel they have no choice but to recoup the loss, and in 2016 we saw more examples of customers having to pay the price through surcharges and other additional costs. However, the negative customer experience will be even more costly in the long run, and customers asked to cough up extra cash will be unlikely to return year on year.  

Fortunately, situations like this can be easily avoided if travel companies take three simple steps to protect themselves from currency fluctuations:

1)      Re-examine your cross-border payment strategy: Too many travel companies stick with traditional payment methods for international transactions. But what they don’t know is that a lot of the costs of international transactions are ‘hidden’ fees and charges. In fact, our analysis shows travel companies relying solely on banks could be spending 3% more on international transactions compared to alternative methods. Modern trends require modern solutions, so look beyond the banks to meet the destination demands of today’s consumers.

2)      Lock in the currency rate at the time of booking: None of us have a crystal ball to tell whether currency values will go up or down, but do you really want to take the risk? Today there are FX options which allow travel companies to lock in the currency rate at the time of booking. This means there are no nasty surprises when it comes to payment, and you can have a more accurate picture of profit and loss throughout the year.

3)      Look for local funding and settlement: With the latest Phocuswright research showing that the number of travel companies accepting payments in more than ten different currencies has doubled in the past three years, we know there are huge opportunities when it comes to global expansion. However, dealing with multiple currencies comes at a price. Foreign exchange and cross-border fees, as well as increased admin, adds to the cost of payments. Solutions offering local funding and settlement significantly reduce the cost of payments, and eliminate the need to set-up expensive banking arrangements in each jurisdiction.

Taking control of the currency conundrum will protect the bottom line as well as the valuable customer experience. With international travel continuing to increase at a pace, it’s more important than ever that companies re-evaluate their international payments strategy.