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How the travel industry can navigate through the omnipresent risks of foreign exchange

25 October 2019

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Of all industries, the travel industry is by nature among the most highly exposed to international currency fluctuations. Beyond the relative impact currency fluctuations have on travelers, their impact on the health of travel businesses can be profound.

Unless you specialize in domestic travel, resorting to local suppliers is not an option in the travel industry where foreign exchange exposure can quickly equate to unpredictable margins. While this uncertainty is certainly present during healthy economic periods, it takes on a whole different meaning when the going gets tough. Over the past two years, the pandemic brought with it its share of constantly changing travel restrictions, cancellations, refund demands and other challenges which left travel businesses, both large and small, struggling to protect their revenue margins and anticipate future cash flow. It was estimated that the Covid pandemic could have cost the tourism and travel sector up to $2 trillion in lost revenue in 2021[1].

In this industry, the entire distribution chain of tourism products, from local suppliers to travel agencies (including online travel agencies), travelers, tour operators, hotel chains and more, is affected by fluctuations in the exchange rate on a daily basis as each of these actors are required to make numerous payments to foreign companies in multiple currencies.

Consider the case of destination management companies and travel agencies selling tours, flights, accommodations or cruises to local customers. They set their prices well ahead of time, sometimes up to 18 months ahead. But if currencies fluctuate drastically between a customer’s advance payment and the moment foreign suppliers need to be paid, the travel company may find itself having the cover the difference, forcing it to draw from its resources (eating away at profit margins or creating losses) or, equally as damaging for its image, asking customers to foot the bill. These consequences are just an illustration of why an efficient and anticipated management of foreign exchange rate risks is essential for companies in this industry.

While the main priority of these companies lies elsewhere, anticipating exchange rate fluctuations is none the less also vital for them which is why turning to the right partner is so important.

As a trusted partner for international businesses operating in the travel industry, iBanFirst is among the new fintechs that aim to improve the future of international business payments by providing its clients tailor-made services. As a licensed payment institution authorized to manage accounts and initiate electronic payments, it provides an array of secure banking services intended to help businesses optimize their cross-border payments.

The purpose of these coverage solutions is to provide protection against foreign exchange rate risks by helping companies simplify the management of their foreign currency flows, save on foreign exchange fees, and hedge currency risk, fixing or limiting the rate of transactions to protect trade margins. This solution includes in particular forward exchange, flexible forward exchange and dynamic forward exchange contracts.

With iBanFirst, companies can protect themselves from some of the key challenges of the travel industry in several simple ways:
  • Saving on fees hidden in foreign exchange rates offered by high-street banks and brokers.
  • Hedging currency exposure by locking in rates today for transfers in the future.
  • Setting up currency transfer instructions in advance.
  • Buying and holding accounts in foreign currencies.

Having an end-to-end visibility of payments as they move through the system also provides greater predictability, and better control over things like operations, cash flow, and business relations. As a way of optimizing the payment cycles for businesses, iBanFirst’s Payment Tracker provides real-time payment processing updates.

If you too would like to optimize your foreign currency operations, contact our dedicated account managers to receive more information about the solutions that exist to protect against foreign exchange market volatility and discover how our financial services can benefit your company’s needs.

 

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