Travel agencies: 3 tips for better managing currency risk

However, whilst such events are fortunately still relatively rare, fluctuations in the foreign exchange market remain a major challenge for travel agencies and their customers on a day-to-day basis. Here, then, are our recommendations for better managing the volatility of the foreign exchange market, safeguarding your agency’s profitability and ensuring customer satisfaction!

#1 Be aware of your exposure to risk

As part of their day-to-day business, travel agencies frequently carry out transactions in foreign currencies, yet they are not always fully aware of the exchange rate risk to which they are exposed (nor are their customers).

However, offering customers a catalogue price in the domestic currency for a service (such as a flight ticket, hotel stay or guided tour) that they will actually have to purchase in foreign currency inevitably exposes a travel agency to a relatively significant exchange rate risk, particularly as the catalogue is updated infrequently.

And for good reason: if the foreign currency in question appreciates, the cost of the service in the local currency will increase for the agency, whilst its selling price set in the catalogue will remain unchanged. All things considered, the agency will then see its margins shrink and, in the worst-case scenario, find itself forced to operate at a loss…

To avoid this, the agency could, of course, simply pass on price fluctuations to its customers, but customers generally find it hard to accept that the price initially quoted is no longer the same just a few days later. And when it comes to going on holiday, it’s a safe bet that most customers would prefer to avoid getting bogged down in a complex explanation of exchange rate issues!

Good to know: As payments, cancellations and refunds can also expose you to currency risk, particularly if the country in question is affected by a health or geopolitical crisis, which could not only trigger a wave of cancellations but also destabilise the foreign exchange market.

#2 Reducing your exposure to risk

There are several options available to you for reducing your exposure to the foreign exchange market.

To begin with, you could start by reviewing the destinations you offer your customers. Offering more domestic destinations or a wider range of international destinations can be a good way to reduce your reliance on a specific currency zone.

You could also look to reduce the time between presenting your catalogue offer and your customers making a decision. For example, by introducing limited-time offers or special promotions for bookings made within 24 or 48 hours.

Finally, you can also implement a hedging strategy at agency level to neutralise its exposure to exchange rate risk by buying or selling financial products.

Good to know: Travel agencies with an international presence can benefit from natural hedging, as the risk exposure of agencies in one currency zone can offset that of agencies in another.

#3 Referring clients to the right service provider

Whilst adjusting your prices in line with currency market fluctuations may unnecessarily complicate your sales process, your customers will not be able to avoid exchange rate risk entirely. Once abroad, they will inevitably have to pay in the local currency…

To ensure their stay goes as smoothly as possible and that they associate your agency with a positive experience, it is therefore helpful to guide them.

How much should they budget per day and per person for their destination? How can they exchange their currency at the best rate? When should they do it?

These are all questions your agency can answer by providing clear guidance and recommending the best currency exchange services for your customers, whether they’re online or in-person.

This will save your customers from having to exchange their currency at the airport – when they’re already tired after a long journey – and at rates that are far from ideal… 

To start with, sharing the b-sharpe currency converter with your customers and using it for your branch’s currency exchange transactions will allow you to reduce your exchange fees with ease.