As we all know, there is a lot of uncertainty in the travel market at the moment. The dates of return to international travel are looming, there is apprehension around the traffic light system, and the present state of various countries varies because of COVID. Though forex hedging can’t fix all that, it can provide some stability.
For those that don’t specialise in domestic travel, a big uncertainty that has always proved a struggle to tackle is foreign exchange (FX). COVID-19 hasn’t improved the state of currency exchange and the mostly unpredictable nature of FX, but it has certainly made things a little more complicated. Now more than ever, it is of great benefit to travel companies to take the time to look into forex hedging before the restart of international travel begins.
The Risks of Foreign Exchange
The risk of selling a holiday in a foreign country to a consumer local to you, lies in the constant movement of currencies against each other. It is as much about time as it is about the difference in the currency itself. If your consumer books a holiday, and you must pay for that holiday in a foreign currency in six to twelve months’ time, that currency could move against your local currency so much that all of your profit disappears! If you are a company that works exclusively out of the UK selling travel services in Spain through a local tour operator, these risks could be the ultimate downfall of your business.
However, this is not to say that dealing in different currencies is without its benefits. Providing services in the destination’s local currency can help to expand your travel market, as there are more suppliers to work with, who could provide a better quality of service in their local area. There are also more diverse destinations to sell to your consumers, and ultimately, dealing in local currencies will make the customer happier, leading to good relationships in your business, and higher conversion rates.
What Is Forex Hedging?
There are a few different ways you can deal with the risks of foreign exchange, though all come with their own risks. In a nutshell, forex hedging (also known as currency hedging), entails entering into a financial contract, preferably with a specialist, that will protect you (the travel business) against both unexpected and expected changes in the currency exchange rate. It will often involve sacrificing a portion of your profit margins in order to protect your business, by securing a flat exchange rate for your future supplier payments. This will help you to know your margin and to be more certain in setting prices that will continue to make you profit while dealing in foreign currencies. Putting a portion of your profit margin on the line could seem like a scary endeavour, but in the long run, it could pay for itself. The protection it provides could secure your profits and prevent your business from going completely bust through movements in currency exchange that can happen so quickly.
Forex Hedging at PTS
At PTS, we hold multiple trust accounts in different currencies, so that your consumers’ monies can be protected in whichever currency you choose. Alongside this, PTS work with currency providers to secure you the lowest exchange rates in the industry, providing you, the travel business, with the certainty you need to make the most of your services and keep the consumer confident in your business. We also work with Universal Partners FX – a specialist foreign exchange provider – to offer the most competitive rates to all PTS members. This means that you can set a foreign exchange cost at the beginning of the year and move forward with certainty, having confidence in your profits and still providing quality travel services whilst dealing with good suppliers and tour operators.
Conversing with a specialist FX provider is the key to confidence when you invest in forex hedging, and though it may seem daunting, doing it the right way will allow you peace of mind in the coming months of international travel business. To find out more about our forex hedging services, please visit our currency hedging page, or contact our team on 0207 190 9988, or via email to ask@protectedtrustservices.co.uk. We look forward to hearing from you.
