Currency Trends and Strategies in the Travel Sector

Recently, Marc Padrosa, Kantox's Global Industry Director for Travel, sat down with us to discuss Currency Management Automation solutions for OTAs, bed banks, hotel chains, airlines and DMCs, and other travel industry participants. It was a lively debate centred around the topics elaborated in our latest Travel Report.The main points of the conversation were:

• The ongoing trend toward business process automation in Travel

• Pricing solutions in a very dynamic environment

• The strategic importance of currencies

• Currency hedging programs for players in the Travel industry

Here, we'll briefly recap these important points one by one.

Business Process Automation

The first thing to note is that the Covid-19 pandemic has strengthened, not weakened, the case for more automated business procedures. The good news, noted Marc, is that this includes FX automation as well. It reflects the new types of business continuously emerging, new payment methods and the elevated uncertainty and forecast inaccuracy that has become the hallmark of business life in this decade.Automation is not only about reducing costs but rather a means towards creating value for businesses. Marc Padrosa explained, "At Kantox, we are convinced that automation is becoming a boardroom imperative, not just a finance-only topic. It is a key driver of competitiveness, margin enhancement and ultimately growth."

Pricing

Turning to the subject of pricing with an FX rate, there are several factors worth mentioning:

• The widespread adoption of dynamic pricing: The era of the catalogue-based pricing model amongst tour operators is all but over, as it creates a massive pricing risk. Pricing risk is best handled by updating FX-driven prices with simple and easy-to-communicate time-driven criteria made possible thanks to Currency Management Automation software solutions.

• The use of the forward rate for pricing purposes: Pricing with the forward rate in the event of favourable forward points allows firms to improve their competitive position. Many participants in the Travel industry are not fully aware of this possibility. This reflects a lack of knowledge about the link between pricing and hedging and —above all— a lack of adequate technology solutions.

Embracing Currencies

Marc Padrosa is adamant about the need to 'embrace currencies' in the Travel world. 'Embracing currencies' is like speaking the language of your customers and suppliers. It facilitates business. It means, in concrete terms: To sell in the currency of your customers and buy in the currency of your suppliers. The margin-enhancing benefits of embracing currencies are simply too significant to ignore:

• Creating a seamless buying experience. Take the case of an OTA. Multi-currency offerings allow them to create a seamless buying experience that builds trust and reduces cart abandonment, ultimately boosting conversion rates. Hotel chains, for example, can leverage currencies to increase direct, high-margin sales on their website with Virtual Credit Cards and other payment methods.

• Contracting at more favourable prices. Buying in the currency of your suppliers allows you to avoid inflated prices that result from the FX markups they apply to protect themselves from the underlying FX risk. So there, you can see a direct impact in terms of profit margin-boosting. Meanwhile, the range of potential suppliers increases, leading to better deals.
• Capturing pricing markups on the selling side. By selling in the currency of your customer, you can capture the FX markups that would otherwise be applied by your customer. Once again, we're talking of a direct impact on profit margins. In a world of low operating profit margins, these advantages are simply not possible to forego.