Apr 22, 2021 | Foreign Exchange
As lockdown measures vary across the world, how can those in the hospitality, travel and tourism industry prepare their business for continued uncertainty?
Of the many sectors facing hardship during the Covid-19 pandemic, few have been as hard hit as the hospitality, travel and tourism sector. With people around the world subject to ‘stay at home’ advice and even legislation, leisure activity outside the home (and outside the country) has pretty much ground to a halt.
But now, as vaccines are rolled out and with the UK government publishing a roadmap to get out of lockdown, is the tide about to turn for airlines, hotels and all those involved in leisure activities? And as the industry awaits the end of the pandemic, how can it prepare for what lies beyond the COVID era?
There is no doubt there is an enormous level of pent-up demand. In February this year, Longwoods International’s tracking study of American travellers showed that roughly 84% of them have made travel plans for the next six months. After months of being cooped up at home, it is unsurprised that people are desperate for a change of scenery.
The UK government’s road map at first suggested that 17th May was the date when travellers from England could start to travel overseas again. But since then, many countries in Europe have entered a third lockdown. Although the UK’s vaccination programme has moved on apace, the same cannot be said for other countries, and this has created a block in the road.
Because of the high risks outside the UK, in March, a £5,000 fine for anyone in England trying to travel abroad without good reason was announced as part of new coronavirus laws. This was a huge blow to all those hoping that overseas travel was soon to be back on the agenda. For now, it looks like a summer of staycations for the people of England, if not the whole of the UK. While this is a massive boost for UK tourism, it does little to help airlines or tour operators.
Uncertainty the greatest enemy
What would really help is more clarity on when the borders will open again. This depends on so many factors – not just the speed of the UK’s vaccination programme and reduction in hospital numbers, but on the same factors in the destination countries. In the meantime, the leisure industry is left in limbo – unable to plan properly and unable to forecast sales, revenues or profits. Tour operators don’t know if holidays can be sold, airlines don’t know which routes will be needed, and all the ancillary industries that service the tourism sector are left high and dry.
At Western Union Business Solutions, we have worked for many years with some of the UK and the world’s largest travel companies. In the current climate, our account teams have been supporting our clients, - CFOs, Financial Directors and Treasurers - as they put in place policies that will help their companies to withstand the current climate and also to go back to market and compete as soon as circumstances allow.
When the whole industry has been at a near standstill for over a year, what can businesses do to be as ready as possible for when the world does open up again? There are of course several measures to be taken: you need to find ways to keep some business coming in and try to go back to top line growth as soon as possible. You also can look at cost saving measures and find efficiencies across your business. Another key area to consider, particularly for international travel businesses, relates to your cross-border payments and currency risk strategies.
David Prendeville, Head of FX at Western Union Business Solutions in the UK said “We help many companies in travel and tourism to plan their foreign exchange needs, whether that’s related to booking holidays or overseas expenses. The funds are often booked months in advance, with a carefully thought-out strategy to minimise the uncertainties of exchange rate fluctuations. We are having to look at new, more flexible strategies to make sure they are not left exposed, whenever the huge pent-up demand for travel is released”.
The first step is to help those customers to gain visibility on their currency exposure. Such visibility is crucial. This means setting up the tools to help assess the impact of market movements on short-term needs. It provides better insight on immediate goals and in doing so, also helps better understand longer-term risk.
The next step is to set a plan of action coupled with clear metrics to assess progress and measure results. Often, we’ve found that our client’s main goals are:
- Protect profits from negative FX moves or retain the ability to benefit from favourable FX moves should they materialise.
- Retain flexibility on timing of payments.
- Achieve budget or target exchange rates.
This added clarity combined with a simple decision-making matrix can help our clients to empower their team members to respond faster to market movements.
The future is bright – and within reach for those with a plan
For now, it might be a waiting game, but this time can be used for vital planning. It is clear that the pent-up demand is there, and there is a bright future ahead for the sector. The industry is left impatiently waiting to get passengers back in the air, and the time now should be used to prepare as much as possible for that moment.
According to Dr Steven Freudmann, Chairman at ITT, “Despite all the setbacks, the travel industry is extremely resilient and we shall bounce back stronger than ever. The good news is that we know there is huge pent-up demand for foreign holidays and we are simply waiting for the opportunity to service that demand”.
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