Many people think the European travel market is a stable environment, in which it’s easy for tourists to plan trips and destinations can maintain competitiveness.
However, the reality is more complex, with fluctuations in foreign exchange (forex) rates creating uncertainty for both tourists and tourism businesses. Whichever camp you fall into, understanding the impact of forex rates will help you navigate the European travel market with confidence.
Tourist purchasing power
When the value of a currency increases relative to a foreign currency, it becomes more expensive for residents of that foreign country to buy. And when it decreases, it becomes cheaper. For example, if the Euro strengthens against the US Dollar, then it becomes more expensive for Americans to holiday in Eurozone countries. Conversely, these destinations become more affordable if the Euro weakens. This dynamic directly affects tourist behaviour. Some travellers may wait to book trips when the exchange rate favours them, while others might use forex trading platforms like Tradu to capitalise on favourable currency movements.
Destination competitiveness
In addition to affecting tourists, forex fluctuations can impact entire destinations. A country with a weaker currency becomes more attractive to foreign visitors, as their money stretches further. For example, the Turkish Lira has been weakening against the British Pound over the past five years, making it an attractive holiday destination for Brits – so much so that the number of Brits visiting Turkey is expected to increase by 25% to 5 million in 2025. More foreign visitors can increase tourist arrivals and revenue for hotels, restaurants and tourist attractions. Conversely, a strong currency can price a destination out of the market for some tourists.
Forex fluctuations can impact entire destinations in addition to affecting tourists. For example, you don’t want to find out that the Euro to PKR exchange rate is poor. Travellers want to get the best for their money both on the way to their destination and on the way home.
Business costs and revenues
Forex fluctuations are a double-edged sword for businesses in the European travel sector. A stronger Euro can lead to lower operational costs for Eurozone tourism companies, as they pay less for imported goods and services. However, it can also decrease their revenue from foreign tourists, as their spending power weakens. Conversely, a weaker Euro can increase revenue from foreign visitors but also inflate operational costs due to more expensive imported supplies. Travel businesses employ various strategies to hedge against forex volatility. They might negotiate contracts with suppliers in their currency or use forward currency contracts to lock in exchange rates for future transactions.
Shaping tourism in Europe
Forex rates act much like a hidden travel tax, influencing how much tourists spend and tourism businesses earn across Europe. Beyond traditional holidaying, foreign exchange rates can also influence more niche forms of travel, such as medical tourism.
For example, the Turkish Lira’s weakness against the British Pound makes Turkey an attractive destination for Brits seeking faster, cheaper dental treatment and other medical care amid difficulties accessing NHS treatment at home.
** Pics sourced on Pixabay.
