The travel sector is particularly sensitive to exchange rate fluctuations. Due to the very nature of their business, travel agencies and tour operators are constantly exposed to exchange rate risk, even long before they complete their final transaction.
Yet many of them continue to overlook this issue... until it is too late.
A profession naturally exposed to exchange rate risk
Travel agencies and tour operators sell services (hotels, tours, safaris, transport) at prices set several months in advance.
And there is one problem :
- Quotes for clients are often issued in their own currency.
- However, the purchase costs (accommodation, local services) are in foreign currencies: South African rand (ZAR), US dollar (USD), Kenyan shilling (KES), British pound (GBP), Japanese yen (JPY), etc.
- The actual payment to foreign service providers takes place well after the client contract is signed, sometimes 6 or 9 months later.
As a result, the agency or tour operator is exposed to exchange rate fluctuations between the date of sale and the date of payment. Even a small change in the rate can erode several percentage points of margin, or even turn a profitable sale into a direct loss.
Clauses can be inserted into contracts to adjust the client price in the event of an unfavourable exchange rate fluctuation, but this inevitably negatively impacts the overall customer experience.
Example of an agency specialised in safaris in South Africa
Let’s take the example of a high-end travel agency specialised in tailor-made trips to Southern Africa.
Before working with Devyzz:
- It set its prices in euros, including a 'safety margin' of +10% to anticipate fluctuations.
- This model penalised both its competitiveness (higher prices) and still exposed its results in the event of a significant variation in the South African rand (ZAR). However, in a volatile financial environment and with an exotic currency like the rand, such fluctuations over a few months are regularly observed.
Here is a concrete example:
- In March 2024, it sells a safari in South Africa for €10,000.
- The supplier cost is 210,000 ZAR.
- Exchange rate in March 2024: 21 ZAR to 1 EUR ➔ €10,000 covers the costs.
- But in December 2024, the rate dropped to 18 ZAR to 1 EUR, so it had to pay €11,666 for the service.
📉 Direct loss: €1,666, nearly 15% of the margin wiped out. Its 'safety margin' of 10% wasn’t enough, and this trip even turned into a direct loss for the company.
Since its partnership with Devyzz:
🔐 The agency secures its currency costs as soon as the client contract is signed, locking in an exchange rate up to 24 months in advance.
🏛️ It even manages to secure enhanced exchange rates on certain transactions: by acting in advance, Devyzz leverages the interest rate differential between the South African rand and the euro to secure a forward rate better than the spot rate.
Results:
🧘 The profit margins are secured at the point of sale for better cash flow management and forecasting of financial results.
📈 No need to overcharge client prices as a precaution, resulting in a gain in competitiveness.
How to lock in an exchange rate ?
With Devyzz, you can lock in an exchange rate through a forward contract. Visit our dedicated page for more information.
Why Devyzz is the ideal partner for managing your exchange rate risk?
- Preserved cash flow: only a 5% initial deposit required, with the possibility of setting up hedges without a deposit, subject to the validation of your financial statements
- Maximum flexibility: security for up to 24 months, with the option to also use the spot rate in addition to seize favourable opportunities.
- Intuitive digital platform: manage and track your forward contracts directly online, independently.
- Expert support: each client benefits from a dedicated contact person with at least 10 years of experience in financial markets.
- Commitment to transparency and simplicity: transparent exchange rates, no hidden fees, no transfer fees, no usage fees, or account maintenance fees.
- Ultra-competitive pricing: exchange rates up to 3% more competitive to maximise your savings.
- Accessibility and responsiveness: solutions tailored to businesses of all sizes, with quick implementation and a proactive, available customer service.
👉 Don’t stay in your comfort zone.
At Devyzz, we understand your specific challenges
- Keeping your prices competitive against your competitors.
- Protecting your margins to ensure the longevity of your business.
- Simplifying the management of your international transactions.