Will Euro Exchange Rate Tumble Cause Arrivals to Topple

Much of the discussion at ITB March 4-8 in Berlin had to do with the weakness of the Euro. The confluence of circumstances that need to align in order to grow a mature market like Germany, and Western Europe for that matter, include: a strong economy; reliably miserable weather; an entitlement mindset as to the sanctity of vacation time; and the Democrats in control of at least one branch of the U.S. government. However, a reliably consistent exchange rate that does not fall below (US) $1.20 to the Euro.  Of all these variables, of course, the volatility in the exchange rate is more influential than all others combined.  The Euro’s plunge, which is approaching near parity with the U.S. dollar, is largely due to market speculation that Greece will exit from the Eurozone and poor economic conditions in Spain and Italy. (To read a daily update currency forecast analysis, click here: http://bit.ly/1bfYpAb

Offsetting the concern over the Euro, however, is the sense among both the travel trade and consumers that the U.S. is a safe destination; this is a strong point in its favor, as interest in the Middle East and North Africa–favored destinations among Europeans–has fallen off due to political instability and concern over terrorist activity.

What, exactly, will the impact of a 10-to-20 percent year-over-year decline in the value of the Euro vs. the dollar mean? Carol Rheem, vice president, research & analytics at Brand USA, told a March 12 meeting of the organization’s board of directors that, for every 10 percent decline in the value of a currency vs. the dollar, there is roughly a two percent decline in visitors, which suggests a two-to-four percent decline in visitor arrivals from markets in the Eurozone. “We do expect to see some impact on arrivals for the next year,” said Rheem. “We are expecting lower arrivals.”

A 12-Year Snapshot of Euro-Dollar Exchange Rates

2004-2015*

Year	Euro = $
2015	$1.07
2014	$1.39
2013	$1.31
2012	$1.32
2010	$1.38
2009	$1.30
2008	$1.56
2007	$1.33
2006	$1.21
2005	$1.34
2004	$1.23

* Date measured: Mid-day rate on March 16 of each year

Source: Prepared by Inbound per xe.com

One objective of our attending ITB in Berlin this year was not only to determine the trends coming from Europe, but also to understand the impact and the various strategies that different segments of the industry will use should the current exchange rate persist through the Fall and into 2016.

In conversations over a two-day period with a cross section of 40 suppliers, tour operators, destinations and rep organizations at ITB, we offer the following observations exclusively to our INBOUND REPORT subscribers.

Industry Reaction to the Weakened Euro?

Since receptive tour operators (RTOs) represent the closest link to sales, we asked several of them how they were being impacted and we received a variety of answers.  One major operator, probably reflecting the attitude of others who are worried about losing business to a competitor, told us that he would try to absorb the difference within his markup even if it meant breaking even; but he wasn’t interested in being a loss leader

Enzo Perretta,  CEO, Teamamerica, who seems to place his finger pulse of the market by personally traveling to the four corners of the earth on sales calls, told INBOUND that he saw the exchange rate collapse coming in late Summer of last year.  “If we had done nothing, our sales in 2015 would have been completely flat or maybe up one percent,” he explained. “But we decided to aggressively move into emerging markets that are less competitive by opening sales offices in Morocco to build the Middle East, and in Manila, the Philippines, where we will have a hub that will service  Asia.  Currently, we are already up 26 percent for the coming year.”  At this year’s Arabian Travel Market (May 4-7 in Dubai), Teamamerica will be all in with a booth about 90 square meters (1,000 sq. feet) in size.

Anticipating that clients may be asking for deals to mitigate the effects of the  exchange rate, Perretta was showing visitors to his stand an ultra-slick brochure/catalogue called “TeamPlayers” that featured value-added specials similar to those found in American Express Platinum Card offerings—extra nights, bottles of wine, free breakfasts, complimentary Wifi and complimentary upgrades.

Gary Schluter president of Rocky Mountain Holiday Tours, a regional operator that specializes in programs around U.S. National Parks in the West, told us that his business was bursting at the seams and this year sales reached the highest level in the company’s 27 year history last year—up 20 percent in 2014. So far in 2015, with 90 percent of his summer product already sold, bookings are running ahead by 15 percent.  RMH’s wholesale clients cater to travelers who select a different destination each year … and this was their year for the U.S., which they booked well in advance.  He believes that they may scale back hotel selections and meals.  The most affected, he believes will be last minute travelers who will book with OTAs in May for a summer trip.

 

Graham Bendelow, vice president of product, Americantours International (ATI), calculated that if all current rates charged by airline rates, hotel rates and food, etc. remained the same, the currency changes would result in a 12 percent increase; but, of course hotel rates are scheduled to increase 4-6 percent and airline rates are forecast at 2-3 percent which, combined with normal inflation, will probably increase package rates close to 20 percent for 2015-16 season.

 

Based on a conversation with another ATI principal, Nick Hentschel, vice president, business development, it appears that ATI’s has found another way to zig while others zag. Not only has the company doubled down on escorted tour motorcoach programs, it picked up the pieces from Mauiva’s ill-fated Air Cruise product by launching own “Wings Over the West” program in 2014 that sold out with strong reviews from clients and engendered grudging compliments from some of their competitors—proving, once again that adage that “pioneers get arrows in their backs while the settlers take the land.”  ATI has also discreetly developed a hybrid form of escorted fly-drive tours with China’s largest travel agency, Ctrip. (Note: Ctrip will be making a presentation about their company at NAJ’s sold-out Active America China on April 7-9 in Las Vegas.)

Peter Van Berkel, president of Travalco, said that he believed that the countries in Southern Europe would certainly be the most affected by the weakened Euro. While there seemed to be a consensus that demand from Germany and the UK would be less affected for the coming summer season because most holiday bookings had been made and paid for, arrivals from southern Europe would suffer—especially from countries with stagnant economies such as France, Italy and Spain w9ill be the most negatively impacted.

 

 

Brand USA Moves Into Film Distribution Mode

Flush with the security it received via its five-year Congressional re-authorization three months ago, Brand USA and its presence at Messe Berlin Expo Center City made for a ready hub for discussion and for tips and leads on anything having to do with the Visit USA business. Tom Garzilli, Brand USA’s senior vice president, global partner marketing, spoke with INBOUND and furnished updates on what, of note, the agency is doing to increase traffic to America.

First, he indicated that Brand USA was not going to react with tactical measures to currency fluctuations that were beyond their control and could well change once again. That said, it is set to implement plans similar to those of 2014 when they were able to measure strong key performance indicators and ROI.

Second, the 2015 Mega Fam 2 for the UK trade later this spring will provide more exposure for destinations beyond the gateways. The fam trip for travel agents, which is being conducted in partnership with British Airways and American Airlines, will be visiting many second- and third-tier destinations. It will visit 22 states, 12 of which have not previously been included in the Mega Fam itineraries.

Third, the release of a giant screen movie featuring U.S. National Parks is in the works. The finished product should be ready, Garzilli told the March 12 meeting of the Brand USA board of directors in time for a showing at the annual international conference and trade show of the Giant Screen Cinema Association (GSCA) in September in San Francisco. Brand USA plans to use the occasion to sign up giant screen theater owners to show the film, which should be ready for consumer viewing by January of next year 2016. The National Park Service, which was created by Congress on August 25, 1916, will be observing its centennial throughout the year. Garzilli was enthusiastic about the big screen movie’s chances for impact, explaining that the giant screen market, (which includes IMAX theaters as well as theatres in education venues such as museums)  is growing internationally, especially in China, which is on track to become the number one overseas source market for inbound tourism to the United States in 2019.

 

How the Trade is Adapting to a Mature Market with Fewer Buyers

Back in the inbound heyday, about 15 years ago before the industry in Europe consolidated into four main travel companies, ITB was the show to find new operators and agents needing help building product to North America.  As we walked the around Brand USA pavilion at this year’s show, it became clear that the way suppliers and destinations approach the market has evolved in different ways depending on the size of one’s budget.

The primary destinations—California, New York, Florida and Las Vegas—all had large branded booths populated by individual suppliers seated on stools behind a counter set up in a ring around the perimeter where they could meet with walk-ups and meet with appointments at conference tables set up in the center of the booth. Those that were not able to use a German rep to arrange appointments had a great deal of idle time.

Meanwhile, second-tier destinations such as Utah, Colorado, the Great Lakes Region and the Deep South, seemed to employ a more collaborative model, where in-country reps arrange appointments with a smaller number of qualified buyers many of who were USA specialists and media–who met with teams of 6-10 DMO’s and suppliers to update their itineraries and brainstorm new promotional ideas.

Trade Traffic in the USA pavilion was strong the first two days of the show, dropping off precipitously the third day, especially in the afternoon.  Overall, we heard mostly positive remarks about the show.

Takeaways and Tidbits from on and off the Trade Show Exhibit Floor

After many years being represented by Weichmann Tourism Service, Teresa O’Neill, vice president, global sales, Travel Oregon, said that the state has switched its German market representation to Lieb, associates.

 

 

In the national section in Hall 9, Ofir Cohen, head of groups and one of the five founders of Tourico, released the live version of the company’s automated group technology in which clusters of hotels in a requested area are able to bid on group business in a reverse auction format in which the lowest price wins.

 

 

“The sky is falling!” On ITB’s third day, we found the American Ring’s executive team–Stefan Frank, Margaret Dietermann and Sam Zonni—holding meetings at a table that was moved outside their booth. Evidently, a portion of the booth’s ceiling had collapsed right onto Ms. Dietermann’s arm the day before and they weren’t taking any chances.

 

So much for the wall between editorial and advertising. Several non-travel European magazines were trolling the halls of ITB brazenly offering some form of guaranteed editorial with a paid ad purchase. One Texas DMO delegate reported that he was surprised—and tempted–by a German food and wine magazine rep who offered him a package that consisted of a $5,000 ad in one issue to be followed by three pages of editorial in a later issue.

 

Florida beach destinations may be most vulnerable to the exchange rate vagaries as there are so many beach destinations options in Europe as well as Mexico and the Caribbean. However, beach destinations in Florida, which have benefited from additional room tax revenues from an unexpected surge in domestic tourism from the Northeast and Midwest due to another Polar Vortex this winter, will be less affected overall. As proof. Tamara Pigott, CEO of Ft. Myers Sanibel CVB, reported that in January 2015 her destination’s bed tax was up 37 percent over the previous year and 2014 collections were 16 percent greater than those in January 2013.

 

Alberto Cervera, head of Tui’s Destination Services division, which services groups worldwide for Hotelbeds from their office based in Cancun, Mexico, told INBOUND that company had a strong ITB show with an elevated interest in destination activities.

 

 

Isabel Hill, a Director, National Travel and Tourism Office, told us that, since the U.S. and China announced that period of validity for tourist visas would be extended to 10 years, visa interview requests have increased 61 percent. So far, 250,000 more visas have been issued than at this time last year.

 

Malcolm Smith, vice president of business development and general manager of IPW, U.S. Travel Association, reported that buyer counts for the upcoming 2015 IPW in Orlando had already exceeded those for last year and 300 more booths were sold this year than in 2010, when IPW was last held in Orlando.

 

 And finally: Who Are Those Waxed Men? Every year, the two men pictured here can be found roaming the ITB floor showing elaborately designed facial hair and INBOUND’s publisher has always wanted to know their backstory.  Evidently, they represent a club that keeps alive a tradition from the 18th Century in which each regiment in the Prussian army sculpts their beards and mustache into a unique design—sort of a crest made of hair

 

In A Nutshell:

1. Both wholesalers and receptives were more open new ideas, especially in a year external forces-such as the exchange rate–that could drastically affect sales of status quo product.
2. To mitigate the exchange rate issue, buyers would be asking suppliers for lower rates to compensate and lower program costs by using 3-star instead of 4-star accommodations, fewer days in large cities and more in smaller less expensive destinations, less expensive restaurants and by making the program less all-inclusive by increasing free time.
3. DMO’s would be bracing their stakeholders to expect fewer arrivals from Europe
4. Crafty receptive operators were finding new ways to diversify
5. More momentum and interest in second- and third-tier destinations from all buyers segments
6. We expect arrivals from most Eurozone destinations to decrease in 2015 between 2-4 per cent. Meanwhile, Spain and Italy may experience declines of 10-12 per cent. UK will be less affected.

NAJ Announces Creation of Strategic Advisory Council

NAJ founder and CEO Jake Steinman announced at ITB the formation of a Strategic Advisory Council comprised of thought leaders and industry professionals from representing various corners of the tour and travel industry world. They include:

 

 

• Uri Argov, founder and CEO, Tourico Holidays
• Peter Dorner, president, New World Travel
• Mike Gallagher, founder and chairman, CityPass
• Sheelagh Wylie, head of trade sales, midway attractions, North America, Merlin Entertainments
• Sally Davis Berry, tourism sales and marketing manager, Corning Museum of Glass
• Malcolm Smith, vice president of business development and general manager of IPW, U.S. Travel Association
• Evan Saunders, founder and CEO, Attract China
• Mike Prejean, sales, international, contracts and missions, Louisiana Tourism
• Teresa O’Neill, vice president, global sales, Travel Oregon
• Alberto Cervera, head of specialized groups, tourism sales and loyalty groups, TUI/Hotelbeds
• Robert Graff, vice president of marketing and international sales, Papillon Group
• DT Minich, President and CEO, Experience Kissimmee

 

After many years being represented by Weichmann Tourism Service, Teresa O’Neill, vice president, global sales, Travel Oregon, said that the state has switched its German market representation to Lieb, associates.

 

 

In the national section in Hall 9, Ofir Cohen, head of groups and one of the five founders of Tourico, released the live version of the company’s automated group technology in which clusters of hotels in a requested area are able to bid on group business in a reverse auction format in which the lowest price wins.

 

 

“The sky is falling!” On ITB’s third day, we found the American Ring’s executive team–Stefan Frank, Margaret Dietermann and Sam Zonni—holding meetings at a table that was moved outside their booth. Evidently, a portion of the booth’s ceiling had collapsed right onto Ms. Dietermann’s arm the day before and they weren’t taking any chances.

 

So much for the wall between editorial and advertising. Several non-travel European magazines were trolling the halls of ITB brazenly offering some form of guaranteed editorial with a paid ad purchase. One Texas DMO delegate reported that he was surprised—and tempted–by a German food and wine magazine rep who offered him a package that consisted of a $5,000 ad in one issue to be followed by three pages of editorial in a later issue.

 

Florida beach destinations may be most vulnerable to the exchange rate vagaries as there are so many beach destinations options in Europe as well as Mexico and the Caribbean. However, beach destinations in Florida, which have benefited from additional room tax revenues from an unexpected surge in domestic tourism from the Northeast and Midwest due to another Polar Vortex this winter, will be less affected overall. As proof. Tamara Pigott, CEO of Ft. Myers Sanibel CVB, reported that in January 2015 her destination’s bed tax was up 37 percent over the previous year and 2014 collections were 16 percent greater than those in January 2013.

 

Alberto Cervera, head of Tui’s Destination Services division, which services groups worldwide for Hotelbeds from their office based in Cancun, Mexico, told INBOUND that company had a strong ITB show with an elevated interest in destination activities.

 

 

Isabel Hill, a Director, National Travel and Tourism Office, told us that, since the U.S. and China announced that period of validity for tourist visas would be extended to 10 years, visa interview requests have increased 61 percent. So far, 250,000 more visas have been issued than at this time last year.

 

Malcolm Smith, vice president of business development and general manager of IPW, U.S. Travel Association, reported that buyer counts for the upcoming 2015 IPW in Orlando had already exceeded those for last year and 300 more booths were sold this year than in 2010, when IPW was last held in Orlando.

 

 And finally: Who Are Those Waxed Men? Every year, the two men pictured here can be found roaming the ITB floor showing elaborately designed facial hair and INBOUND’s publisher has always wanted to know their backstory.  Evidently, they represent a club that keeps alive a tradition from the 18th Century in which each regiment in the Prussian army sculpts their beards and mustache into a unique design—sort of a crest made of hair

 

In A Nutshell:

1. Both wholesalers and receptives were more open new ideas, especially in a year external forces-such as the exchange rate–that could drastically affect sales of status quo product.
2. To mitigate the exchange rate issue, buyers would be asking suppliers for lower rates to compensate and lower program costs by using 3-star instead of 4-star accommodations, fewer days in large cities and more in smaller less expensive destinations, less expensive restaurants and by making the program less all-inclusive by increasing free time.
3. DMO’s would be bracing their stakeholders to expect fewer arrivals from Europe
4. Crafty receptive operators were finding new ways to diversify
5. More momentum and interest in second- and third-tier destinations from all buyers segments
6. We expect arrivals from most Eurozone destinations to decrease in 2015 between 2-4 per cent. Meanwhile, Spain and Italy may experience declines of 10-12 per cent. UK will be less affected.