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| How much does yours cost? |
Over the past few weeks, much has been made in the global business and economic press regarding a topic normally not infused with passion and rhetoric – currency exchange rates. Given that one of my friends here in Australia who works for a global investment bank recently proposed a “Parity Party” for when the Aussie dollar matched the US dollar for the first time in nearly 30 years, discussing currencies is seemingly becoming as cool as property prices used to be in terms of discussions amongst friends at dinner parties.
The Economist recently had a special feature on the so-called “currency wars” that some pundits are concerned may break out across the globe. One of my favourite (and most useful, to layman economists like myself) indices that helps understand the value of world currencies is the “The Big Mac Index” which highlights the relative costs of McDonald’s iconic sandwich across the globe.
So what do currency rates, Big Macs and travel have to do with each other? Plenty, I might argue.
It may not matter as much if your air, hotel or car deals are localised in a particular market and you’re dealing in local currency. Your Big Mac costs what your Big Mac costs in your own market, in essence.
However, many GDS / airline contracts, for example, are written in US dollars and with the greenback’s softening lately, this produces an interesting dynamic in the corporate travel space. Especially with travel management company transaction fees.
TMC transaction fees incorporate a variety of factors to arrive at what a company ends up paying for their services. And a fair bit of TMC infrastructure and revenue is made possible by the commercial relationships with GDS’s, technology providers and air/car/hotel suppliers. No reason to begrudge that, as TMC’s are in business to make money after all.
The incessant downward pressure on transaction fees over the past decade has made this dependency on 3rd party commercial relationships vital for TMC’s to continue to provide the services companies are asking for. However, if you’re a corporate buyer and are out in the market at the moment, or if you’re a TMC seeking a new GDS provider or preferred airline deal – check how much your Big Macs will REALLY cost you.
Many airline-GDS contracts are written in US dollars. Therefore, with many global currencies performing well against the US dollar at the moment, the ability for GDS’s to negotiate strong local commercial deals is hampered a bit. OK, maybe a lot, as the US dollar value of the GDS’s airline contracts aren’t worth as much as they used to be when translated into local TMC/agency contracts.
Same with airlines, as if you’re doing your negotiations with an overseas carrier for your local outbound international travel, is the carrier’s home market strong or weak from a currency perspective? If you’re seeing the fares being offered now to try and attract Brits or Americans to come to Australia, you’ll see that they are trying to distract travellers from the fact that due to the strong Aussie dollar, its no longer cheap to spend money Down Under. Big Macs are pricey here.
And lastly, if you’re a corporate buyer negotiating a global contract with your TMC, and you want a single price in US dollars, you may find that what used to be cheap transaction fees for markets in Asia Pacific (after converting to USD) aren’t so cheap any more. Again – a Big Mac is a Big Mac in name only, price on advisement!
So although currency fluctuations may be the provenance of bankers, traders and speculators, the next few months could pose a conundrum for anyone in a commercial role in the travel industry. Which is: do you know how much you’re currently paying, how much you want to pay, and whether you think you will end up paying what you think you should pay?
Which begs another question: do you want fries with that?
