Travel firms' profits hit by Brexit sterling slump

Travel firms' profits hit by Brexit sterling slump

Tour operators are unlikely to introduce surcharges to offset the impact of the fall in sterling this summer, but are expected to hike prices next year.

Travel Weekly understands most operators have sufficient hedging arrangements in place to absorb the 10% fall in the value of the pound against the dollar following the EU referendum.

However, online travel agents (OTAs) are likely to see lower margins as a weak lates market compounds a disappointing year for the OTA sector which is largely unhedged.

Industry accountant Chris Photi, partner at White Hart Associates, said the Brexit referendum vote had “adversely affected the market. Most tour operators and OTAs are down by up to 25%.”

He warned: “The currency situation will hit the bottom line of many companies, although hedging may mean the full impact does not filter through until 2017.”

Photi described the lates market as “of increasing concern”, asking: “Will it materialise and to what destinations? Spain is 95% full [and] geopolitical upheaval has undermined many late market destinations.” However, he suggested: “Some parts of Greece may have capacity.”

Sunvil chairman Noel Josephides suggested most operators are 70%-80% hedged on currency so can absorb the increased costs. At the same time, he said regulations made it “almost impossible” for operators to impose surcharges as they had in the past.

Josephides said: “It’s extremely difficult to put up prices in the current market. But if things stay where they are, prices for next year will end up 15% to 20% higher. It’s very difficult to know how to price and what currency to buy because of the economic instability. Get it wrong and you can be uncompetitive.”

Photi stressed the underlying strength of the UK economy despite the shock of the referendum vote and said: “The new prime minister’s cabinet shuffle will be crucial to restoring confidence in the weeks ahead.”

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