With the Malaysian ringgit in a recent flux, S Puvaneswary finds out what measures travel companies are taking to ease the effects of currency volatility on their business
Malaysian travel agents are changing and adapting their business strategies in the face of a weak ringgit, as currency fluctuations since 4Q2015 weigh on their operations and earnings.
Desmond Lee, group managing director of Apple Vacations & Conventions, told TTG Asia: “The weakened ringgit has made Malaysians more cautious of their spending, and we had to change our strategy in selling Japan and Europe.
“In the past, we used to focus on Tokyo and Osaka, but we now focus on Hokkaido, the eastern part of Honshu island and Mie Prefecture, where ground costs are cheaper by 30 per cent than Tokyo and Osaka,” he said. “In Europe, we focus on tours to Romania, Greece and Bulgaria as ground costs there are relatively cheaper than central Europe.”
The Kuala Lumpur-based firm now makes full payment in advance to ground suppliers overseas to lock prices at the current exchange rate. It has also allocated a bigger budget for advertising and marketing this year in order to close sales and settle advance payment with ground suppliers faster, added Lee.
Mayflower Acme Tours, meanwhile, monitors outbound package prices daily and marks up with a bigger buffer to prevent losses, deputy general manager – channel management Abdul Rahman Mohamed revealed.
Abdul said: “We also have a clause in contracts with customers and corporate clients that specify that the current rate quoted may be revised at the point of final payment, which may be made a month or two later when rates have changed.
“While MNCs are understanding and will comply (by contractual agreements), SMEs try to take advantage of the currency fluctuations and bargain for a lower rate to gain savings,” he lamented.
“The (ringgit) volatility has also made it necessary to hedge with foreign banks to purchase room inventory and ground transportation, something we didn’t have to do in the past when the ringgit was stable. However, we also see hedging as a means of making extra profit.”
Abdul indicated that hedging of currency risk is “especially necessary” with non-ASEAN partners as they do not want to trade in ringgit, unlike ASEAN agents who usually have a Malaysian bank account and will transfer the money to their currency when the ringgit appreciates.
The volatile ringgit has also unnerved inbound tour operators, with many opting to put a contracting clause with their overseas counterparts to protect themselves from foreign currency fluctuations.
Ally Bhoonee, executive director of World Avenues, said: “Inbound wholesalers like ourselves give credit to overseas wholesalers for FIT bookings two or three months in advance.
“We only get paid 30 days after the guest checks in and at an exchange rate (usually in US dollars) that had been predetermined earlier. If the ringgit weakens, we make a loss. But if it strengthens, we gain.”
Bhoonee added that a larger buffer would safeguard the company against losses, but they risk losing customers to OTAs amid a competitive business climate. Conversely, if the margins are kept thin, the company has to shoulder the risks.
Similar contracting pains are observed at Olympik Holidays, said general manager Adam Kamal. “It is easy with ASEAN partners as bookings are usually a month in advance so the difference is not much. It is much more difficult to deal with European and Middle Eastern counterparts as they book six to 10 months in advance and they want to adhere strictly to the contract.”
“We suffered a 15 per cent loss in 1Q2016 handling the European inbound market as we had to absorb the difference. Having been burnt, we thus concentrate on the ASEAN market.”
Olympik Holidays is currently developing an online booking engine for its B2B and B2C clients. Expected to be ready by early 2017, the booking engine will provide real-time updates on package prices.
Said Adam: “The booking engine will replace our traditional contracts with agents as they will be given a password and can book directly with us.”
Kingston Khoo, senior product development and contracting manager at Discovery Overland Holidays, said: “Ringgit fluctuation has been quite volatile since March and we have been sending out email announcements on foreign currency exchange rates to our partners every two weeks.
“When the ringgit depreciates against major currencies, this means savings to our (overseas) agents. In April, the ringgit appreciated, and agents have been accepting of the new rates.”
On the other hand, the domestic tourism market has not been severely impacted by the ringgit fluctuations, a situation the Malaysian Inbound Tourism Association (MITA) has taken advantage of when it held its inaugural travel fair in January this year.
Uzaidi Udanis, vice president of MITA, said: “We wanted to encourage more Malaysians to travel within the country. We didn’t think that response would be so encouraging, with around 13,000 visitors and package sales estimated at RM2 million (US$495,946).”
MITA wants to grow its fair next year by involving more industry players and organising it in the states of Kuala Lumpur, Kedah, Johor and Sarawak.
This article was first published in TTG Asia, June 3, 2016 issue, on page 5. To read more, please view our digital edition or click here to subscribe.
