Friday, 16 December 2016

Holiday surcharges - how big a threat?


Ski holiday surcharges - will they spread?
How serious is the threat that Britons who have booked holidays overseas may face demands for extra payments? Ski and snowboard holiday operator Mark Warner is reported to be surcharging customers as a result of the weakness of sterling in the wake of the Brexit referendum. Several other companies - not necessarily wintersports specialists - are understood to be planning similar action. Why? Many operators bought all or some of their foreign currency needs on the forward market before the Brexit referendum, so they could set firm prices for an agreed period ahead. But they don’t all take that precaution. In the immediate aftermath of the referendum reliable travel industry sources even suggested some might have gambled that a remain vote would strengthen the £, rendering such housekeeping unnecessary. The Package Travel Act, a Brussels directive enacted in UK law, allows operators surcharge for any additional currency exchange or fuel costs, or unforeseen taxes. But they must absorb those costs up to 2% of the holiday price and offer free cancellation – and a refund of money paid - if the surcharge exceeds 10%. The size of a surcharge depends on the exchange rates at which they set the holiday price and the proportion of the package price costed in foreign currency. So the more expensive the accommodation, for example, the bigger the surcharge is likely to be. Of course, tour operators have had five months since the referendum in which to adjust the price of new bookings to its impact. But there’s a limit to the frequency with which they can reasonably do that – and it must be noted that the £ has recovered somewhat from its post vote nadir. In summary it would not be surprising if more firms imposed surcharges – but a more acute problem will emerge when existing forward buying contracts run out. One major ski operator, which does hedge its currency needs, has already indicated next season’s package prices will rise by 5 – 6% - and that’s after strenuous efforts to cushion the impact. Anyone planning a foreign holiday better hope the compass swings dramatically towards a soft Brexit or a very protracted extrication – and maybe that inflation prompts a rise in interest rates. Either or both should see sterling edge a little closer to its pre-vote value.

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