Financial Systems within the Travel and Tourism Industry

Tour operators and travel agencies have seen demand for travel products to the USA rise in the past eighteen months or so. This can be attributed partly to a fall in the value of the US $ to the UK £.

Task 1

Use a foreign currencies chart to make notes on how this rate of exchange has fluctuated between May 2004 and December 2004. The BBC's Market Data may be useful for this task. (http://newsvote.bbc.co.uk/1/shared/fds/hi/business/market_data/currency/11/12/twelve_month.stm)

Image: Have exchange rate movements of recent months resulted in cheaper holidays to the US for British families? Copyright: Jelle Weidema, stock.xchng

If you find this task difficult, don't worry. Let's show you how exchange rate movements can affect the final price of a holiday:

A two-week all-inclusive holiday to Florida for a family of four costs $5,000.

At a £:$ exchange rate of £1 = $1.5, this costs in effect £3,333 (Divide 5,000 US Dollars by the exchange rate of 1.5)

At a £:$ exchange rate of £1 = $2, the holiday would now cost £2,500 (Divide 5,000 US Dollars by the exchange rate of 2)

Travel and tourism businesses will be experiencing these lower costs for travel services they buy in US Dollars, for sale on to UK consumers. UK consumers will be more interested in buying a holiday in the USA at this rate of exchange than previously.

Businesses should anticipate the higher demand they are likely to see from UK consumers for holidays in the USA.

Task 2

Remember though that there will be another effect of this fall in the value of the US $. Holidays taken by US travellers to the UK may become less attractive because it takes more US $ to pay for a UK-based holiday which is priced in UK £. As with task 1 above, write a short description of why this might be true.

The impact of EU expansion

Task 3

Find out how the EU has expanded since 2004. Use the following Web sites for help:

Enlarging Europe - from the BBC (http://news.bbc.co.uk/2/shared/spl/hi/europe/04/enlarging_europe/html/introduction.stm)
Biz/ed's EU Enlargement notes (http://www.bized.co.uk/learn/economics/international/eu/notes/eu5.htm)

Image: Has the Czech Republic's EU membership resulted in more tourists visiting Prague? Copyright: Giel Op 't Veld , stock.xchng

Some new EU member states, for example, the Czech Republic have changed their VAT rates to bring themselves in line with EU average rates. In the Czech Republic, the rate charged on hotel rooms has risen from 5% to 19% since they joined the EU.

Task 4

Which routes to cities in the Czech Republic are offered by budget airlines? Look at the easyJet(http://www.easyjet.com/en/book/index.asp) and Ryanair(http://www.ryanair.com/) Web sites to find out.
What impact do you think the VAT rise would have on demand for travel products and services in the Czech Republic?
Why might the impact of the rise be less than one might imagine?