Watch the video above: Some people could end up paying more to go south. Laura Zilke reports.
For wintertime sun-seekers, the cost of an annual pilgrimage to Veradaro or Cancun looks poised to rise.
Cuba- or Mexico-bound travellers on packaged tours are one group among many that could soon feel the downdraft of a fast-falling loonie, a development that has travel operators such as Sunwing and Transat A.T. contemplating a new surcharge to combat their own rising costs.
Transat and Sunwing officials publicly floated the idea of new $25 or $30 fee in early December when the loonie had weakened to 95 cents against the U.S. dollar.
The currency has plunged to below 93 cents this week, and according to experts could fall even further. The decline is adding fuel to the idea of a new foreign-exchange surcharge for travellers.
“Somehow they’ll do it,” he said of the travel companies – and even possibly airlines like Air Canada and WestJet – who would look to recover costs.
Packaged tour operators deal primarily in U.S. dollars when securing everything from blocks of hotel rooms through international hoteliers to paying for jet fuel.
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Hedging contracts that guarantee a fixed exchange rate for a period of time remove some of the risks that a sudden decline in the loonie will see those operating costs shoot higher.
But with experts suggesting the loonie could remain low for some time, at some point over the next year or so, Transat, Sunwing and other similar businesses will see those agreements expire, putting pressure on them to add on new fees to customers.
“The timing is hard to say, but eventually you’re going to see this reflected because if your costs go up, and this is what we’re talking about, then it’s got to be recaptured,” Tyerman said.
Ben Vendittelli, an analyst at Laurentian Bank Securities, said the surcharge won’t likely be added to the price of this winter’s bookings.
“I think it’s still in the early stages, not something you’ll see coming in the next couple months,” he said.
Requests for comment from Transat and Sunwing were not immediately returned.
Covering costs or juicing profits?
Vendittelli said the surcharge is a way for the travel operator to justify a price hike and explain the reason behind it.
“It helps the airlines and travel companies better clarify potential pricing increases caused by the changes in the currency. It would definitely help them from a marketing standpoint,” the analyst said.
“The beauty of the surcharge is that it makes it really clear to the consumer why the price is going up,” Canaccord Genuity’s Tyerman added.
“Everybody seems to assume that a higher price means the company is gouging them.”
Still, consumer advocates are suspicious of the new surcharge, which they say holds the potential to be used to juice profits rather than simply offset higher costs.
“It certainly has the appearance or potential to muddy the water for the consumer,” Jonathan Bishop, lead researcher at the Public Interest Advocacy Centre in Ottawa, said.
“If it’s a voluntary charge, you have to look at whether there’s the potential for padding the bottom line.”
Tyerman said vacation operators like Transat aren’t making enough profit as it is to withstand the currency hit without flowing the costs onto customers.
Last month, Transat CEO Jean-Marc Eustache wouldn’t say how soon a surcharge may come, but said he doubts that the new fees would spur a backlash among customers.
“When the price is $1,500 and tomorrow we put a surcharge of $25 I don’t think the consumer will say, ‘Oh no, I will not travel for 25 bucks,“’ he said.
“We’ll look at it and make a decision.”
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