coming soon – your currency surcharge

The recent spat between Unilever and Tesco – the so-called marmite war – over a price rise justified (or not) by the weakness of sterling will have rung alarm bells with skiers who may be looking forward to their winter holiday with more trepidation than usual.  The prospect of having to pay for tartiflette at parity with the euro is bad enough, without the threat of currency surcharges hanging over us.

For those too young to remember 2008, which was the last time this abusive scourge was visited upon us, a currency surcharge is when a tour operator raises the price of a holiday after we have booked, bought and paid for it, on the pretext that their costs have gone up because sterling has gone down.

This is bad practice on so many levels, the fact that it’s still allowed defies belief.   But if you look at the booking conditions of your holiday you will probably find that the operator ‘reserves the right’ (as they like to say) to surcharge until 30 days before departure.

The rules, such as they are, about surcharging are the Package Holiday Regulations, which came in after a bout of surcharging a quarter of a century ago.  They state that operators must absorb the first 2% of any increase in costs and can surcharge for cost increases beyond that.  Many ABTA members add an ‘administration charge’ for the trouble they take to calculate and impose the surcharge, plus a supersurcharge on top of the surcharge, so that the travel agent gets a slice of commission: not a slice taken out of the surcharge, but added to it.  ABTA says that’s fine.  Of course it does: it’s the travel agents’ association.

If the surcharge amounts to 10% or more of the holiday cost, you can cancel and get a full refund.  If it’s 9.9% and you can’t or don’t want to pay it, tough.  Since surcharges can be applied after the holiday has been paid for in full, anyone who decides not to pay stands to forfeit up to 80% of the holiday cost.

Tour operators can easily eliminate their exchange risk by using the financial markets just as other exporters and importers do.  But why would they, when by leaving the risk open they stand to gain if sterling strengthens, and pass the loss on to the customer if it weakens?  One-way bets are always attractive.

In our real-time world, tour operators can raise the price of unsold holidays at any time in response to exchange rate movements and other variables.   Why would they, when they can advertise low prices and increase them retrospectively after the holiday is sold?

Wasteland, a student-oriented ski tour operator, notified ABTA on October 21st that it will be surcharging holidays departing from December 9th and since its holiday prices are based on an exchange rate of 1.36 euros to the pound, which is now 10 months out of date, the surcharge may be hefty.  Why not adjust prices before now?  Because it doesn’t have to.

On June 29th Inghams announced a price freeze and no surcharge guarantee on all summer and winter holidays, and that guarantee featured prominently on its ski website until a couple of weeks ago.  Now their booking conditions include the standard threat of surcharging,

But Inghams tell me they are not going to surcharge – ‘Inghams hedged like other operators,’ apparently.  If they hedge, why reserve the right to surcharge?  Because they can.  The 30 day deadline before the first ski departures is not far off, so we will soon see where other operators stand on this.

“It costs us a lot, but the bad will associated with surcharging is so great, it’s not worth it,” says Nick Morgan of Le Ski.  “People book early to secure the best prices, and surcharging them would be immoral.”  So why the ‘all rights reserved’ clause in the booking conditions?  Because everyone has his price.  “If the pound goes below 1 to the euro, I might just forget my morals,” says Mr Morgan.

Neilson and YSE are two of the few whose booking conditions include a straightforward no-surcharge guarantee – at least they did when I last looked.  No doubt we should download and print the booking conditions on the day we book, in case the tour operator changes them before sending out the paperwork.

Defenders of this indefensible system might point to the ‘flying pigs’ clause in the regulations which states that tour operators are obliged to pay refunds if their costs go down, calculated on the same basis as surcharges.  Nice idea.  Hands up, any tour operator that has ever paid a currency refund.




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