A large part of the global tourism industry relies on foreign travelers spending their currencies in countries other than their own. This article looks at the fluctuation of currency exchange rates and their impact on the change in average daily rate.
Room rates obviously change all the time, but in addition the changes in the exchange rate can make destinations more or less attractive, depending on the country (and currency) of origin of the traveler. As the European debt crisis and the debt downgrade of the U.S. influenced the headlines of the financial markets, they also impacted the interplay of the currencies.
Below are the percent changes in ADR between year-to-date November 2011 and 2010. Through the first 11 months of the year, euro denominated ADR increased less than the coinciding U.S. dollar ADR. In the table below, we are highlighting some extreme instances where the ADR decreased when quoted in euros but increased when looked at in U.S. dollars (e.g., Berlin, Madrid). In addition, the decrease in the value of the U.S. dollar made U.S. destinations more affordable in euro terms, even though the U.S. ADR had increased (e.g. Chicago, Los Angeles, New York).
Throughout the year, the U.S. dollar deteriorated against the euro as it fluctuated from a high of 0.735 €/$ in January to a low of 0.673 €/$ in April. Since then, the dollar has recovered up to the most recent result of 0.749 €/$ in November.
The chart below details the decline and subsequent increase of the dollar value. We overlay the monthly percent change from a year ago to show that with the exception of January 2011, there was no month when the dollar was higher than in the prior year. But as the chart shows, the decline in dollar value has stopped and reversed course and the negative percent changes are now much less pronounced. At the end of December 2011 the dollar continued following this trend and has made a remarkable recovery to its strongest position in more than a year.
The implications of this dollar value increase for U.S. hotels are probably not desirable. A stronger dollar makes European vacation destinations more affordable for U.S. travelers and might entice them to take their leisure dollars overseas. In addition, U.S. hotels, which according to STR’s forecast are expected to see ADR increases of more than 3.5% in 2012, will be even more expensive for travelers paying in euro. Add to this continued increases in transatlantic airfare and this might well put a damper on the ongoing U.S. hotel recovery.
The opinions expressed in this blog do not necessarily reflect the opinions of HotelNewsNow.com or its parent company, Smith Travel Research and its affiliated companies. Bloggers published on this site are given the freedom to express views that may be controversial, but our goal is to provoke thought and constructive discussion within our reader community. Please feel free to comment or contact an editor with any questions or concerns.
