Feeble Euro Promises a Fine Season for European Travel

by James Ruggia
Last updated: 6:00 PM ET, Thu January 8, 2015

Photo courtesy of Thinkstock

At the moment we seem to be in a radical re-shifting of global poker chips, thanks to a collapse in oil prices that have brought oil down to about half its former value. Now comes news on Wednesday that the Euro, which has been declining for several months, has hit a nine-year low against the dollar and that European consumer prices continue to fall. On a large scale, this is not good for the European economy, but it is good for export sales and inbound tourism is an export.

For years a Euro worth $1.40 has been seen as the boundary between an affordable Europe for American travelers and an expensive Europe, so where are we now as we look forward to Europe this year when the Euro is priced at $1.17?

"The U.S. Dollar strengthening in advance of the tourist season… Can that ever be a bad thing?" asked Bob Drumm, the president of Alexander & Roberts. "It's not only Europe; we're seeing great traffic to Japan thanks to a strong Dollar."

"It's not good news for Europeans coming to New York, but it's great news for Americans traveling to Europe," said Eugenio Magnani, the director of the Italian Government Tourist Board in New York and chairman of the European Travel Commission. "Italy will be extremely affordable for Americans. They'll be able to eat more, shop more and stay in better hotels. We are excited that we'll be hosting the Milan Expo this year just as the U.S. market is so strong."

"We have seen strong growth since about last February," said Anne-Laure Tuncer of ATOUT France. "We monitor ARC sales, which represent about 45 percent of all ticket sales, and we see an 8.8 percent increase in flights from the U.S. to French airports. Obviously the value of the dollar only strengthens what looks to be a strong 2015 out of the U.S. We have for years now seen the $1.40 mark as a threshold. France is now very affordable, and the media is getting the word out on the affordability of Europe in general, so we are very encouraged."

Germany has been on a roll without any help from a weakened Euro. From January to October, 2014 overnight stays were up 5 percent from all foreign visitors and up 4.4 percent for U.S. travelers, figures year-over-year. This would have been strong again as Germany celebrates 25 years of reunification, but it promises to do even better thanks to the extra value from a powerful dollar.

"While on-the-ground services, such as hotel accommodation, transport and food, have always been affordable for U.S. travelers, they are now even more so, highlighting Germany as a smart luxury and shopping destination, for travelers with all kinds of budgets," said Ricarda Lindner, regional manager the Americas at the German National Tourist Office.

Interestingly, in its coverage of the situation, the Wall Street Journal quoted Paolo de Cesare, chief executive of Printemps, expressing the hope that tourists can help offset the poor sales coming from French consumers. Cesare said its flagship store in Paris eked out "low single-digit growth" in 2014, amid poor French consumer confidence.

"The enormous popularity with Asian travelers of shopping in department stores has made Parisian department store very aware of tourists," said Tuncer. "Stores like Galeries Lafayette have become destinations where people do more than just shop: they take cooking classes, attend fashion shows, dine in the wine bars and more."

Galeries Lafayette maintains an English-speaking lounge for shoppers from the U.K., the U.S., Australia and other English speaking countries. According to the department store, spending by U.S. customers was up about 10 percent in December.

[BLURB] "I have always maintained in Italy and in Europe, that the U.S. is the most important market because of its balance of quantity and quality of the tourists it provides." - Eugenio Magnani, Italian Government Tourist Board [/BLURB]

Another impact of all of these shifting economic forces lies in market priorities. For a few years now promotional budgets have been shifting away from the U.S. to the BRIC country markets (Brazil, Russia, India and China), now some of that budget will make its way back to the U.S. "I have always maintained in Italy and in Europe, that the U.S. is the most important market because of its balance of quantity and quality of the tourists it provides," said Magnani. "Our Italian brand is really well established in the U.S. and so it gives us real strength this year."

For the time though, the prices of air fare remain at the levels that were set when oil prices were skyrocketing. Now although prices are half that, the fares remain high. "A lot of the prices reflect the hedging that major carriers do with their fuel suppliers," said Drumm. "They sign contracts that set prices at certain levels. Those contracts remove some of their flexibility. I don't expect you'll see dramatic fare reductions this year, but you'll likely see plenty of flash sales as carriers like Air Berlin and Norwegian Air try to take market share from the legacy carriers."

One caveat remains going forward. On Jan. 25 Greece will have an extremely significant election that will say a lot about Euro values going forward. An ascendant party, which took a sizeable lead in the polls recently, promises to resist the severe austerity program imposed on Greece by the European banks. If Greek leaders end up taking Greece out of the Euro and restoring the Drachma it will have an impact on Euro's value, probably lifting it. With more significant elections coming up in Spain and Portugal this year, the Greek election could be that first domino.

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