This article in Travel Weekly provides some fascinating insights into how tour operator’s manage their supply chain. First, operators have to negotiate contracts with airlines, hoteliers and other travel providers this year, in order to establish what holiday packages they will offer in next year’s brochure. Second, because they generate revenue in sterling (or US dollars) and pay suppliers in euros, they time this negotation so that the exchange rate is favourable for them. So package holiday prices for 2013 are less than prices in 2012, by as much as 12%, because the euro has fallen against other currencies. This is so important to the operators that they may even ‘hedge’ against currency fluctuation – buying euros when they think the exchange rate is at its most favourable. Finally, many of the destination countries, such as Greece, Spain and Portugal, are in distressed economic circumstances, so the operators have been able to negotiate very good prices.
The article then concludes by discussing capacity management. Given the global economic outlook, operators have to decide whether to increase the number of packages they offer, hold them at the same level as this year, or cut back on their portfolio. Interestingly, the two major operators interviewed have adopted different strategies – with one cutting back and the other increasing the number of offers. Clearly forecasting in this sector is particularly challenging.