India’s tour operators cover forex losses
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The rapid rise of the Indian rupee’s value against the greenback has forced tour operators to hedge their foreign currency earnings using forward covers, a report said. The Economic Times said profitability of the inbound business has been hit and the travel trade has become more cautious to avoid more losses. While Indian has seen the number of tourists coming rising by 20% this year, tourism receipts have not risen as such. It quoted figures showing between January and October this year, foreign exchange earnings from inbound tourism dropped 25% in dollar terms compared to 12.7% during the same period last year. To mitigate this, travel companies have started buying forward cover rather than merely resorting to billing in other currencies like the euro or pound. “We have already lost 3-4% on gross profit this year. Not just hotels, transport, guides and airlines, even entrance fees for monuments is paid in rupees now,” Le passage to India managing director Arjun Sharma was quoted saying. With 40% of its foreign exchange earning in dollars, the company has gone for a forward cover of 20% of its earnings from inbound tourism. “More than the appreciation of the rupee, it’s the skyrocketing room rates that have impacted the industry,” Thomas Cook MD Madhavan Menon was quoted saying.
Forward cover allows the buyer to convert his earnings to rupees at a specified rate rather than leaving it to market forces.
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