Euro-Tourism: American Travelers Taking Advantage of Strong Dollar
"People are very nervous about the debt that the European economies are taking over," says Dr. Chris Hughen, professor of finance at the University of Denver's Daniels College of Business. "Greece, Spain, Portugal, Italy, Ireland: These are all countries that have lived well beyond their means and it's really coming home to them right now. People are essentially running to the U.S. dollar as a source of safety, and I think from the standpoint of a U.S. traveler, this is really a great opportunity."
In July 2008, the euro was trading for around $1.58. Just this week, however, the one euro was valued at $1.22 -- a 19% decline.
"It's an excellent time to travel to Europe, with the euro-to-dollar ratio closing," says Julie Barsamian, marketing director at Cook Travel in New York. "I don't think it's been this good in several years." Barsamian says her company's business has picked up by 30% to 40% this season, compared to last year or 2008. The stronger purchasing power for U.S. tourists also coincides with a rough patch for Europe's hotel industry, which is offering guests far better deals than in recent summers. "We're seeing prices that you usually wouldn't see until the fall," Barsamian says, "about $100 cheaper per night for most hotels.Yes, it's tough for Europe right now. However, this could be good for the tourism industry, at least to see a surge of travelers coming."
Euro Instability Makes Currency a Bit of a Gamble
There might be a catch, however: Getting there. Rising oil prices, aviation mega-mergers and other challenges have meant soaring air fares -- which could undo any financial benefits a weaker euro offers for American travelers. But Barsamian says there's a lot of pent-up demand from Americans to get back overseas -- especially now that the U.S. economy is showing signs of recovery. As the recession began in 2008, "we were starting to see more skittish travelers, and last year was a slower summer," she says. "This year is definitely picking up a lot more, because people have been at home for last two summers and they want to travel and they want to go all-out."
There are also concerns whether the euro might continue its wild roller-coaster ride over the summer -- to the disadvantage of tourists relying on the U.S. dollar. "I think anybody who tells you to have a lot of confidence in what's going to happen over the short run is probably lying to you," says Dr. Hughen. "What has changed, though, is that people are starting to question the viability of this European monetary union. What that means is, over the short run, we could have enormous fluctuations."
Barsamian says her company's U.S. clients have been asking whether they should buy euros before they travel, or take a chance on local currency exchanges. The trend, she says, appears to be tourists both cashing travelers checks and using widely-accepted credit cards once they're in Europe.
Even European countries that don't use the euro, such as Great Britain, may be affordable in terms of exchange rates. The U.K., says Dr. Hughen, "has been suffering from some political uncertainties as they change governments. They've also had enormous banking problems like the U.S., and the pound has not been doing well recently."
While the EU pledges to "ensure the stability, unity and integrity of the euro area," pessimism about the euro could bring the currency even lower. "When people start developing this mindset that it's not going to work," says Dr. Hughen, "you really can have a large decline in the currency. So it wouldn't surprise me if it traded for [euro-to-dollar] parity in the future."