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Yes, the Euro Crisis Is Making Travel Cheaper

Over the past few weeks, I’ve fielded several calls from reporters looking for views on whether Europe’s economic woes have made or will make Europe a real bargain for North American travelers. The short answer is still, “Not a huge bargain, at least not yet.”

Currently, the euro, at 1.26 to the dollar, is down about 5 percent from a high a few months ago and, from 1.44 to the dollar last June, about 15 percent for the year. That’s certainly welcome, but it hardly makes Europe a bargain paradise, especially because many local hotels and restaurants have raised prices after all.

You see a similar pattern in some other currencies on countries that are important visitor destinations:

The Swiss franc, now at 1.04 to the dollar, is down about the same 15 percent from last summer. And the Mexican peso, at almost 14 to the dollar, is down about 16 percent since last year.

But that’s not a universal trend: The British pound, currently at 1.57 to the dollar, is down only 4 percent from last June. And the Canadian dollar is virtually unchanged.

Callers also raised the question of what might happen if Greece has to leave the euro zone. For now, Greece seems to have avoided that problem, but it could easily arise again. And here the outlook is still extremely cloudy. Just about everybody agrees that if Greece has to drop the euro, it would have to devalue a resurrected drachma dramatically. But that wouldn’t have as much of an effect as might initially appear: Much of what Greek hotels and restaurants have to buy and much of what they have to pay in debt service is in euros, and those bills would not decrease.

Still, you may find some weakness is Greek destination prices this fall. Although I don’t have any good historical data, a quick scan of prices in Athens and some of the islands leads me to think prices are, in fact, a bit weaker than in previous summers. Still, prices at many Greek hotels are locked into contracts with tour operators, and I haven’t seen any major recent pricing changes in those high-volume tourist markets. Similarly, I see no “fire-sale” prices from such Greek tour specialists as Homeric Tours or GreekTourDiscounts. Any possible large-scale discounting or price reduction hasn’t happened yet.

Airfares, too, are not likely to decrease much even if Greece does drop the euro. Fuel and debt services or leases for airplanes are two of the airlines’ main expenses, and these obligations will remain in dollars and euros. Forward-looking fares for this fall seem to be ignoring the country’s economic weakness. If demand for flights to Greece drops, rather than cut prices below cost, airlines will just cut back on the number of flights.

Although somewhat offset by price increases, the 15 percent euro and Swiss franc reductions from last year are welcome, and it will help your dollars go further this fall than last. Even with the franc down, however, Switzerland is still very expensive, and with the Olympic boost and gouging prices, plus the onerous air passenger duties, you’ll probably find travel to the U.K. very expensive this fall.

That’s the short-term outlook. But what if Greece does pull out, or Ireland, Portugal or Spain defaults on debt, or if, as some say, the euro will “collapse”? To my non-speculative eye, the euro does still look overvalued. But I’m not about to predict any significant change.

As before, your decision as to whether to visit Europe, or any other area, should be based mainly on your interests, not on currency fluctuations. Figure a drop in the currency is an unexpected benefit, not a primary reason to travel, this fall.

 

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Ed Perkins on Travel is copyright (c) 2012 Tribune Media Services, Inc.


 

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