Case Study

Package holiday provider builds robust hedging strategy and achieves favourable credit terms to manage FX exposure

Emerging from the cinders of the COVID-19 pandemic, the travel industry is now contending with volatile currency markets and ridged credit terms. Learn how one of Argentex’s clients, a leading UK-based holiday package provider, has managed extended client payment terms with a bespoke hedging strategy. 

Problem: Sustaining profit margins  

As the travel industry continues to recover post pandemic, many travel businesses are struggling to access credit while navigating significant FX movements that are squeezing their profit margins. Holiday package providers operate in a complex ecosystem of vendor and third-party deliverables, from airlines through to hotels and tour operators. Each part of this value chain is included in the price of a package holiday and, as such, the travel package provider is responsible for ensuring payment terms for these third parties are met in a timely fashion and in the correct currency.   

 Argentex’s client, a UK-based holiday package provider, was not unique in the challenges it faced and was striving to fully realise its profit margins due to the unique combination of industry challenges. Following two years of lockdowns and travel bans, selecting the wrong FX product to mitigate some of their challenges could prove financially devastating for any business operating in travel and leisure. 

For example, the impact of adverse market moves could be catastrophic for a company that books a forward only for the market to then move against them. In this instance, a company such as our client that is securing deposits on packages six months in advance, would be significantly out of pocket and forced to increase prices in a competitive landscape. 

Solution: Combining flexibility with a secured rate  

Understanding that developing a dedicated hedging strategy would be key to effectively managing their profit margins, our client’s finance team worked with Argentex to align their currency risk management strategy with the consumer and vendor payment terms, keeping in mind that consumer travel packages would be booked months in advance of receiving full payment.  Working closely with our team of qualified risk management specialists, our client explored a few solutions and felt that a Forward Extra was the best suited strategy to secure protection with an ability to potentially participate up to a given Barrier Rate.


Result: Finding a suitable solution to meet the client’s unique requirements

With the Forward Extra, our client  also gained upside potential whilst locking in a worst-case scenario rate.  By having the ability to participate if the market moved in their favour, our client gained against the hedged rate. 

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Disclaimer: Argentex LLP is authorised and regulated by the FCA for the provision of the investment services, FRN 781007, and for the issuing of electronic money, FRN 900671. Any statements made here are reflective only of the scenarios presented in the case study provided. Note that the regulated product discussed is specific to the case study only and should not be taken as a suggested fx management strategy. This is a retrospective case only and will not be applicable to clients or prospects of Argentex. Nothing contained in this document should be construed as advice, a personal recommendation or inducement to deal in any MiFID II designated financial instruments.

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