Business Travel – Ready, steady … euro!

Business Travel - Ready, steady ... euro!

The euro will bring transparency to the cost of European business travel, says Catherine Chetwynd.

The most powerful symbol of Europe’s single market – the euro – is finally with us. Punters still cannot jangle coins in their pockets – they will not exist until 2002; but payment in euros by credit card is as simple as in French francs, deutschmarks or Danish krone.

And business travellers are the first to be affected by the new currency, not least because trade and investment flows are likely to be boosted by the single currency, increasing corporate travel by between 5% and 10% over other growth, according to a survey undertaken by Kae on behalf of American Express Corporate Services.

From the beginning of this year, it has been possible to do business in euros and, according to Henri Ruff, head of single currency unit for Visa International: ‘Because each currency is seen as an expression of the euro, the EU recommended there should be no conversion charges between the two. Visa has adopted these guidelines.’

So Visa card members should not charge cardholders for transactions involving conversions between the euro and a national currency unit, nor between two national currencies in the euro zone. Travellers can also buy euro-denominated travellers’ cheques from Barclays and American Express.

The euro also makes expenses claims easier, removing the risk that travellers will forget to claim for conversion charges for transactions carried out on credit cards. They will still have to raid banks or ATMs for local currencies until 2002, when this inconvenience will also be eliminated.

The value of the euro last week was approximately $1 or 71p but, far from giving the US greater negotiating powers, it will eventually provide healthy competition for business. The potential euro zone contains more people than the US and has more of its economy exposed to international trade.

The buzzword associated with the euro is transparency. A single currency over a number of countries makes clear the disparity in charges for products and services – air fares, hotel rates, car rental, and more. These comparisons have always been possible, but it has been a lengthy process, with conversions made more complicated by the risk of currency fluctuations.

Air fares are a good example. To fly Paris-Frankfurt return costs more than to fly Frankfurt-Paris return. Transatlantic fares departing from the UK are some 25% higher than the rest of Europe. But this does not mean air tariffs will sink without trace during 1999, nor will they even out across Euroland.

Ian Hall, national vice-chairman of the Institute of Travel Management, warns against blanket comparisons across EMU countries: ‘Market forces apply. Supply and demand continues to affect prices, and cost levels in Germany will still be higher than in Portugal, for example.’

Research undertaken by European equity research company Paribas underlines this point. It finds that fares are set by airlines ‘on a highly direction-sensitive basis’.

Paribas points out that if the Atlanta/Dallas fare is quoted at $200 because there is a big football match in Dallas, people who want to go may well pay for the extra. If not, they will go somewhere else to find a $50 fare. The Dallas/Atlanta fare, however, may only be $50. Thus, having the same currency at both ends does not increase bargaining power.

‘The new transparency does allow travel buyers to look at costs and prices though, and, while recognising the differences between countries, work out whether they are paying over the odds,’ says Ian Hall.

Conferences are a good example. ‘An organiser will more easily be able to see that, for the same services, quality and facilities, it may be cheaper to hold a conference in Lisbon than Frankfurt, and he can make a decision based on that.’

Hall adds that the expensive parts of Europe may become more competitive because they are losing business – but this will be in the long term.

The ultimate in transparency will exist when wages and salaries are paid in euros. One British car company has already negotiated contracts to allow the sterling wages it pays to be linked to the exchange rate of the sterling against the euro.

When the pound goes up against the euro, the sterling wage will go down, and vice versa. Largely, however, we will not see major changes in the UK because we have not joined the euro yet, although many organisations are studying the possibility of requesting travel suppliers to invoice in euros.

This raises the issue of who carries the cost of conversion. Sterling will fluctuate against the euro as it does against any other currency.

If a customer asks a UK company to operate in euros, that company carries the risk when converting to and from sterling. It may either insist on paying and invoicing in sterling, or ask the customer to bear the cost.

Nonetheless, British companies doing business across Europe need to be able to deal in euros. British Airways has been quoting fares in local currencies and euros across Euroland since 1 January. For the rest of the world, nothing changes. So, in the UK, BA will quote in sterling, although it will accept payment in euros. In the US, prices are quoted in dollars. BA deals with 150-plus currencies worldwide.

Discrepancies are unavoidable

And for an airline, the opportunity to look elsewhere for a product or service, if it proves unduly expensive in one destination, does not apply.

‘In our industry, we tend to source globally and have many suppliers, but if you want a service at Frankfurt airport, you have to buy there,’ says O’Kane.

‘But where wide variations in airport charges within the euro zone are revealed, we will point out discrepancies.’

The EU has laid down strict rules for conversion. If moving from, say, deutschmarks to pesetas, you have to do so via the euro, at the rates published on 31 December 1998. This is known as triangulation. All sums have to be expressed to six significant figures, which can be rounded to no fewer than three decimal places. And, in order to minimise discrepancies, BA will be converting just invoice totals, not each item.

According to Ian Graham, vice-president of accounting services for Bass Hotels across Europe, the Middle East and Africa: ‘Most Holiday Inn and Inter-Continental hotels will be in a position to give invoice totals and VAT in euros, although details such as telephone, room service and so on will remain in local currency.’

The company’s systems are already capable of showing line items in euros, with reference to local currencies. ‘We expect to move to euros only, long before notes and coins are available,’ says Graham. ‘I think cash is almost irrelevent because we take so little.’

Graham says that from 1 January, all his staff received corporate credit card statements in euros. ‘I wanted them to think euros from the beginning,’ he says. ‘We have had a steering committee working on the euro for two years, and training was a vital element. We have spent more than 0.5m euros on this, and dealing with the millennium bug. It was our biggest incremental spend,’ he says.

Getting people to approach the euro positively is an important issue.

The Amex survey shows that, while 85 per cent of European business travellers polled were in favour of the euro, 75 per cent said they had not been briefed by their companies on the new currency and its implications.

Dutch engineering company Stork has run articles in its in-house magazine and even created games running up to 31 December, asking employees to guess the guilder/euro rate, with a bottle of champagne for the winner.

‘We wanted to raise awareness,’ says corporate treasurer Frits Harmsen.

‘And we got a very positive response.

‘We would like to pay in euros but legally cannot until 2002,’ says Harmsen.

‘But salary slips have shown the euro conversion from 1 January.’

One notable effect the euro may have is to encourage regional thinking. Global has become a corporate buzzword.

If the realities matched the enthusiasm, even your granny would be global by now. In fact, most companies think and negotiate regionally and the euro will consolidate this, making pan-European deals easier.

Greater transparency will ultimately force some prices down and will make conducting business easier and more efficient. Businesses and business travellers will be at the forefront of a more prosperous and unified Europe – underlining the very reason the EU was created.

Catherine Chetwynd is a freelance journalist.

Related Articles

5 tips for SMEs to protect cash flow

Accounting Software 5 tips for SMEs to protect cash flow

11m Alia Shoaib, Reporter
Tyrie on Finance Bill 2017: ‘Making Tax Policy Better’

Consulting Tyrie on Finance Bill 2017: ‘Making Tax Policy Better’

1y Stephanie Wix, Writer
Managing partner Q&A - the year ahead: Richard Toone, CVR Global

Accounting Firms Managing partner Q&A - the year ahead: Richard Toone, CVR Global

1y Kevin Reed, Writer
Deloitte 'self-imposes exile' on government contracts to defuse PM row

Accounting Firms Deloitte 'self-imposes exile' on government contracts to defuse PM row

1y Kevin Reed, Writer
Managing partner Q&A - the year ahead: Julie Adams, Menzies

Accounting Firms Managing partner Q&A - the year ahead: Julie Adams, Menzies

1y Kevin Reed, Writer
Friday Afternoon Live: Deloitte's tech thing; PAC wants HMRC 'contingencies'; and Sports Direct

Business Regulation Friday Afternoon Live: Deloitte's tech thing; PAC wants HMRC 'contingencies'; and Sports Direct

2y Kevin Reed, Writer
Friday Afternoon Live: HMRC complaints rise; Deloitte scoops big audits; and corporate reporting woes

Audit Friday Afternoon Live: HMRC complaints rise; Deloitte scoops big audits; and corporate reporting woes

2y Kevin Reed, Writer
New head of equity capital markets for KPMG

Accounting Firms New head of equity capital markets for KPMG

2y Stephanie Wix, Writer