Photo of Dan Wilson of CitiFX and Anna Blasco of TUI Travel Plc.

Hotelbeds is exposed to FX risk between the time of the initial reservation, and when the payment is due, which can be a period of many months, a year, or sometimes even longer. They worked with their bank to design and implement an FX risk management solution which would maintain the margin over the lifecycle of a booking, from reservation to payment; eliminate FX exposures, reducing the month-on-month P&L volatility; not interfere with the existing payment collection process; and be fully automated, with STP to existing systems.

The challenge

Furthermore, given the company’s global reach and high growth in emerging markets, it has exposures to highly volatile currencies. Hotelbeds was exposed to adverse FX movement, and was therefore looking for a solution to mitigate the impact of FX risk on its earnings.

Historically, Hotelbeds used a generic data feed to convert its hotel inventory across currencies. “To protect ourselves against FX volatility, Hotelbeds would add a margin to these rates to buffer against possible moves. Therefore, pricing was not optimised, and earnings volatility was still an issue,” explains Anna Blasco, FX and Treasury Manager.

The solution

Hotelbeds worked with CitiFX to design and implement an FX risk management solution which would maintain the margin over the lifecycle of a booking, from reservation to payment; eliminate FX exposures, reducing the month-on-month P&L volatility; not interfere with the existing payment collection process and be fully automated with STP to existing systems.

The automated InstantFX hedge overlay is a highly effective risk management tool. There is no human intervention – daily rates are systematically fed and uploaded to price Hotelbeds’ inventory. Transaction data is then automatically sent to Citi for trade booking, where Citi’s system processes Hotelbeds’ bookings and on average nets them down ten to one.

As part of this solution, CitiFX provides fully transparent pricing and fixed spreads are applied to currency benchmark rates, calculated from independently sourced market rates. These rates are locked in, and therefore Hotelbeds does not need to add a protection margin to its FX rates, allowing its pricing to be more competitive.

As business dynamics change, it is easy to modify the assumptions driving the hedge solution, offering greater flexibility.

Best practice and innovation

The travel industry is highly competitive so bedbanks like Hotelbeds need to be able to offer competitive prices whilst maintaining margins. The InstantFX solution allows Hotelbeds to automatically lock in margins, removing any FX impact and the overlay solution is highly efficient as it ties the rates at which hotel rooms are priced to those at which hedges are placed. This means that Hotelbeds is able to manage its FX in a highly effective and efficient manner.

CitiFX developed this custom solution for Hotelbeds by adapting its InstantFX guaranteed rates product to suit its specific needs. However, it could also be implemented by any company looking to automatically hedge the FX risk arising at any point of its business model.