Cornell Study Finds that Normal International Hotel Operations Reduce the Need for Foreign Exchange Hedging

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Standard Revenue-Management Rate Adjustments Show Same Effect as Hotel Foreign Exchange Hedging, according to New Report

Businesses operating in international destinations often face the problem of how currency fluctuations affect their profits. While most international businesses use foreign-exchange hedging to limit currency risk, hotel companies might not need fancy currency hedges. Instead, a new study from Cornell's Center for Hospitality Research (CHR) explains that normal business practices for international hotel operations have a currency-hedging effect.

The study, "Operational Hedging and Exchange Rate Risk: A Cross-sectional Examination of Canada's Hotel Industry," by Charles Chang and Liya Ma, examines the foreign exchange situation of more than 1,000 Canadian hotels. For these hotels, Chang and Ma found that normal rate adjustments based on typical revenue management strategies had the same effect as hotel foreign exchange hedging. The study is available at no charge, at http://www.hotelschool.cornell.edu/research/chr/pubs/reports/2009.html . Chang's research was completed at the Cornell School of Hotel Administration, while Ma--a Cornell graduate--works with the Credit Suisse real estate group.

Currency changes challenge the profitability of international hotel operations. Generally, guests pay in the local currency, but the profits are often repatriated in dollars, euro, or yen. So, when the local currency's exchange value drops, a hotel's profit declines in dollar or euro terms. However, hotels and other companies that use revenue management can adjust rates and effectively gain a foreign currency hedge through normal revenue management. When international travelers find that a hotel is suddenly "less expensive" to patronize because of a currency change, more travelers stay at the property. At this point, the revenue management system recommends raising the hotel's rates, but those rooms are still effectively a bargain. Revenue per available room further increases through both higher rates and higher occupancy, even after the currency conversion, Chang and Ma found.

Thanks to the support of the CHR partners listed below, all publications posted on the center's website are available free of charge, at http://www.chr.cornell.edu .

About The Center for Hospitality Research
A unit of the Cornell School of Hotel Administration, The Center for Hospitality Research (CHR) sponsors research designed to improve practices in the hospitality industry. Under the lead of the center's 76 corporate affiliates, experienced scholars work closely with business executives to discover new insights into strategic, managerial and operating practices. The center also publishes the award-winning hospitality journal, the Cornell Hospitality Quarterly. To learn more about the center and its projects, visit http://www.chr.cornell.edu .

Center Senior Partners: American Airlines Admirals Club, job.travel, McDonald's USA, Philips Hospitality, Southern Wine and Spirits of America, Inc., Taj Hotels Resorts and Palaces, and TIG Global

Center Partners: AIG Global Real Estate Investment, Davis & Gilbert LLP, Deloitte & Touche USA LLP, Denihan Hospitality Group, eCornell & Executive Education, Expedia, Inc., Forbes Travel Guide, Four Seasons Hotels and Resorts, Fox Rothschild LLP, French Quarter Holdings, Inc., FX Real Estate and Entertainment, Inc., HVS, InterContinental Hotels Group, Jumeirah Group, LRP Publications, Marriott International, Inc., Marsh's Hospitality Practice, PricewaterhouseCoopers, Proskauer Rose LLP, SAS, Smith Travel Research, SynXis (a Sabre Holdings Corporation), Thayer Lodging Group, Thompson Hotels, Travelport, WATG, and WhiteSand Consulting

Center friends: 4Hoteliers.com • American Tescor, LLC • Argyle Executive Forum • Cody Kramer Imports • Cruise Industry News • DK Shifflet & Associates • ehotelier.com • EyeforTravel • Gerencia de Hoteles & Restaurantes • Global Hospitality Resources • Hospitality Financial and Technology Professionals (HFTP) • hospitalityInside.com • hospitalitynet.org • Hospitality Technology Magazine • Hotel Asia Pacific • Hotel China • HotelExecutive.com • Hotel Interactive • Hotel Resource • HotelWorld Network • International CHRIE • International Hotel Conference • International Society of Hospitality Consultants (ISHC) • iPerceptions • Lodging Hospitality • Lodging Magazine • Milestone Internet Marketing • MindFolio • Parasol • PhoCusWright Inc. • PKF Hospitality Research • The Resort Trades • RealShare Hotel Investment & Finance Summit • Resort+Recreation Magazine • RestaurantEdge.com • Shibata Publishing Co. • Synovate • The Lodging Conference • TravelCLICK • UniFocus • WageWatch, Inc. • WIWIH.COM

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