A falling Australian dollar has many consequences, and one of the most easily understood is an increase in tourism. A weak Australian dollar means that tourists get more bang for their buck when they come here, and means we can't buy as much from overseas which, theoretically, discourages Australians from leaving home.
However, I believe this is a myth.
In theory, a weaker currency is bad news for Flight Centre Travel Group Ltd (ASX: FLT), which assists travellers with bookings and offers overseas travel packages including insurance, car hire, and so on. It should result in fewer bookings and less appetite for overseas travel.
Before I explain why I believe that is incorrect, here's a quick look at currency rates from the past 10 years for reference.
| 1 Australian Dollar (AUD) buys: | in 2006 | five years ago | Right now |
| Great Britain Pound (GBP) | £0.40 | £0.62 | £0.49 |
| United States Dollar (USD) | $0.75 | $0.94 | $0.73 |
| Euro (EUR) | €0.59 | €0.73 | €0.67 |
source: Yahoo Finance
These are taken at arbitrary points in time and currency values have fluctuated widely between the points listed here. However, data from the Australian Bureau of Statistics shows that outbound passenger movement numbers are pretty independent of currency movements. In fact, the number of outbound passengers has doubled in the past 10 years.
The price of travel becomes less relevant if the number of residents wanting to travel overseas is growing. More than a quarter of Australian residents were born overseas as of 2014.
Furthermore, the majority of passengers don't even go to the US, UK, or Europe. New Zealand was the top destination in 2014-2015, with the US at #3 and UK at #4. The remainder of the top ten was rounded out by south-east Asian nations, with the Eurozone not even making the list.
This means that movements in the value of the AUD against the GBP, EUR or USD are unlikely to have a significant impact on total outbound travellers, and thus total demand for Flight Centre's services.
Additionally, overseas travel is a question of value which takes into account many more factors than just currency. Most outbound travellers are headed to Asia, where they enjoy substantially cheaper costs on food and accommodation that generally remain great value even if sharp currency movements are factored in. Additionally, Australian wages are very high compared to the rest of the world, which helps keep relative costs down.
An estimated 59% of departures in 2014-2015 (58% in 2004-2005) were for holidays, followed by visiting friends and family at 24%, and business at 9%. Business passengers generally must travel regardless of cost, and this means that Corporate Travel Management Ltd (ASX: CTD) is unlikely to have its underlying business affected by currency movements.
Other holiday and travel providers like Webjet Limited (ASX: WEB) and Mantra Group Ltd (ASX: MTR) are also unlikely to see significant changes in customer behaviour. Note that reported revenues and profits might be affected by currency movements, but the underlying businesses in terms of pricing and customer demand are unlikely to be significantly impeded.
Foolish takeaway
All of the companies listed above are attractive businesses, but my pick would be Flight Centre thanks to its diverse international footprint, sound balance sheet, rapidly evolving product offering and extensive partnerships with tourist businesses worldwide.
Flight Centre now offers many packaged deals for prices that can't be matched by individuals planning their own holiday, and I believe this and a wide geographic footprint (enhancing cross-selling) will help to underpin demand long into the future.
