October 1, 2012 The Perils of Currency Exchange
Airline fares are priced in local currency. What this means is that when you purchase your fare, it will be priced in the currency from your departure country. So, if you purchase a flight from the U.S. you will get a flight that is priced in dollars. This works out rather well as the U.S. Currency is stable. The airlines that sell tickets from the U.S. don’t have to change their fares based on the U.S. dollar. For developing countries that can be different. In countries where the currency is volatile, airlines have to stay on top of currency valuations or risk being caught on the wrong side of the valuation.
Several months ago, Burma/Myanmar decided to float their currency. Like most developing South East Asia countries that were previously run by Juntas, their currency was over-valued by the government. The artificially high exchange rate plummeted immediately. This caused a very severe problem for international airlines that sold tickets from there. The airlines were suddenly selling tickets for pennies on the dollar; tickets that would normally cost in the $15,000 to $20,000 range were now going for $150-$200. Once word spread to the Flyertalk.com and Milepoint.com websites it was like a run on bank, everyone was buying international first class tickets for free basically. The airlines for reasons best known to themselves, didn’t have measures in place to modify fares in light of currency changes. Korean Airlines set a precedent a year ago when it offered a coach ticket to New Zealand for about $500.00; this was a half to a third of what a normal ticket would cost. After two months of internal debate, Korean canceled all of the tickets, offering a $200.00 voucher for travel on Korean Airlines. They got away with it.
Korean got their “do over” on the New Zealand deal, but the DOT published regulations stating that airlines are responsible for pricing mistakes. So, it is with a great deal of poetic justice that it was Korean Airlines that first got hit by the Myanmar currency float. Again, they tried to cancel all of the tickets, hey it worked once right, but the DOT slapped them down and made them honor it. There was a second time it happened with another airline, and now for a third time with Swiss Airlines. Swiss is widely known in the mileage run community for being harsh on mistake fares, and it looks like they may try here as well. This fare routed to Canada, so unless the passenger routed through the US, Swiss may just get away with it.