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BW Businessworld

Itchy Feet, Again?

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Take a dip in the blue beaches of Pattaya, walk along ‘Waterfront Promenade’ in Singapore, go spotting orangutans in the Malaysian Borneo and hit the cool spice trail in Sri Lanka — there’s a lot you could do this summer. But if an empty wallet is stopping you from hitting the fair winds, at hand are some really cool deals to fund your dream holiday.
Before we smack the road analysing various travel financing options, one needs to be amply clear, it is best to dig into your savings to finance your holiday. ‘Beg, borrow or steal’ is only good if you don’t have enough money to buy tickets, food and accommodation. Options that involve borrowing money to fund holidays could increase your travel costs by about 30 per cent. The other option — to steal — could land you in jail.
“Borrowing money to travel is not the best way to have a holiday… Not many people would opt for credit to travel. But if you don’t want to borrow, you should have enough savings to dig in. If you don’t, your only option is to travel on credit,” says Ravi Menon, head, Foreign Exchange & Risk Management, Cox & Kings.
The Macros
For Indians, cost of travel has been moving in two directions. While billings for domestic travel have gone up 10 to 15 per cent over the past two years, international travel has become cheaper due to weakening of most foreign currencies. The drop in travel costs is more pronounced in the case of European destinations, with airfare to marquee cities such as Zurich, Rome and Paris crashing 15-20 per cent since last year. 
Much of this (drop in air fare) has been attributed to a weak Euro, which declined from Rs 83 a year ago to about Rs 70.9 currently. Consequently, most travel operators are seeing 50-60 per cent more bookings to popular European hotspots this summer. According to tour operators, India logs 15-20 million tourist departure every year.
Despite higher costs, domestic travel has been witnessing an uptrend over the past few years. Domestic travel (to all states combined) has been growing at 14 per cent every year since 1991. As per data from the tourism department, year 2012 witnessed a 19.9 per cent growth in domestic tourist visits over the previous year. 
Encouraged by robust growth in the tourism sector, tour operators and lenders (mostly banks) have begun offering funding options to prospective travelers. Credit card payment modes, personal loans, travel loans and dedicated travel (savings) accounts are pushed to customers in large numbers. And much to the delight of lenders and tour planners, middle class Indians are warming up to such novel ideas.
Personal Loans & Credit Card Payment 
Consumers can avail personal loans for meeting their holiday expenses, but that is not a very lucrative option as such loans are given out at rates as high as 16-18 per cent per annum. Therefore, most tour operators / travel portals have tie-ups with banks to facilitate travel loans.
“These (personal loans)are unsecured loans, making them very expensive for customers. Also, disbursals take a lot of time,” explains Sreeram Siripuram, founder of Fly4credit, a loan facilitator.
If you do not want to undergo the painful process of getting a personal loan approved, you can simply swipe your credit card and purchase a holiday package. But this option could turn out to be more expensive (than personal loans) if you default on card repayments; you could be charged as high as 36 per cent penal interest on the defaulted sum. 
That said, credit card purchases give you great flexibility to plan your holiday. The payment for your holiday happens instantly (without the approval of the bank, as is the case with personal loans), if you have sufficient credit limit. The repayment is done through equated monthly installments (EMIs) over 12 months. 

The flip side is, credit cards cannot buy you expensive holidays as most middle-class card holders have credit limits in the range of Rs 1-2 lakh. At best, cards can be used to bridge shortfalls in your travel budget.
Travel Loans
There are several banks that offer travel loans at competitive rates — often in the range of 11-14 per cent per annum. Take for instance, the travel loan (titled ‘Bon Voyage’) by Karur Vysya Bank: the bank offers up to Rs 5 lakh for overseas travel, repayable in 36 months. 
Bank of India’s Star Holiday loan scheme allows loans between Rs 10,000 and Rs 2 lakh without any collateral and up to Rs 5 lakh against collateral security. Federal Bank also has a scheme that pays up to Rs 5 lakh. The loan amount can be used to buy tickets and meet other expenses.
“Most banks only pay up to 80 per cent of the total cost. The remaining 20 per cent has to be paid by the customer as down payment. Rates are negotiable in the case of travel loans; if you are a good customer, you may get travel loans at cheaper rates,” says Siripuram.
Savings Account
Tour operators such as Thomas Cook, Cox & Kings and Kuoni have tied up with banks to offer ‘travel savings accounts’ to customers. With these options, customers can save enough money before they get on the plane to their favourite destination. 
The basic idea here is to prompt people to invest a fixed sum of money every month in recurring deposit (RD) accounts. The tenure of such accounts could be around a year.
“Indians like to save for their holidays. Our ‘holiday investment plan’ helps customers to save for their future holiday,” says Vishal Suri, chief executive, Tour Operating, Kuoni India.
“At the beginning of the year, we tell our customers how much (approximately) will they need to travel to a destination of their choice. We break the cost into monthly installments and advise them to invest in RD accounts. At the end of tenure (after a year), the customer would have enough to meet his travel cost. The 8.5 per cent interest that RD accounts give at the end of term would match any cost overlay,” adds Suri.
Thomas Cook India offers a more definitive plan, on similar lines as Kuoni India. The travel company locks in package rate one year before the actual travel. So if you are eager to travel to Thailand next year, you can lock the cost of trip at today’s rate. Once the travel company works out future cost (of your travel package), you will be asked to open an RD account with one of Thomas Cook’s empanelled banks. 
“The attractive interest of 9.1 per cent (tenure of 12 months) earned by customer promotes the habit of saving, as also early planning of holidays,” says Abraham Alapatt, chief innovation officer and head, Marketing, Thomas Cook India.
“The added advantage of a top up from Thomas Cook on the 13th installment makes the entire plan even more viable for the consumer. The USP of paying for a future holiday at today’s prices ensure consumers a powerful proposition of an inflation-proof holiday,” adds Alapatt.
Per chance if you are not able to travel a year later, you can get almost the entire sum of money you deposited in the RD account. However, short notice cancellation (two-three months before travel) may incur penal charges. 
Essentially, the tour companies negotiate (pre-fix) rates with airlines and hotels at the time of drawing your package cost. They may also keep sufficient buffer to cushion forex volatility. Tour companies suffer losses only when they get their forex calculations wrong.
“Travel savings account is very popular among travelers in the 35-45 years age bracket. This is a very simple product; all they have to do is to pick the right holiday package and invest in an RD account regularly,” says Menon of Cox & Kings.
Bottom Line
Undoubtedly, it is always better to save money in advance to finance your holiday. Customers must avoid loans for unplanned travel (future travel) as inability to travel at a later stage would incur ticket / hotel booking cancellation charges, apart from regular interest payments. 
An EMI option should be your last alternative when it comes to travel for pleasure. Before opting for travel loans, check ticket cancellation policy of both bank and the travel agency. Some operators do not allow cancellation or modification of travel dates.
There are several ways to finance your dream holiday, the idea is choose the best one that suits your income profile. 
(This story was published in BW | Businessworld Issue Dated 15-06-2015)

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