How gameable are foreign currency refunds?

A funny thing happened during my August trip to the UK: I had an unusual number of foreign currency refunds. The refunds were unrelated: first I ordered a (surprisingly cheap!) £14 taxi from a train station to our first destination in the Lakes District, which was then canceled and refunded. When I went in to rebook the reservation they had fixed the “pricing error” and the trip would then cost £50. We took the bus instead. In the day it took between being charged for the taxi and being refunded, the exchange rate moved in my favor (the pound had appreciated against the dollar), so while I was charged $17.15, the refund was for $17.21 — a 6 cent currency fluctuation in my favor!

The second two refunds were errors at the Hampton by Hilton Glasgow Central, where they were not able to “find” the payment for two prepaid reservations, one I had made through Hotels.com and one through the US Bank Flexperks travel portal. This was especially odd, since they were able to find the reservations themselves — just not any record of the reservations being paid for. At check-in, I was charged $137.80 and $148.18 for the first and second nights. After finally invoking the Hilton Twitter account, they finally “found” the prepaid payment records and refunded the two charges. But this time, the exchange rate had moved against me, and the refunds only posted as $136.41 and $146.68 — a $2.89 exchange rate penalty!

Naturally, this got me thinking: if charges and refunds are processed on different days at the corresponding exchange rates, how should travel hackers think about refundable foreign currency transactions?

Hedging against a weakening dollar

The most straightforward way to take advantage of refundable prepaid foreign currency transactions is to lock in today’s exchange rate against the possibility of a rapid appreciation of the foreign currency. If a foreign merchant prices their products in their home currency (as hotels and airlines do), then the same product will become more expensive in dollars if the foreign currency appreciates: you’ll need more dollars to buy the same amount of foreign currency, so the foreign product will become more expensive to you.

This strategy can be combined with a refundable award redemption: a reservation may be too cheap to redeem points for at today’s exchange rate, but if you are worried about a weakening dollar, you can make a matching reservation using miles or points. You can then run the calculation again when your trip approaches and decide which reservation to keep. If the dollar has weakened sufficiently, refund the cash reservation and keep the points reservation. If the dollar has instead strengthened, keep the cash reservation and refund the points, since the value of the cash refund has gone down.

In many ways this is no different from what travel hackers and even ordinary civilians do with post-paid reservations all the time, and what sites like Autoslash make easy: by monitoring prices over time, and locking in savings as they pop up, you can reduce the final amount you pay for your trips. The only difference is that instead of monitoring the price of the product, you’re monitoring the price of the product’s currency, and instead of rebooking when the price of the product falls, you cancel when the value of the currency rises.

Just like booking a post-paid reservation, by using refundable prepaid reservations, you’re locking in the maximum amount you’ll pay, while using currency fluctuations to try to identify a new, lower minimum.

Other considerations

That’s brings us to a few final notes, which may seem obvious but are still necessary to keep in mind.

First, setting aside exchange rates, the price of foreign products also changes over time. We usually think of this as prices rising as inventory sells out and firms get a better sense of what price people are willing to pay, but the opposite also happens, as my experience rebooking my Glasgow nights to ultimately save 6,000 Hilton Honors points across two of my nights showed. The ideal situation would be the combination of a weakening dollar (increasing the refund value of your prepaid foreign currency reservations) and falling prices (allowing you to rebook a new, lower price).

Second, due to the risk of a strengthening dollar (which reduces the refund value of prepaid reservations), you should really only explore options for trips you’re actually planning or at least considering taking. Most exchange rate fluctuations, at least between major currencies, are relatively small, but you can find plenty of exceptions, like the recent Truss crash in the value of the pound and its Sunak recovery. More marginal currencies fluctuate more often and by larger amounts: a $100 prepaid reservation made in Turkish Lira a year ago would only refund $54 today, for instance. In the same vein, if you expect the dollar to strengthen consistently, then you should want to postpone payment as long as possible, to pay with the most valuable currency possible. If you expect it to weaken consistently, you should want to pay as soon as possible for the same reason.