Will Oil Prices Mean Travel crisis?



Airlines announced fare hikes almost immediately as oil prices skyrocketed following tensions in the Middle East.


Just as things were starting to get optimistic again for the leisure travel market, the airlines raised a speed bump. As tensions in the Middle East sent oil prices skyrocketing to $105 per barrel, airlines began announcing fare increases in the first week of March. While the new fares came too late to impact most spring break travel, the timing could be perilous for the summer vacation season.

Nigel Osborn, president of Virgin Vacations, told Travel Agent that a year that started strong is now facing uncertainty. “We have seen a solid start to the year,” he says. “Business to the UK is up 30 percent year over year, and people are booking and traveling within 60 to 90 days.” But, he notes, there are already signs of challenges ahead. “People are traveling in spring and autumn, but July and August travel will be difficult. Patterns show that travelers are skirting summer. We’re talking to suppliers to offer incentives to keep prices stable. If oil prices raise fuel surcharges by $50, we try to add extra nights.”

It will also challenge travel agents to find the best fares for clients for the coming peak summer travel season.

Fare experts report that travelers face both increased airfares and continued ancillary fees, as well as fuel surcharges. Much will depend on the carrier, the routes and destination, however, as airlines jockey for advantage in a competitive market. JetBlue, for example, implemented a $45 one-way fuel surcharge for select Caribbean markets. Global giant Delta said its surcharges will vary by market. Southwest Airlines has increased many domestic roundtrip airfares by $10, citing the need to offset high fuel prices.

John Werner, president and COO of MAST Vacation Partners, a network of home-based agents in the U.S. Midwest, said that members are concerned. “There is some caution on the part of agents as to whether rising airfares are going to cause a slowdown in bookings. Generally speaking, sales are up since the first of the year and agencies have been quite busy.”

While the impact of higher fuel prices has not been felt yet, Werner notes, “I am concerned that a $400 fuel surcharge on airline tickets to Europe will have a negative effect on bookings. People still want to travel but instead of going to Europe, they will go elsewhere.

“High airfares and high fuel surcharges are not good for the industry when you think about all the resort hotels, cruise ships and tour offerings that have been built or created in the last 10 years—all dependent on affordable airfares.”

Awaiting Passenger Reaction

Rick Seaney, CEO of FareCompare.com, warns that summer airfares may be the worst in years and warns that hikes on the international side may be higher than domestic. “Fuel surcharges to Europe are now running about $360 roundtrip; the taxes add about $120. Do the math: Your trip to Europe costs you $480 even before you spend a dime on airfare.”

Seaney asks the question on the minds of many agents and travelers: Can it continue? His answer: “It depends how we passengers react. If we say ‘no’ to more airfare hikes—by refusing to fly—the airlines will back off.”

The consensus to date is that airfare volatility, including rapid changes in airline pricing policy, will combine with a sluggish economic recovery to challenge all components of the travel industry and the traveling public.

Virgin Vacations’ Osborn was philosophical. “Over the last few years, with the economic situation and various other factors—the volcano, terror threats, etc.—there is a level of pent-up demand for travel. The question is, economically, where does the buck stop? How high do fares have to get before people stop traveling?”

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