|
|
|
|
|
|
|
|
||||||
|
|
|
Rising oil prices are squeezing travel and tourism
9:56 a.m., July 11, 2006--Fred J. DeMicco, ARAMARK Chair in Hotel, Restaurant and Institutional Management, and Marvin Cetron, president of Forecasting International, recently co-authored a paper titled “Energy: Lifeblood of Hospitality,” which will appear in The Journal of Good Service Business. DeMicco shares some of their thoughts below. How will the high cost of oil affect long-distance travel? American Airlines recently abandoned its “More Room” promotion and added five extra seats to the economy sections of its narrow body MD-80s. Boeing is squeezing nine seats across the new 787s ordered by more than half its customers. New seats with thinner, but more resilient backs will let airlines add six extra seats to a Boeing 737, bringing the total to 156, and up to 12 on a 727. Blame the squeeze on the higher cost of oil, which is forcing change on airlines that already were hard pressed to survive. This is a trend that will affect every corner of the hospitality industry. Cruise lines also need fuel (at a cost that traditionally averages 9 percent of revenues); hotels and restaurants need power for heat, air conditioning, lighting and kitchen appliances; amusement parks need it to run their rides. And they all need guests, who are feeling the pinch of high gasoline prices--which will average over $3 per gallon this summer in the U.S. and more than $6 per gallon in 11 European countries. How have consumer habits changed in reaction to higher fuel costs? According to one study, ridership on public transportation in the United States is up 9 percent in recent months...if that has ever happened before, we are not aware of it. At the same time, the number of visitors to national parks is expected to decline by 9-11 percent this summer. How will the world deal with its energy problems in the next 20 years? According to one scenario, devised by the United Nations Millennium Project as part of a comprehensive look at the world of 2020, fossil fuels will remain the world's most important energy resources, with oil clearly in the lead. Proved oil reserves stand just above 1 trillion barrels, enough to keep the planet going for another 20 years. International trade in liquefied natural gas has grown over the past 10 years. Nuclear energy in 2020 has entered a minor renaissance thanks to a new generation of 'fail-safe' reactors that simply stop working when anything goes wrong. But, by comparison, renewable energy sources remain relatively undeveloped: Denmark gains most of its power from the wind. China has built much of its power system on enormous biomass farms. The Netherlands and Britain are extracting power from ocean waves, but solar energy is limited to small systems useful for remote homes in Africa, Asia, Latin America and the Australian outback. Some experts predict that oil may be exhausted before the end of the century. What is the future of the world's energy system? This gives us time to come up with alternative sources. Oil and its products are expensive today and production has stalled because we have run out of refining capacity. The federal government should step in and build four or five refineries, which it would operate, selling gas and heating oil when they are in short supply and building up strategic reserves when the oil is not needed. We could ramp up coal gasification and liquefaction. This still won't be the kind of alternative energy that will have environmentalists cheering. Coal mines are inherently messy, and synthetic oil is clean only in comparison with burning the coal it is made from. The switch from oil to coal could be made relatively quickly, some say. Future Pundit, an internet blog specializing in future technologies, points out that the Great Plains Synfuels Plant near Beulah, N.D., took three years to build, entering production of gas from coal in 1984. The plant's gas is estimated to be competitive with oil at $40 per barrel of crude. Another unconventional oil can be dug from the ground in Canada, Venezuela and the American West, where vast deposits of thick tarry oil is locked in tens of thousands of acres of sand or shale. With oil prices at their current levels, these resources are well worth the effort and cost of mining them and converting them to usable forms.
Brazil intends to power 80 percent of its transport with ethanol derived from sugar cane plantations. Portugal plans to build the world's largest solar energy power station and a 1,500-megawatt wind power system. Britain expects to build a 1,000-megawatt wind farm at the Thames estuary on the North Sea that will provide one-fourth of London's energy needs. How has high-priced fuel affected the travel and hospitality industry? Air carriers are suffering first and worst because oil is the second largest expense for most airlines (after labor). Fuel costs traditionally run at 20 percent of revenue. With an average price of $53.50 per barrel in 2005, the total industry fuel bill was estimated to have grown to $92 billion, up from $63 billion in 2004 and just $44 billion in 2003. Airlines are finding ways to improve efficiency and find new sources of revenue. Eliminating unprofitable routes and cutting back on the number of flights have increased occupancy. To save fuel, Alaskan Airlines replaced metal food carts with fiberglass and expects to save about $500,000 in fuel costs due to the change. Ticket prices have been rising, fuel surcharges are spreading as are extra charges to reserve aisle seats. Paper tickets incur an extra charge and booking by phone rather than through the internet will cost you $5 or $10. Meals cost more, as do bags that weigh more than 50 pounds. Energy saving technologies are also being added; for example Southwest and Continental Airlines have installed “winglets,” upturned wing tips, on some 737s to help save 100,000 gallons of fuel per airplane per year. Cruise lines have not been hit as hard as airlines by the rising cost of fuel, but some have been adding fuel surcharges to their basic fares. Radisson Seven Seas Cruises charged $2.85 per passenger per day for fuel in 2004. This year that fee has nearly doubled to $5 per day. From the price of sodas to the high cost of sending e-mail, there is little one can do on most cruises that does not cost extra. Measures to improve fuel use include traveling between two ports at a steady speed, keeping hulls and propellers scrupulously clean to minimize drag, refueling at the cheapest ports, better engine designs and silicone paint to reduce fuel costs. Property and personnel are the greatest expense for hotels and restaurants, with energy coming in a distant third -so far. According to PKF Hospitality Research, the typical U.S. hotel spent 12 percent more on utility costs in 2005 versus 2004, the highest single year increase since 1981. However, according to the American Automobile Association, 4 percent more people will travel in the U.S. this summer, even with the high cost of gas. The obvious result of oil shock on the dining industry-customers trading down from fine dining to casual restaurants, fast-casual and quick service-is likely to disappear as gas prices ease. Businesses might be expected to cut back on participation in industry meetings and expositions if fuel prices make them more expensive to attend, but so far this segment has not felt a big impact. This could change as air travel costs and hotel room rates increase. Local amusement parks may be the rare beneficiaries in a generally painful time. During the oil embargoes of the 1970s, one park operator set up their own tanks and sold visitors fuel at rock bottom prices. Corporate travelers are feeling the pinch of high fuel prices and may cut back on travel and so contribute less to the hospitality industry. Nonprofit “business” travelers, such as UNICEF, also report paying $65 to $180 in fuel surcharges on international flights to Africa, Asia and the Middle East, when fuel surcharges amounted to only $10 or $15 in 2004. UNICEF is trying to substitute video conferencing and the Internet for personal travel. What is your prediction for the long term? The world faces years of high-energy costs and marginal supplies. Oil is not likely to dip below $50 per barrel until perhaps 2010 and there are potential disasters, both natural and man-made, that could send the cost of gasoline, heating oil and jet fuel much higher. On the other hand, in the next few years, new refineries will come online in Russia and Saudi Arabia and new sources of oil will be tapped in Russia and the “stans,” perhaps relieving the crunch for a few years. We know the outlines of the next few decades. Oil will remain generally plentiful for the next 25 years and whenever supplies do begin to tighten, they will drive prices up only slowly. By then, other technologies-nuclear power, alternative fossil fuels such as oil shale and many lesser options-will soften the blow. It is a future in which, on average and over time, tourism and travel will continue to grow. The hospitality industry will grow and prosper along with them. Article by Cornelia Weil
|
|
|
