Before we delve into the gloom, here’s one sliver of sun. Not everyone in the travel sector is convinced that ballooning crude oil prices, which hit $130 a barrel this week, up from $64 a barrel a year ago, will strike the entire industry with the same severity. Airlines, still in the early stages of recovery from a COVID punch in the gut, may not hike fares with the same tenacity as oil companies. But the advice for travelers thinking of a summer escape is to book sooner rather than later.
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Let’s start with the worst of it, which is where you’ll feel the biggest vacation pinch on your purse. The jarring increases that consumers are seeing every day at the gas pump are not expected to wane in the coming months. According to a forecast released by Boston-based GasBuddy on Monday, prices will continue to rise through the spring and summer, peaking at $4.50 a gallon nationally by August, before finally dropping under $4 a gallon in November. In California, that price could go as high as $6 a gallon. On Thursday, a gallon of gas in Massachusetts was averaging $4.35.
“It’s a dire situation and won’t improve any time soon,” said Patrick de Haan, head of petroleum analysis for GasBuddy, an app designed to help consumers find low gas prices. “The high prices are likely to stick around for not days or weeks, like they did in 2008, but months.”
GasBuddy is forecasting that average national prices this year will reach an all-time high, he said.
In case you’re feeling bad about filling your car’s gas tank, think of the airplanes. A Boeing 737 requires 6,875 gallons of jet fuel. Although fuel accounts for 15 to 20 percent of an airlines’ operating costs, airfare is not expected to jump at the same rate as gas prices. Of course that depends on whom you ask.
In a practice called hedging, “Airlines tend to purchase their fuel some number of weeks or months in advance,” said Scott Keyes, who monitors airfares for his website Scott’s Cheap Flights. “It varies from airline to airline. If the price of oil spikes one day, and a few weeks later comes back down, then it’s unlikely that we’ll see price increases.”
He added that competition between airlines is also likely to hold back significant price increases in the near future. Even though he’s not sounding any alarms, Keyes advised that if you’re planning a trip this summer, now is probably a good time to buy your ticket. There’s a better chance prices will go up rather than down.
“If the price of oil stays where it is right now, about $125 a barrel, for a few months, then I would expect to see fares go up about 10 to 15 percent,” he said.
Airfares are lower now than they were in 2019, said Umang Gupta, a managing director at Alton Aviation Consultancy. Until business travel resumes, he said airlines will continue to lure leisure travelers with low ticket prices. Raising fares could alienate those price-sensitive vacationers. The last thing airlines want to see in a post-Delta and post-Omicron world are more empty seats.
“They will undoubtedly try fare increases to pass some of the extra costs,” Gupta said. “But it remains to be seen if customers are ready to absorb it. This is unlikely to happen before summer as there are still more seats than demand and fierce competition for customers.”
On the other end of the spectrum, Linus Benjamin Bauer of the consulting firm Bauer Aviation Advisory sees the fuel tank as half empty. He predicts the price of domestic flights will increase 6 percent per month until August, leaving travelers with fares that are 36 percent higher than what they’re paying now. He anticipates fares will increase by 24 percent for international flights by August.
Bauer said he arrived at the numbers based on normal seasonal increases (as a rule, prices increase during the summer), plus the rising cost of jet fuel, relaxed entry requirements and reopening of borders, pent-up demand to travel, and a return to in-person business.
“Another reason for the airfare increases is the airlines’ drive to finally make a profit after two years of losses,” Bauer said.
A big unknown for airlines this summer is European travel. A pair of studies released last week found that US tourists are concerned about traveling to Europe during the Russian invasion. One study, from MMGY Travel Intelligence, reported that 47 percent of travelers want to wait and see how the situation in Ukraine evolves before making plans to visit Europe.
The hesitancy around travel to Europe is reflected in flight searches. The Cambridge-based booking app Hopper found that searches for European flights are down nearly 10 percent from projections, while searches for other regions are up.
Meanwhile, the spiking cost of crude is yet another blow to the beleaguered cruise industry. Still plagued by viral videos of people stranded on ships in the early days of the pandemic and stories of passengers quarantined in substandard conditions during the Omicron surge, cruise lines have slashed prices and heaped on extras, such as free Internet, complimentary excursions, and open bars.
They’re still working at winning back customers, and they’re not going to do it by raising prices. As a result, cruises may end up being a consumer-friendly way to vacation in 2022.
“When fuel prices go up, cruise lines get double hammered,” said Patrick Scholes, lodging and leisure equity research director for TruistFinancial.
“Fuel is about 20 percent of their costs, so that certainly hurts their earnings,” he said. “On top of that, we normally see some customer pullback when fuel prices are up. Customers on mass market cruises — think of those big Caribbean cruises out of Miami — will feel some impact on their discretionary income and may not book.”
When fuel prices have skyrocketed in the past, cruise lines have tacked on a fuel surcharge of $10 a day to tickets. Scholes said that’s unlikely to happen while some travelers are still skittish about getting back on a ship.
“It’s tough, but the cruise industry really can’t seem to catch a break,” he said.
But thoughts of summer travel shouldn’t all be as dismal as dropping your peppermint stick ice cream cone in the sand, so Warren Jaferian, dean of the Office of International Education at Endicott College, offered one positive thought about the state of summer travel.
“Anyone traveling this summer to Europe will be impacted by the prospect of higher airfare, but met with a favorable exchange rate with a stronger dollar versus the euro,” Jaferian said. “In short, Europe may be less expensive than in past years as a result.”
There is your silver lining of the day.
Christopher Muther can be reached at [email protected]. Follow him on Twitter @Chris_Muther and Instagram @chris_muther.
