Prices Increase Across the Traveler’s Budget

Prices Increase Across the Traveler’s Budget
By Jill Schensul

“Fuel costs more”: It’s the “dog ate my homework” excuse for the travel business.
It certainly seems handy. With the price of gas reaching record-breaking proportions, who can argue? In fact, unlike the dog-homework analogy proffered by today’s excuse-makers – travel businesses from airlines to tour operators — it actually seems plausible to travelers.

And it is true, at least in most cases. Fuel costs are rising, and every industry – every person, even us poor travelers – is affected when the price of a barrel of oil goes up. We pay, in the price of fares and nightly room rates and rental car surcharges. That’s how it works.

But it’s also true that prices were going up anyway – and in some cases, the rising cost of fuel is just a fortuitous excuse to point to. “A fuel surcharge is a fancy way of making an airfare hike,” says Rick Seaney, chief executive of FareCompare.com.

Americans are traveling again. Numbers are up enough to prove to the travel industry that we’ve had it with deprivation, recession, sad-sack austerity and staycations. We want out, and we’re going.

Here’s what you can expect in the form of sticker shock when you get going – and, with the summer vacation season just around the corner, we figured we’d brace you now.

Thanks to the improving economy, demand was up while supply, thanks to double-digit route-slashing during the recession, was down. Throw in the series of airline mergers, which reduced competition, and the airlines were in the catbird seat.

They were enjoying impressive (uncharacteristic) profits — $4.1 billion collectively in 2010. Proceeding on the assumption good times were ahead, all announced route expansions, more profits for shareholders, and upgraded infrastructures.

In response, the industry has quickly backed off its ambitious visions for the future and dialed down its optimism. The new plan: Keep capacity down, demand up, and take advantage of the reviving economy by pushing prices as high as the market will bear.

They’re doing the latter on two fronts: fare hikes and fuel surcharges.
Since the beginning of the year, airlines have attempted 10 price hikes, the majority of them successful. That’s added as much as $60 to a ticket price, according to FareCompare, and fares overall have risen an estimated 30 percent since January.

Airlines have revived the fuel surcharge idea that proved so handy in 2008. The add-ons vary from $3 one way on domestic flights at Delta to the record-high $475 surcharge British Airways recently announced for its long-haul flights. Even low-cost JetBlue is using the surcharge approach to fare hikes, adding $90 round-trip fuel surcharges to several of its Caribbean destinations.

Many critics consider the fuel surcharges – along with many other add-on fees – something of a sham. Why bother breaking out this cost, when it will in effect just be more revenue for the airline – not a charge handed over to a government or airport authority.

By doing so, the airlines claim they are calling attention to how sensitive fares are to fluctuations in fuel costs, which right now account for 45 percent of their total operating expenses.

Allegiant Air has proposed an alternate ticketing option for travelers that would reflect these kinds of fluctuations: Buy a ticket whose final cost would rise and fall with the price of jet fuel. It’s a direct way for the airline to guard against rising fuel costs and for travelers to gamble on a cheaper fare. Allegiant, by the way, is based in Las Vegas.

Fare hikes have been scarce in the cruise industry. Cruise lines, unlike airlines, seem loath to bleed their customers dry, undoubtedly because the cruise business has enjoyed steady growth over the years.

During the first fuel-cost panic in 2007-8, the cruise lines reluctantly added fuel surcharges to their bookings – about $150 per person for a cruise. But once oil went back under $100 a barrel, they quickly did away with those surcharges.

And during the recession, when business looked like it might slow to a trickle, the cruise lines slashed prices so deeply it was cheaper to sail than stay home.

But cruise lines are definitely testing the price-increase waters, eager to make up some of the pricing ground they’ve lost in recent years. Seabourn Cruises announced last fall that it would raise prices by up to $800 per couple on 19 cruises this year. Carnival Cruise Lines and Norwegian Cruise Line implemented increases in 2010 of 5 percent and 7 percent, respectively, although Carnival’s was targeted  on summer sailings.