Travel industry battered by world crises says CNN

A recent report from CNN says that the spate of world crises that have occurred in the first three months of the year has hit the travel industry especially hard. Natural disasters and political unrest have left many travelers rethinking their plans or cancelling trips altogether as they scramble to avoid a host of issues across the globe.

The earthquake and tsunami in Japan, coupled with fears of radiation and a potential nuclear meltdown in power plants there, has significantly reduced demand for travel to that country. It has gotten so bad that Delta Airlines has announced that they are cutting capacity to Tokyo’s Narita International Airport by as much as 20% through May, and suspending flights to another regional airport altogether.

Similarly, travel to Northern Africa and the Middle East has also dropped significantly as political upheaval has spread across that region. It hasn’t just been the airlines that have felt the pinch however, as disruption in travel to Bahrain, Tunisia, and most importantly Egypt, has put a dent in the cruise industry too. According to Carnival Cruise Lines more than 280 of their cruises have seen a change in their itineraries thanks to issues in the Middle East. They estimate a loss of $44 million so far, and the region hasn’t stabilized just yet.

The Middle East unrest has brought another unwelcome side effect to the travel industry as well. Any threat to the distribution of oil means an increase in prices, which is always passed on to the consumer. Soaring oil prices has led to an increase in the cost of airfares, and the dreaded term “fuel surcharge” has reared its ugly head once again too. With the busy summer travel season still ahead, it seems unlikely that oil prices will be coming down again anytime soon.

2011 is certainly off to a turbulent start. If the first few months are any indication, we could be in for one very memorable, but chaotic, year. Has any of the recent global calamities caused you to change your plans? Are you now going elsewhere because of recent events? Worse yet, have you canceled your plans to travel this year altogether?

Allegiant Airlines plans to sell tickets fluctuate with oil

One of the biggest factors that comes into the cost of your airline tickets is the price of oil. Since the market is so competitive and the products so similar, airlines operate on razor thin margins — margins that take a big hit when the price of crude goes through the roof.

This is why you hear all sorts of bellyaching from the industry when consumers lament the days of $250 transcontinental tickets. Oil has gone up dramatically over the last forty years while ticket prices haven’t matured in kind.

Allegiant Airlines, however, has a new strategy to mitigate the price of jet fuel. With their planned “variable-price” tickets, an additional fee added to your ticket will fluctuate with the price of oil. If tensions in the Middle East take off and oil prices spike? Then you pay a bit more for your ticket when you get the the airport. If the United States taps into its secret reserve and hands out oil in the streets in milk jugs? Then you get a little back when you head to the airport.

It’s genius in a way, because this way the airline can help mitigate the impact of oil on it’s revenue stream and passengers get the small slice of hope that their tickets might fall in price. It’s the perfect model for an airline based out of Las Vegas.

Scott Mayerowitz, AP writer hosted at the Seattle Times has the full details on the proposed plan. Note, the airline has not concrete plans to implement the variable priced tickets, but it’s a model that they’re heavily considering.

Airline profits hit by high oil prices, rise in fares possible

High oil prices cost us at the pump, play into the prices of most consumer goods and will cut 2011 airline profits in half in spite of the recent growth in air travel says a new forecast out today.

In a revised profit forecast, International Air Transport Association said it was downgrading its airline industry profit outlook for 2011 to $8.6 billion from the $9.1 billion it had estimated just last December.

“This is a 46 percent fall in net profits compared to the US$16 billion earned by the industry in 2010,” IATA said in a statement.

The new forecasts were based on oil priced at a average of $96 per barrel of Brent crude over the year, compared to $84 a barrel used in the December forecast. The price of oil spiked to $115 today, shy of last weeks high of $120.In February, responding to unrest in Egypt, American Airlines added fuel surcharges of as much as $5 each way on many routes with United Continental Holdings Inc. adding a $3 each-way surcharge. At the time, British Airways said they would increase the fuel surcharge they already have in place.

Now, with this latest announcement signaling an approaching hit on profits, airline shareholders are already in pain. The 2008 spike in oil prices sent airlines into a 2-year profit tailspin.

Flickr photo by L.C.Nottaasen

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Are Gas Prices Really Dropping?

You’ve heard the rumors. Gas prices appear to be on the way down. It’s hard to come to that conclusion when you’re still paying more than $3.50 per gallon and fondly remembering all those misspent $1.50 gallons of your youth.

But it’s true. Gas prices are indeed heading downward ever so slowly. The buck-fifty days are gone forever unless you have a VW that can run on vegetable oil. But CNN recently reported that a survey of credit card use at pumps around the nation revealed an 8 day slide in gas prices. The current average is $3.65. New Jersey had the cheapest prices at $3.43.

The easing of pain at the pump is mainly because crude oil prices have dropped significantly over the past month. Now analysts are talking about when they will hit $100 per barrel instead of when they will rise above $150. The reason for the drop? Worries about a lack of demand and the relatively calm hurricane season. So if you are looking to hit the road this fall, you might be spared from the $4 per gallon price tag.

Delta institutes fuel surcharges on award flights — who is next?

One of the perks of having a frequent flyer number used to be earning enough miles for a free ticket. Free being a relative term, because we still had to pay some taxes. Domestically, this was about five dollars, while internationally this could be up to fifty or a hundred. No big deal, I always had a few empty cans to return.

Not any more on Delta. Citing fuel costs, the Atlanta-based airline is now going to charge a 25$ fuel surcharge for domestic award bookings and 50$ for international itineraries.

“But Grant,” you say, isn’t an award ticket supposed to be FREE?

Yeah, that’s what I thought too.

These sort of shenanigans are what we in the community call “devaluation of miles” and are indirectly a product of downsizing in the industry. Airlines want you to use fewer of miles, so they make them harder and more frustrating to spend. Fewer award tickets = more revenue tickets = more cash on hand.

Devaluation is another reason that many passengers in the Delta/Northwest merger are a little concerned. While both CEOs claim that our miles and status are secure, neither will profess to if they’re secure in value as well. Sure, you have 100,000 miles, but our new Deltwest airline charges 150,000 miles per award ticket. With a 200$ fuel surcharge.

Expect more of the same petty fees to show up across other carriers as they scramble to raise extra cash — my guess is that this will be picked up by the other legacies pretty quick.

Delta’s fuel surcharges go into effect August 15th, so book your award travel before then.