Fuel prices are at record levels, and that’s bad for airlines. It’s also bad for transportation to and from the airport and hotel It’s bad for heating (which means it’s bad for hotels in chilly weather). It means higher prices for travel, but let’s look at airfare first. Take a Boeing 777-300ER. Let’s say it holds 300 passengers.
- A full tank of fuel is around 48,000 gallons
- A 50 cent increase per gallon is an additional $44,000
- Or $80 per passenger
Now, that Boeing 777 isn’t going to burn a full tank of gas going to Europe. At around 2000 gallons an hour of fuel burn it might use 20,000 gallons of fuel, but that’s still an extra $33 per passenger or $66 roundtrip for a 10 hour flight.
Higher fuel prices don’t always translate directly into higher fares. Airfares are determined by both supply and demand. How many seats are available for sale, and what are people willing to pay for those seats?
You wind up getting higher fares over time because airlines can’t make money at current low fares. They cut back on the number of flights they offer, carrying only the passengers willing to pay higher prices. Put another way they don’t just say “we’re going to charge an extra $50 each way for the same flights we’re operating now.” That would mean fewer passengers and empty seats. Instead they withdraw seats until they reach the point they can fill the plane at the higher price point.
It takes time to adjust schedules. And people buy tickets a few months in advance. So fewer fares and higher fares take time to worth their way out. But higher fuel prices will translate as fewer airline seats and higher fares in the coming months. That’ll depress travel demand for Europe (demand is already limited for Asia).
‘Global uncertainty’ may depress international travel even more so – people ‘staying put’ when the world seems like a scary place – that phenomenon is likely to cut travel to Eastern Europe more than Western Europe or other destinations. That makes it more expensive to get there once airlines can adjust their schedules (but cheaper until they can do so) but it makes it cheaper to be there as hotels and other accommodations try to fill empty rooms.
A reader asks me what “happens to tourism if Russia cuts off fuel supplies to Western Europe. Will non-essential uses of gasoline and diesel be banned? Are cruise ships essential? Hotels? Airlines?”
Oil prices are rising already. We’ve seen some export bans from Russia, mostly commodities used for electronics. Putin is complaining about sanctions on Russia and then imposing his own sanctions on Russia, that he believes hurt others too. Russia could ban oil exports betting that higher energy prices would weaken Europe’s resolve on sanctions and that this would happen before Russia itself winds up in crisis. They’d also be betting that more production couldn’t or wouldn’t come from Saudi Arabia, Iran etc.
But they haven’t stopped selling oil. They need the money to fund war, but they also need it to avoid sovereign default. Russia’s credit is already downgraded to junk.
Fortunately for Europe we’re heading into a period where less fuel is used for heating (warmer weather). If Europe miscalculates and imposes rationing or price controls (their own policy response) then we have problems in travel. Otherwise travel just gets more expensive.