Oil an emerging worry for aviation, tourism countries
Tourism-dependent countries in the Caribbean, which cover most of the region, must be watching the volatility in oil markets with some anxiety.
Already, the run-up in oil prices sparked by the political upheaval in North Africa and the Middle East, most recently in Libya, has set off several rounds of airfare increases, prompting the International Air Transport Association (IATA) to warn that “Oil is the emerging worry for 2011″. According to IATA, each dollar increase in the price of oil will add US$1.6 billion in airline industry costs, and with the industry’s slim profit margin, this must be passed on to passengers.
After a sharp downturn in stopover visitors in 2009, the majority of Caribbean destinations managed to move onto a recovery path last year, in line with the worldwide turnaround. In fact, global travel picked up faster than was expected, with the World Travel Organisation reporting an increase of 6.7 per cent in international tourist arrivals in 2010, as against its initial projection of three-four per cent.
Also, statistics from the Airports Council International indicate that the number of international air passengers increased by 7.3 per cent last year, wiping out the decline of four per cent in 2009.
Expectations at the start of 2011 were that international tourist arrivals would grow at a rate of four-five per cent based on forecast that the US economy would grow by up to 3.9 per cent this year, and emerging economies would continue to drive world economic recovery.
And IATA’s latest travel figures actually show that the number of passengers increased by 8.2 per cent in January, compared with the corresponding month of 2010.
Higher oil prices will, however, restrain growth, slow down job creation, and squeeze spending by consumers and businesses. With air carriers increasing fares, in some cases four times since the start of the year to cover fuel-price hikes, demand for travel may therefore come up against consumer resistance.
The Caribbean had benefitted significantly when, in the midst of the recession, US carriers forced to cut back domestic flights in response to weak demand, increased seat capacity to the Latin American and Caribbean region. This expanded seat capacity combined with cheap fares and increased flight frequencies, helped to stimulate travel to the region.
Indeed, looking back at American Airlines’ fare offers in March and April 2009, I came across economy class round-trip ticket prices for US$276 from Miami to Lima, Peru; US$286 from Miami to Sao Paulo; and less than US$200 from Miami to Cayman Islands.
These factors showed up in the tourist arrivals for Central and South America, which grew by near double digits, reflecting also the vitality of Latin American economies.
Those fares are no longer anywhere to be found! As a matter of fact, airlines are already lining up summer peak-time surcharges, even as they are adding hefty fuel surcharges on international flights.
According to a March 2 report in Travel Daily UK, the travel company, Thomas Cook, earlier this week announced that it would be imposing a fuel surcharge of £40 for long-haul, holiday travel from the United Kingdom, which would apply to both ‘flight only’ and ‘package holidays’.
In January, the cheapest round trip fares from any of the major airports in the US went up by 10 per cent, compared with the similar month last year, and nearly all US carriers have already introduced ‘peak travel’ surcharges of US$20-$60 per round trip on peak summer departure dates.
Adding to the pressure on fares are the various fees which are being imposed by all airlines, even low-cost carriers, and air-travel taxes by governments.
American carriers have increased the amounts charged on the raft of fees for checked baggage – extra, overweight and oversize bags – which can run up to as much as US$175 per bag. Then there are the increases to passenger facility charges which the US federal government is proposing, and the UK Air Passenger Duty (APD) that was increased last year.
Caribbean destinations are already feeling the impact of the increased APD and are vulnerable to the environmental taxes on air travel that are likely to be imposed by other European governments, including Germany, that have signalled this intention.
The region’s tourist industry is enjoying a strong winter season, assisted by unusually cold weather in its main source markets in North America and Europe. How it fares afterwards is going to be determined by the turn of events in the Middle East and, therefore, how long the hike in oil prices lasts.
