FUEL PRICES SKYROCKETED this summer, and the increases appear to be having some impact on the meeting and incentive industry.
“There's a lot of pressure on pricing,” says Jim Germain, president of Las Vegas — based destination management company USA Hosts. “[Gas] prices are running at least 25 percent higher, and all of our vendors are affected. Prices are going up significantly.”
As an example, Germain points out that his company has seen some of its transportation suppliers increase prices by as much as 20 percent.
The airline industry is also feeling the pinch from high fuel costs. In August, the major carriers announced fare increases of $10 to $20 as oil prices reached their highest point in two decades. The airlines have raised fares repeatedly since the beginning of the year, when oil sold for about $20 less per barrel than it was selling at the time CMI went to press in late August.
Bjorn Hanson, PhD,hospitality industry partner for PricewaterhouseCoopers, says that if oil starts getting close to $80 per barrel, airline prices could be significantly affected. But, despite recent fare hikes, “our research shows that most travel planners believe air travel is a good deal right now,” he says.
Joan Eisenstodt, chief strategist for Eisenstodt Associates in Washington, D.C., agrees that air travel remains a good deal. In fact, she wonders if it's “too good,” and may hamper the industry's ability to survive in the long term. Reports that Northwest Airlines plans service cutbacks because of factors including fuel costs have Eisenstodt concerned. If the nation's secondary air markets begin to see service cutbacks, she says, that will make life more difficult for business travelers and meeting planners.
As far as rising hotel room prices, Hanson believes that factors other than energy costs are at work. Hotels raise rates based on what the market will bear, he says, and rate increases are already running double the inflation rate, leaving hotels with room to absorb increased energy costs without passing them along to customers.
Yet higher energy costs do exert inflationary pressure, Hanson adds, and will have an effect on consumer psychology. Consumers will expect higher rates, Hanson says, leading some hotels to implement increases “more in reaction to consumer psychology than to specific increases in costs.” As for the possibility of hotels adding energy surcharges to bills and, Hanson says it's a possibility “if energy prices continue to accelerate, but only on an exceptional basis.”
In the meantime, planners are being forced to adjust to the higher energy costs in other areas. “It's happening,” Germain says. “When the price of transportation goes up, it has to come off something else. For example, a planner might have to go with recorded music instead of having live entertainment at a dinner.”
If costs go high enough, Germain thinks it could ultimately result in situation where corporations have to make cuts in the number of attendees they bring to meetings. As for now, Germain says, “usually the bells and whistles go first.”