Here’s How Rising Energy Prices Will Affect Your Next Vacation
Russia’s invasion of Ukraine may have upended the travel industry, but soaring fuel prices are keeping it there. Gasoline prices topped $4 a gallon in the United States this week. Airfares are also rising. So how will energy prices affect your next vacation?
A new survey by research firm Longwoods International suggests that higher prices at the gas pump are causing people to rethink their holidays. About six in 10 travelers say rising gas prices will affect their travel plans over the next six months. (In contrast, only two in 10 travelers say Covid-19 will influence their decision to travel in the next six months, down more than ten points since the start of the year.)
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“The resumption of travel that we have all hoped for this year faces a new challenge,” says Amir Eylon, CEO of Longwoods International. “After two long years of isolation and pandemic restrictions, the last thing consumers need is this oil price shock.”
It’s true. But for now, travelers have a lot of questions about higher energy prices and how they will affect their next vacation. The leader of them: “Is it really serious?” (Spoiler alert: it’s pretty bad.) What are the implications, in terms of airfares, gas prices, and ultimately your vacation plans? They are probably not what you expect. But we’ll get to that in a minute.
What you need to know about energy prices and travel
Here are the most frequently asked questions about energy prices and how it could affect your next vacation.
How high are gas prices?
They are at an all-time high, according to the US Energy Information Administration. Retail gasoline prices average $4.19 per gallon in the United States.
How high will gasoline prices go in 2022?
Much higher, probably. The consensus among experts is that prices could top $5 a gallon and stay there for months. It’s not entirely Russia’s fault; energy prices tended to rise as Covid began to fade. But Russia’s military action has made a bad situation worse.
Which country has the highest gas prices in the world?
Hong Kong has the highest fuel prices in the world, according to Globalpetrolprices.com. On average, motorists pay $10.71 per gallon. It is followed by Norway, Denmark and Liechtenstein. The lowest? Venezuela (95 cents per gallon), Libya and Iran.
When will gas prices go down?
It is complicated. If the United States reaches an agreement with Venezuela to import oil or if OPEC increases its production, prices could fall. If demand falls – which would happen if there is another Covid outbreak – it could also drive prices down. And, of course, if Russia withdrew its troops from Ukraine and oil exports resumed, these could drive down energy prices.
What about plane tickets?
Ticket prices are also a bit more complicated. They are determined by consumer demand, so even when fuel prices are low but demand is high, ticket prices will rise. Airlines also hedge their fuel purchases, meaning they buy their fuel in advance to protect against sudden price spikes. And, as you can see, jet fuel has still not reached the records set in 2008.
What higher energy prices could do to your next vacation
You probably don’t think about energy until the problem confronts you at the gas pump or in your vacation rental. But the current energy crisis will almost certainly affect your next trip.
Airfares are likely to increase for your next vacation
Prices were already trending higher, with air fares expected to rise 7% this month. And while experts predict ticket prices will soar even higher, there is some uncertainty as to whether that will happen sooner or later. Energy prices are pushing airlines to raise fares, but demand is also weakening in some markets. (Even when energy prices fall, airlines don’t necessarily lower fares.)
You could take a domestic vacation this summer – if you go there at all
According to Hopper, searches for return flights from the United States to Europe have fallen an average of 9% below expected levels. This impact is not seasonal and is not seen for flights to other regions or in the US domestic market, according to the app’s researchers. That means more Americans plan to stay closer to home this spring and summer, if they go anywhere.
If you’re driving to your next vacation, you’re near a “tipping point”
AAA calls $4 gasoline a “tipping point” for U.S. drivers. They are more likely to rethink their travel plans or carpool. But while many Americans may be adjusting their daily habits to offset rising gas prices, that likely won’t have as much of an impact on summer travel, according to AAA. In a recent poll, he revealed that 52% of Americans plan to take a vacation this summer. Of these, 42% said they would not consider changing their travel plans, regardless of the price of gas.
Prepare for the ripple effects of higher energy costs
Perhaps the most significant effects for travelers could be felt in ways you would least expect. Higher fuel prices increase transport costs. This means the cost of your next hotel stay or restaurant meal could increase. Over time, the cost of travel — for business or pleasure — could rise even faster than the rate of inflation. The reason? Travel is more energy dependent than most people realize. In fact, two key sectors – aviation and food and drink – are listed as “very” energy-intensive in research by financial services group ING.
The Ripple Could Turn into a Tsunami for Your Next Vacation
Like many travellers, I didn’t think about energy until I recently checked into a Vrbo rental in Cape Town, South Africa.
In the middle of the week, the power went out in the apartment and for everyone in the building. And it stayed off for more than two hours. A few hours, he came back down. And again the next day.
What happened? South Africa’s power utility, Eskom, had instituted a blackout (or “shedding”) to preserve diesel and water supplies to its open-cycle gas turbines, according to news reports. Officials say the Russian invasion of Ukraine could affect the availability of diesel fuel needed to keep the power grid running, and they are keeping a close eye on the situation.
For now, Americans just have to contend with higher prices at the pumps and rising airfares. But energy issues have the potential to spill over into every aspect of your next trip – to your hotel, your restaurant meal, your tour.
An energy crisis even has the power to stop your next vacation. A new study by MMGY Travel Intelligence suggests that 62% of American travelers are so concerned about the spread of the war in Ukraine to neighboring countries that it is affecting their travel plans in Europe. It is too early to tell how rising energy prices will affect traveler sentiment. But chances are they will.