Russia’s invasion of Ukraine may have turned the travel industry upside down, but surging fuel prices are keeping it there. Gas prices rose above $4 a gallon in the United States this week. Airfares are climbing, too. So how will energy prices affect your next vacation?
A new survey by research firm Longwoods International suggests higher prices at the fuel pump are making people rethink their vacations. Roughly six in 10 travelers say rising gas prices will affect their travel plans during the next six months. (By contrast, only two in 10 travelers say that Covid-19 will influence their decision to travel in the next six months, down more than ten points from the start of the year.)
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“The travel recovery we all have hoped for this year faces a new challenge,” says Amir Eylon, CEO of Longwoods International. “After two long years of pandemic isolation and restrictions, the last thing consumers need is this oil-price shock.”
That’s true. But for now, travelers have a lot of questions about higher energy prices and how they will affect their next vacation. Chief among them: “How bad is it, really?” (Spoiler alert: It’s pretty bad.) What are the consequences, in terms of airfares, gas prices, and ultimately, your vacation plans? They probably aren’t what you expect. But we’ll get to that in just 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 might affect your next vacation.
How high are gas prices?
They’re at an all-time high, according to the US Energy Information Administration. Retail gasoline prices average $4.19 a gallon in the United States.
How high will gas prices go in 2022?
Much higher, probably. The consensus among experts is that prices could blow past $5 a gallon and stay there for months. It’s not all Russia’s fault; energy prices were trending higher as Covid started to fade away. But Russia’s military action 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’s followed by Norway, Denmark, and Liechtenstein. The lowest? Venezuela (95 cents per gallon), Libya and Iran.
When will gas prices go down?
It’s complicated. If the US reaches a deal with Venezuela to import oil or if OPEC increases production, prices could come down. If demand fell — which would happen if there were another Covid outbreak — then that could lower prices too. And, of course, if Russia withdrew its troops from Ukraine and oil exports resumed, these could drop energy prices.
How about airfares?
Ticket prices are a little more complicated, too. They’re 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 still hasn’t reached the record highs set in 2008.
What higher energy prices could do to your next vacation
You probably don’t think about energy until the issue confronts you at the gas pump or in your vacation rental. But the current energy crisis will almost certainly affect your next trip.
Airfares will probably rise for your next vacation
Prices were already trending higher, with airfares expected to rise 7% this month. And while experts predict ticket prices will climb even higher, there’s some uncertainty about whether it will happen sooner or later. Energy prices are putting pressure on airlines to raise fares, but demand is also weakening in some markets. (Even when energy prices fall, airlines don’t necessarily lower their fares.)
You might take a domestic vacation this summer — if you go at all
Searches for round-trip flights from the US to Europe have fallen an average of 9% below expected levels, according to Hopper. This impact is not seasonal, and not seen for flights to other regions nor in the domestic US market, according to researchers for the app. That means more Americans plan to stay closer to home this spring and summer, if they go anywhere at all.
If you drive to your next vacation, you’re near a “tipping point”
AAA calls $4 gas a “tipping point” for American drivers. They’re more likely to rethink their travel plans or carpool. But while many Americans may adapt their daily habits to make up for higher gas prices, it likely won’t have as much of an impact on summer travel, according to AAA. In a recent survey, it found that 52% of Americans have plans to take a vacation this summer. Of those, 42% said they would not consider changing their travel plans regardless of the price of gas.
Brace for ripple effects of higher energy costs
Perhaps the biggest effects for travelers could be felt in ways you would least expect. Higher fuel prices increase transportation costs. That means the cost of your next hotel stay or restaurant meal could go up. Over time, the cost of taking a trip — business or pleasure — could rise even faster than the rate of inflation. The reason? Travel is more energy dependent than most people think. In fact, two key sectors — aviation and food and beverage — 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 travelers, I didn’t think about energy until I checked into a Vrbo rental in Cape Town, South Africa, recently.
Halfway through the week, the power went out in the apartment and for everyone else in the building. And it stayed out for more than two hours. A few hours, it went down again. And again the next day.
What happened? South Africa’s power company, Eskom, had instituted a rolling blackout (or “load shedding”) to preserve diesel and water supplies at its open-cycle gas turbines, according to news reports. Officials say the Russian invasion of Ukraine may affect the availability of diesel fuel needed to keep the power grid up and running, and they’re keeping a watchful eye on the situation.
For now, Americans only have to contend with higher prices at the pump and rising airfares. But the energy problems have the potential to expand to 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 MMGY Travel Intelligence study suggests 62% of US travelers are so concerned about the war in Ukraine spreading to nearby countries that it’s affecting their plans to travel to Europe. It’s too soon to tell how rising energy prices will affect traveler sentiment. But it’s a safe bet that they will.