Could $5-a-Gallon Gasoline Cripple Tourism?

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Many hotel industry pundits, me included, have discussed the things that could stall or even reverse the industry's steady march back to prosperity. The list includes the U.S. economy, the world economy, CMBS debt coming due, even terrorism. One thing left off the list that could be a real problem for the entire travel business is an old favorite, gas prices. When you last stopped to fill up your SUV, you probably noticed that prices at the pump have been on a steady climb for weeks. The national average, as of yesterday, was $3.57 per gallon, up 60 cents over a year ago.

But it could get a lot worse: John Hofmeister, the former CEO of Shell's operations in America and now an energy industry lobbyist, says pump prices could top $5 a gallon sometime this year, eclipsing the all-time national high of $4.11a gallon set in July 2008. Of course, gas prices vary wildly by region. In Los Angeles, prices have already topped $4, but they're only $3.05 in Wyoming.

It's the usual bugaboos that are causing the rise in prices. Global demand, especially from Asia, continues to increase. Geopolitics, highlighted by a looming showdown with oil-rich Iran over its nuclear ambitions, is another factor. Another problem is the stagnation in exploration and refinery capacity and the political debate surrounding the issue. And the improving U.S. economy, while a good thing, means more travel but additional strain on energy supplies.

Of course, your question is what does this mean for me and my business? An analysis last year by PKF Hospitality Research and Moody's concluded the economy, and the travel business, could weather a rise in oil prices to $125 a barrel (the price is about $105 now), but a $150-a-barrel scenario could trigger a mild recession, probably reversing the hotel industry's strong gains in performance over the past 12 to 14 months.

I doubt if it's time to panic yet, as I seem to recall forecasts for $5 gasoline back in the middle of the last decade. That never materialized, unfortunately mostly due to the fact we tumbled into a recession instead. Nonetheless, it's important for hotel owners and operators to begin to devise contingency plans if they see rising gas prices hurting their business.

Rising gas prices could also affect the political discourse in the U.S., especially as we approach the teeth of the presidential election campaign. As commentator Mike Barnicle noted yesterday on MSNBC's “Morning Joe” program, “Do you think we'll be sitting here talking about abortion and contraception rights if gas prices go up to $5 a gallon?”

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