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Hotel demand not impacted by oil price hikes
March 15 2012

As long as oil prices increase slowly, as is forecast, hotel operators needn’t worry about demand suffering.

By Shawn A. Turner
Finance Editor

Pulling up to the gas pump, I was already doing the math in my head. OK, $3.89 a gallon, times a 12-gallon tank equals no discretionary driving this weekend …

I also couldn’t help but think I’m not the only consumer cutting out trips as gas prices creep ever higher (perhaps as high as $5 or $6 a gallon by summer, according to CNBC.) So with that thought in mind, I reached out to hotel industry data experts for their take on what effect rising fuel costs might have on hotel demand. 

My first call was to STR’s own Jan Freitag. He said hoteliers might see some leisure travel impacted by gas prices but any overall drops aren’t likely to be drastic.

A year ago, Freitag overlaid demand change and gas price change in order to judge any correlation. His analysis is below.

 As is evident by the chart, demand has actually increased with increases in gas prices. “I don’t think (gas prices) have any (demand) correlation, ever,” he said.

Freitag doesn’t expect increases to heavily impact travel, as he said travelers are not going to allow an extra $50 or so to derail trip plans. “Are you really going to tell your kids that we’re not going to Disneyland because the cost (for a roundtrip) went up by $40? No, we’re not going to say this,” he said.

Still, Freitag acknowledged there is a psychological risk from rising prices. “Money out of pocket is not the issue,” he said. “There will be a psychological effect.”

As far as corporate travel goes, Freitag sees a shifting of hotel demand. Business travelers are more apt to stay in lower-priced hotels when on the road, he said.

While a severe spike in oil prices could push revenue per available room downward in the near term (as illustrated by a May 2011 PKF analysis shown below) such a development is unlikely, according to the U.S. Federal Aviation Administration.

The FAA, in issuing its aerospace forecast for 2012-2032, foresees “modest” increases in oil prices, approaching $110 per barrel by 2015 and then remaining at that level until 2024. Prices are expected to near $140 per barrel in 2032. Crude oil prices were trading at just over $106 per barrel as of Wednesday morning, according to Bloomberg.

So at the end of the day, yes, oil prices will be steadily increasing for the foreseeable future. But as long as that increase is steady and doesn’t spike for a prolonged amount of time, hotel demand should be able to weather the increases.

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