The price of oil and resulting gasoline prices have been on an up-and-down ride in the past year. Unfortunately, neither the up cycle nor the down cycle seem to be good for hotel owners and operators.
There might not be any more volatile economic indicator in the United States than the price of gasoline at the pump. And, by extension, that measure historically has had a significant impact on the health of the hotel industry.
Gas prices, especially when they are on the rise, or crest a landmark price such as $4 a gallon, are a frequent subject of water-cooler conversations or cocktail party chatter. Or looking at it from a different way, take a ride with a senior citizen and they’re sure to point out gas prices at every station you pass. Yes, Americans have an obsession with what they pay to fuel their gas-guzzlers.
The price of oil and the subsequent price of gas at the pump have been in a yo-yo mode for the past year or so, and the effects on the hotel business seem a little counterintuitive to me.
When gas prices approach one of those landmark numbers such as $3 or $4 a gallon, journalists and analysts scurry to comment on the supposed negative effect it will have on travel. As I’ve written many times during those unexplainable days of panic, the real monetary effect of $2.50-a-gallon gas versus $3 is minimal, even for lengthy family vacation trips. (To wit: 1,000 miles at 25 miles per gallon requires 40 gallons of gas. At $2.50 a gallon, that’s $100; at $3 a gallon, it’s $120, a negligent amount in the overall cost of a week-long family vacation).
You think consumers would have rushed to plan vacations once gas prices dipped below $2 a gallon as prices did in many parts of the U.S. in the past several months. I haven’t seen signs of that happening. Instead, most of the speculation has been about the impending crash in the hotel industry that can’t be avoided no matter the price of oil or gasoline.
And while rising oil prices don’t necessarily push stock indices higher, falling prices cause near panic on Wall Street. In the past year, oil prices have bounced from a high of $105.15 a barrel in June 2014 to less than $30 in February. Prices have rebounded since then, with the per-barrel price of crude at $34.92 at the close of business yesterday.
During that same period, the Dow Jones Industrial Average plunged along with falling oil prices, only to recover somewhat in the early part of the year. And even though in the first six weeks of the year, consumers benefitted by $35 billion in extra spending power from lower gas prices, the corresponding fall in their mutual fund portfolios undoubtedly offset the bounce in confidence $2-a-gallon gas could otherwise provide.
As a result, it’s hard to imagine many American households are planning extra driving vacations this year just because gas is relatively cheap. That’s because while Dad checks the gas prices whenever he passes a station, he also checks his stock holdings balance every day.
The precipitous fall in oil prices hurt some hotels in a more direct way. With the advent of increased oil production in certain parts of the U.S. came a windfall for existing hotels in those areas and a rush to build new properties. And the hotel business was booming until oil prices took a dip and much of that production became unprofitable or minimally profitable. Now, according to Hotel News Now’s parent company STR, several oil-dependent markets are experiencing negative revenue per available room numbers. Losers included some markets in Texas, Oklahoma, Ohio and North Dakota, where RevPARs fell nearly 21% last year.
Some chains took it on the chin as well. Fourth-quarter results for both La Quinta Holdings and Wyndham Worldwide felt impacts from properties in oil markets.
No one knows what’s ahead for oil prices, the worldwide economy or other geopolitical factors. For the hotel industry, however, the worst might be over and barring some jolt to the economic system, consumers should calm down and begin to plan their vacations again.
Of course, they’ll still keep a close eye on the gas pump and react negatively if prices spike again. It’s the American way.
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