Garry Marr: When It Comes To Summer Vacation Planning, We're All Commodities Traders Now

Planning a cost-effective vacation this summer increasingly feels like betting on the commodities market, as oil prices rise and fall based on global geopolitical winds.

Statistics Canada reported this week that airfares rose in March for the first time in two years, as the Iran war roiled oil prices.

John Grant, chief analyst at OAG Aviation Worldwide Ltd., said the Middle East conflict is having an immediate impact on airline pricing, especially for North American companies, which tend not to hedge their fuel costs. Even though jet fuel prices have increased more in Europe, airlines there hedge by buying contracts with six-month maturities, so their prices have not been immediately impacted.

Nevertheless, some Canadian airlines have already added fuel surcharges. Those include Air Canada Vacations , a subsidiary of the national carrier, which added a $50 fuel surcharge last month, and WestJet , which in April applied a temporary $60 fuel surcharge on all bookings made with a WestJet Rewards companion.

Grant said it remains hard to predict how much future fuel cost increases will be passed on to fares, and noted that airlines are also shifting their fleets and cancelling routes, adding to the unpredictability of the summer travel season.

One thing that has emerged is that people will continue to vacation almost no matter what, and that is even more true in the higher end of the market, which is somewhat recession-proof.

“Luxury is just a category on its own and oil prices just don’t affect that demand,” said Monique Rosszell, senior managing partner of the travel consultancy firm HVS Global Hospitality Services. “The well-healed are just sort of insulated.”

Grant said the ongoing boycott of the United States by many Canadians and Europeans continues to affect supply and even the FIFA World Cup being played in Canada, Mexico and the U.S. could be affected.

Statistics Canada said this month Canadian residents’ return trips from the U.S. in February were 1.5 million, down 14.5 percent from a year earlier. Canadian-resident return trips from overseas countries by air rose 7.2 per cent more than the same month one year earlier.

Rosszell said it is still hard to predict the impact of fuel prices on travel , but if disposable income drops due to a slowing economy, that will affect travel decisions.

“They tend to go down in their hotel choices and go more cheaply,” she said. “The issue is not just gas prices but disposable income. If it goes down, the first thing that will be cut is leisure travel.”

If there is a deal out there, it’s not in Canada, where hotel rates are rising even faster than in the U.S. Average daily room rates were up 5.8 per cent in March from a year ago to US$194. Jan Freitag, national director of hospitality analytics at CoStar Group, said on a national basis U.S. March room rates were up 3.5 per cent from a year ago.

Anita Emilio, executive vice-president of Flight Centre Canada, said there are two types of travellers today.

“Some are locking prices in because they are concerned about rising costs, surging prices and availability, while others are taking a wait-and-see approach, but they are seeing prices go up because there is still a lot of demand,” she said.

The general rule is that prices tend to rise as we get closer to summer, and that comes on top of pressures from global unrest.

“Prices just tend to go up because of increasing demand,” said Emilio, adding airlines don’t always increase their prices at the same time and don’t all add surcharges immediately. ”You get to a point where you can only guess what a surcharge might be. But airfares are priced dynamically, and as demand rises, prices tend to rise.”

Emilio said fuel surcharges tend to be stickier when they come down, even if oil price increases abate.

The company is encouraging people to lock in their prices today, but an increasing number of consumers are opting for a third option: a refundable trip.

“We are encouraging consumers to book that,” she said. “That gives them some peace of mind if they do decide it’s not the time to travel, they can get their fare refunded. Cancel-for-any-reason insurance is increasing.”

The bottom line for anyone planning a vacation is that there is a financial risk of prices rising or falling due to volatile fuel costs and geopolitical conflict.

“You are as much a trader as any analyst on Wall Street. Do you buy now or wait?” said OAG Aviation’s Grant.

One way or another, you’re placing a bet.

• Travel data from March show number of Canadians returning from trips across the U.S. border are stuck at depressed levels
• Alberta's tourism sector outperforms rest of Canada with record spending, U.S. visitors rising

• Email: gmarr@postmedia.com