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Some Businesses Eat Increase: Rising Fuel Prices Cut into Bottom Line for Bus, Limo, Boat Businesses

Posted on: Thursday, 20 April 2006, 06:00 CDT

By June Arney and Meredith Cohn, The Baltimore Sun

Apr. 20--Gary Day watches with trepidation as his fleet of limos and buses guzzles increasingly expensive fuel just as his summer business heats up from the Volvo Ocean Race, the approach of the Preakness Stakes, prom season, weddings and ballgames.

A stretch limo chugs about $55 in gas to fill its 20-gallon tank. Fully loaded, the stretch gets all of seven or eight miles to the gallon.

"I think about this all the time," said Day, president of American Limousines Inc. in Baltimore. "We're a luxury business. You try to keep your fleet lean and mean, and make sure everything's a profit margin. Last year, fuel costs were running 8 percent of our total sales. This year, they're running 12 percent."

When the average gasoline prices nationwide exceeded $3 a gallon last fall after hurricanes struck the oil-refining Gulf Coast, the summer travel season had subsided. But this time, political unrest involving oil-producing Iran and Nigeria has sent crude-oil futures past $72 a barrel, a record yesterday on the New York Mercantile Exchange, just as consumers and businesses are preparing for the heaviest travel season of the year.

For many area tourism-tied businesses with high fuel costs, the expected gasoline and diesel markups will come right off their bottom line. In some instances, contracts written last year must be honored, even though fuel increases have been far greater than anticipated.

Consumer prices shot up more than expected in March, reflecting higher costs for gasoline, clothing and hotel rooms. The inflation surge was led by higher gasoline prices, which jumped by 3.6 percent.

Nationwide, average prices for regular gasoline were $2.837 a gallon yesterday, compared with $2.824 a day earlier and $2.490 a month ago, according to the AAA daily fuel gauge report. A year ago, gas cost $2.217.

Diesel fuel averaged $2.816 a gallon yesterday, up a penny from a day earlier. A month ago, diesel cost $2.674. A year ago, it cost $2.364 a gallon.

But the government's Energy Information Administration predicted yesterday that gas prices might begin to fall back a little. Although the average U.S. price of regular gasoline could reach $3 per gallon this year, it is not a foregone conclusion, given current market conditions.

Cammie Kane, chief executive officer and president of Ed Kane's Water Taxis, is watching history repeat itself as the pump prices edge upward.

"We went through it last year," she said. "It hit us hard. We were one of the few transportation companies in Baltimore that didn't tack on a surcharge. Now we have to face it again. It's going to be a killer for everyone. The bottom line is it eats directly into our revenue."

After crunching numbers for months, Kane decided not to increase prices except for the "frequent floater" pass for unlimited trips throughout the year. That rose to $80 from $50.

"Customers and the tourism market are very skittish," Kane said. "It affects the customer perspective of what they can do, where they can go and how much they can spend."

Last year, charter fishing boats in Ocean City tacked on a fuel charge as high as $100 for trips that use up to 400 gallons of fuel a day. They might do something similar this year, said Rolfe Gudelsky, operations manager for the Ocean City Fishing Center.

"Almost all of our customers understood and considered it a necessary evil," he said. "Everyone's very aware of what fuel's doing. They're paying it in their trucks and cars to get down here."

Ride the Ducks, an amphibious attraction in the Inner Harbor, is holding to its 2003 prices -- $24 for adults, $14 for children 3 to 12, free for kids 3 and under.

"I eat it," George Johnson, general manager for Ride the Ducks International in Baltimore, said of the fuel increase. "We're hoping we can ride it out. We don't want to pass it on to the consumer. It comes right off the bottom line. I have no other way to recover it."

At least one transportation company -- Texas-based Greyhound Lines Inc. -- says the higher fuel costs won't lead to higher fares this summer. Fuel costs the bus line no more than 5 percent of its overhead, with facilities, security and labor accounting for the bulk of costs, said Anna Folmnsbee, a spokeswoman. Its last fare increase late last year was about 50 cents, only partially the result of fuel price increases, she said.

Some airlines have raised fares or tacked on fuel surcharges for overseas travel. British Airways, American Airlines and Delta Air Lines all have said they will charge an additional $10 each way on long-haul flights."This latest fuel surcharge rise is very regrettable, but we have little choice but to pass some of our extra costs on to our customers," Martin George, British Airways' commercial director, said in a statement. Other airlines have nudged up the cost of a domestic ticket but have not tacked on surcharges.

Fuel increases last month led Southwest Airlines to increase the maximum it would charge for a one-way fare to $309 from $299. Being below the $300 barrier had long been a bragging point for the discount flier. Whitney Eichinger, a Southwest spokeswoman, said no other immediate fare increases are planned, however.

The Air Transport Association, a trade group, said people are expected to continue traveling in about the same numbers as last summer despite more expensive tickets. Fare increases, however, will not cover fuel costs, meaning the troubled industry will continue losing money.

Jet fuel in the first quarter rose about 40 cents a gallon to $1.85, which has hurt companies such as the Ocean City Skydiving Center.

Last year, employees had to forgo raises and bonuses because the company didn't want to raise prices. A tandem jump with an instructor now costs about $200, but that is expected to go up about $10 to cover the cost of fuel.

Manager Josh Dolan said he doesn't expect a drop in customers, though: "We've found that if someone wants to skydive, they'd pay $1,000 because it's something they've always wanted to do."

Back at American Limousines, which consumes 75,000 to 100,000 gallons of gas and diesel fuel a year for 20 buses and 26 limos, Lincoln Town Cars and SUVs, the company has instituted a $4 surcharge for trips around Baltimore and $5 outside the city. The gasoline spike is eating up almost a quarter of the company's net profit, company president Day said.

"With the chaos of not knowing what's coming, we're putting a clause in our contract that if prices spike over 25 cents, we can revisit it," he said. "When we did the prices last year, we sort of figured gas prices wouldn't go over $2.50, so all we're doing is eating into our profit."

"If it continues to go up," he said, "it will have to be re-evaluated."

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Copyright (c) 2006, The Baltimore Sun

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Source: The Baltimore Sun, Maryland

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