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Tourism Feeling Effects of Middle East Conflict : Trends: Rising fuel costs and fears of terrorism are keeping tourists at home. Good news for consumers may be cheaper tickets as airlines try to stimulate business.

October 21, 1990|PETER S. GREENBERG

Two months ago, in the aftermath of Iraq's invasion of Kuwait, airlines, hotels and other travel-related businesses breathed a sigh of relief. There was no noticeable, immediate negative reaction from travelers.

The Aug. 2 Iraqi attack occurred at a time when many tourists--both here and abroad--had made and confirmed their travel plans, or were already on vacation.

Then fuel prices began to soar and the value of the dollar dropped substantially against a number of foreign currencies. As tensions rose in the Middle East, air fares also increased.

And now, more than 75 days after the Iraqis crossed the Kuwaiti border, travel--both foreign and domestic--has begun to suffer some dramatic downturns.

In late August, international airlines agreed to ask their governments to approve price increases of 5% to 8%. In addition, insurance premiums have skyrocketed. International airlines are now paying an extra $20 million per week in "war risk" premiums.

In the United States, the rising price of automobile fuel has had a major impact on domestic travel. And, when and if a new budget is approved by Congress, there will almost certainly be higher travel taxes imposed on airlines and their customers.

Domestic air-ticket taxes would go from 8% to 10%, and airport head taxes (up to $3 per person flying into or out of an airport) and user fees for arriving international air and cruise passengers would also go into effect.

Also there's the fear factor. With 200,000 U.S. troops in the Middle East, Americans seem substantially less inclined to travel anywhere abroad.

"My clients are worried about European travel," Leigh Karin, corporate travel manager of Rodeo Travel in Beverly Hills, says. "They're not as concerned about going as they are about coming back if war breaks out. They all want to know if the planes will be there to take them home.

"Another reason why travel is down is the soaring prices in Europe. They're extraordinary. I've had people cut their vacations short a week early because they couldn't afford the trip anymore."

Tour operators who specialize in the Middle or Near East report a near total absence of American tourists.

"The market is now as bad as it was in 1986," says Robert Cazian of Glendale-based R&H Voyage tours. "Some groups that were already booked on trips to the Middle East before the crisis are still going, but there are no new bookings.

"It's not the fear of war, but the fear of terrorism."

The weakening value of the dollar has also hurt tourism. With the British pound now costing nearly $2 (or in some cases slightly above $2), a trip to England could be cost-prohibitive for some travelers.

Airlines report decreased business even on popular routes in North America. In some markets there have been some surprising developments.

In Hawaii, advance reservations for January and February are off as much as 30% from last year, so much so that a number of resorts are considering discounting their rates.

The same thing is happening in Florida, another strong winter market. And in the Caribbean, countries that weren't even affected by last year's Hurricane Hugo are noticing drops in high-season bookings.

This, combined with the jump in fuel prices, is hurting all airlines and could devastate some.

At American, one of the strongest U.S. carriers, fuel now represents 30% of the airline's operational costs. Because of its size and fleet, a one-cent increase in the cost of jet fuel represents a staggering increase of $25 million per year in operating costs.

At this writing, and assuming fuel costs do not rise any further, American could spend more than $1 billion more on fuel in the next 10 months.

"We feel the effects of this instantly," says spokesman Al Becker. "We are not in a position to stockpile fuel. We have a contract that protects our fuel supply but not the cost of our fuel."

And what about a financially troubled airline like Pan Am?

"Back in July, jet fuel cost us an average of 62 cents per gallon in the United States," says Jeffrey Kreindler, a Pan Am spokesman. "Today it stands at $1.24. It's doubled. And that's just in the United States. Overseas, it's nearly tripled."

Pan Am estimates that each one-cent-per-gallon increase in jet fuel represents a $10-million increase in operating costs. For an airline like Pan Am, a $600-million increase in costs not only wipes out any profit it might have made this past summer, but also wipes out any profit it might hope to make from the sale of its shuttle operation.

Already, the airline has announced a layoff of 2,500 employees.

"We are at a critical juncture when it comes to the price of fuel," Kreindler says. "With the diminishing value of the U.S. dollar overseas, we could be in a crisis stage if the price of fuel continues to rise. No airline will get through this unscathed."

Kreindler may be right. Within the last two weeks, even strong airlines have had to make some painful adjustments.

Just last week, American announced a layoff of 1,000 employees.

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