Surcharge dilemma as fuel prices rise
Holiday surcharges are a real possibility in the travel and tourism industry as companies grapple with the rising energy prices, observes GlobalData, a leading data and analytics company. Segments such as lodging, transportation and tourist attraction etc., will certainly be impacted. Therefore, travel and tourism businesses will be in dilemma whether to pass these additional costs on to the consumers or absorb the charges themselves.
Unfortunately, this has come at what was expected to be a pivotal year in the travel and tourism industry, observes the company. Traveller confidence is returning, but low-cost travel options remain highly sought after, especially after the economic hardship due to the pandemic. According to a GlobalData Q3 2021 Global Consumer Survey, 58 per cent of respondents said that ‘cost’ was the most influential reason to purchase a holiday, making it the leading motivator for travel consumption.
Craig Bradley, Associate Travel & Tourism Analyst at GlobalData, comments: “As energy and fuel prices have soared, transportation companies such as airlines and rail companies are facing higher overhead costs in 2022 than in previous years. Companies that choose to absorb these charges could struggle to turn a reasonable profit, forcing many to pass these charges on to travellers.
“Lodging, and other hospitality services face a similar dilemma. Energy and fuel costs impact entire supply chains, so the cost of imported goods such as food and beverage will increase. These companies have already been under significant strain during the pandemic, with hotels reporting low room occupancy levels or closing down indefinitely due to COVID-19 restrictions.”
Rising operational costs could also be problematic for pre-booked holidays in 2022 and 2023 through travel intermediaries. Some companies may be forced into levying a surcharge to existing reservations to cover rising costs. In that case, travel agencies and tour operators have a predicament whether to pass the charge on to paying customers or not. This could force the customers to cancel itineraries altogether either due to lack of affordability or service dissatisfaction.
Bradley concludes: “Additional surcharges present travel and tourism businesses with a highly challenging situation. Adding extra costs or taxes could damage the customer relationships. As a result, companies may look at alternative measures to cut costs by stripping back services or streamlining operational processes which could potentially impact customer service but allow them to navigate through this unfolding situation.”