Industry Research

NOT AGAIN?! Fuel Prices Challenge Recovery For Operators

Posted on March 9, 2011 by LCT Staff - Also by this author - About the author

ABOUT PHOTO: A painful image that needs no further explanation. (Photo courtesy of Tim Wiegman/Boulevard Limousine/Kansas City, Mo.)

GPS: “GAS PRICES SKYROCKETING?” — With average fuel prices nearing $4 a gallon nationwide, operators are looking to technology to help control costs as much as possible. Will the industry be able to handle this fuel price spike better than the one in 2008?

LOS ANGELES -- As unrest spreads in Libya, Egypt and elsewhere in the Middle East, gasoline prices are steadily approaching 2008’s all-time high of $4.112 per gallon, rising 14 cents nationally in the last week alone.

According to the AAA DAILY FUEL REPORT, the national average for a gallon of regular gasoline is $3.524; plus is $3.654, premium is $3.784, and diesel is $3.900.

“We’re definitely feeling it,” said Robert Vaughan of Huntington Beach, Calif.-based BEST CHAUFFEURED WORLDWIDE. “Fuel cost is a huge issue because it has a direct impact on our bottom line.” California has painfully earned the nation’s highest gas prices with an average of $3.92 per gallon for regular, and $4+ for plus, premium, and diesel.

Chris Hundley of Los Angeles-based LIMOUSINE CONNECTION added that fuel costs have a daily impact.

Manny Profeta of Philadelphia, Pa.-based DAVE’S BEST LIMOUSINE SERVICE told WPVI-TV/ABC that he’s paying $30,000 a month to gas up his 20-vehicle fleet, $5,000 more per month than this time last year.

In order to try and offset the cost of fuel, operators are either adding a fuel surcharge or increasing it. Hundley, whose surcharge is 10%, said it would take fuel costing at or above $4 a gallon for two months before he would adjust it because he does not want to have a lot of fluctuation in his pricing.

Randy Allen of JAMES LIMOUSINE in Richmond, Va. has increased his surcharge by 3% in the last 10 days, and Tim Wiegman, Jr. of Kansas City, Mo.-based BOULEVARD LIMOUSINE has increased his by 2%.

Allen said that the 2008 fuel spikes have taught him to add the fuel surcharge sooner and to include fuel surcharge tables in long term contracts with clients.

Danny Bacher of Atlanta-based TOPPER WORLDWIDE said that it is imperative for contracts to have a fuel-surcharge provision, even if the contract is made during a period of lower gas prices, because it lets clients know that an operator can activate a surcharge once gasoline prices have hit a certain point.

However, you can’t really compensate for fuel costs through a surcharge, said Matt Assolin of Houston, Texas-based NIKKO’S WORLDWIDE CHAUFFEURED SERVICES, who has increased his surcharge from 8% to 9%. “The surcharge is more of a supplement because you don’t really make any money off of it,” Assolin said. Operators can’t be like airlines and pass everything onto clients because (1) People see the airlines as a necessity and chauffeured transportation as a luxury, and (2), The industry has become so commoditized that there is always someone out there willing to undercut the price and take clients away, which is bad business and is a lose-lose for everyone involved.

What is important, Assolin said, is that operators should be extremely diligent in controlling costs by staying on top of dispatch, vehicle maintenance, and chauffeurs. “GPS tracking is huge for us because we can keep tabs on our guys, making sure idle times are within reason,” he said.

GPS technology has been a tremendous help to operators. Not only does it allow operators to closely monitor their chauffeurs and vehicles to ensure maximum efficiency, it also enables them to take on more last-minute trips and same-day reservations, cutting down on deadheads. “You’re making money on trips instead of wasting fuel and mileage by doing nothing,” Bacher said. “30-35% of our work is same-day reservations, which would be impossible without [tracking technology].”

Bacher also said it doesn’t matter if you have one vehicle or 1,000 vehicles; it’s a no-brainer to implement GPS tracking technology. “It’s inexpensive enough now for everyone to have it,” he said. It cost Assolin $10,000 to outfit his fleet three years ago and only took him six months to make it back, just from the savings gained from operating more efficiently.

Another viable option for operators is greener, more efficient vehicles such as hybrids. But with an industry where the Lincoln Town Car Executive L dominates, it may be hard to market hybrid vehicles to clients. For example, Hundley and Vaughan are both in Southern California (Huntington Beach and Los Angeles are about 40 miles apart), yet Vaughan doesn’t have any hybrids whereas Huntley does. That’s because Hundley operates in the green-friendly Los Angeles market while Vaughan hasn’t yet found a hybrid to fit his Orange County corporate client base. Both are also using their tracking technology to its fullest.

Bacher’s Topper Worldwide is the only company in Atlanta with hybrids — Ford Fusion L built by ROYALE — and he said that he only gets positive feedback.

The drawback to hybrids is that they have a higher price point and no one’s really sure what’s going to happen with the batteries at 150,000-200,000 miles. But Bacher predicts that as fuel continues to rise, the industry will see more efficient vehicles, especially with the Town Car Executive L in its last days.

“Fuel is going to drive a lot more vehicle-purchase decisions than it ever has before,” Bacher said. “You can’t really plan for anything except to assume prices will keep going up. If they reach $6, $7 a gallon, drastic change has to happen or it will be the demise of this industry.”

“But at least we aren’t seeing European prices,” Bacher said. Gasoline in Europe goes for about $6 per liter, and it takes about 3.8 liters to fill a gallon.

Organization of the Petroleum Exporting Countries (OPEC) recently indicated it thinks there is no shortage in the market and no need for further OPEC supply. Ali Naimi, Oil Minister of Saudi Arabia, the world’s largest oil-producing nation, said that the oil market remained well-supplied and that speculation was causing the price spikes. “The consumers are worried, this is a psychological problem.”

Nonetheless, U.S. Treasury Secretary Timothy Geithner told the U.S. Senate Foreign Relations Committee: “If necessary, the U.S. Strategic Petroleum Reserves could be mobilized to help mitigate the effect of a severe, supply disruption.” The reserves hold 727 million barrels of oil, or about 38 days of consumption. It was last used in 2005 following Hurricane Katrina.

— Michael Campos, LCT assistant editor; Reuters News

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