Travel companies warn of pinch from oil prices

Wed Mar 9, 2011 11:12am EST
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By Maria Sheahan and Victoria Bryan

FRANKFURT/BERLIN (Reuters) - Travel companies warned on Wednesday that rising oil prices could hurt demand and squeeze margins in an industry already battling fierce competition, severe weather and political risk.

Starwood Hotels Chief Executive Frits van Paasschen told Reuters that he had not yet seen any effect on demand but warned that a continued rise could pose problems.

"That could slow the economy, and hotel demand is a function of the economy, and if fuel prices were high enough to cut back on air travel, that would also have an effect," he said.

International oil prices hit a 2-1/2 year high recently, with U.S. crude staying above $100 per barrel due to unrest in Libya.

As long as major oil-producing countries such as Saudi Arabia keep supplying enough crude, the situation should be manageable, he said.

The head of the International Energy Agency (IEA) said last week that top oil exporter Saudi Arabia was capable of covering any Libyan oil production outage.

Cathay Pacific warned that high oil prices could hurt its results this year, and analysts said they expected that the Hong Kong-based carrier would follow rivals including Qantas Airways in raising its fuel surcharge.

Many airlines charge passengers more and hedge in the oil market as fuel costs soar, but price competition means they cannot pass all additional costs on to customers and instead take a hit to profits.   Continued...

<p>A couple walks along Marlin beach in Cancun February 1, 2011. REUTERS/Gerardo Garcia</p>