Twenty minutes outside Tulsa, Oklahoma, Dianne Davis, owner of TulNet Marketing and Events, pulls into a gas station and fills her car—an ordinary act made unusual because she paid $1.69 per gallon. Davis can’t recall the last time gas cost less than $2 before the sudden drop in prices this winter. “Everybody says it was before Obama became president,” she says, quickly noting she doesn’t see any correlation between the two.
Like most drivers, Davis, a meeting planner for 25 years, enjoys paying less for gas. But the Oklahoman in her sees the tank as half-empty when it comes to cheap oil. Davis knows there’s a trickle-down effect on the economy that particularly impacts oil-bearing states like hers. “It’s such a mixed thing,” she says.
Indeed, oil companies laid off tens of thousands of employees in January, when gas prices hit their nadir at much less than $2 per gallon in certain parts of the country. Consequently, more unemployed workers means less money pouring into a community, which, in turn, affects all industries.
For now, the news is good for Davis, who counts a Fortune 100 oil company among her clients. That company has held more meetings as it develops a strategy for what has quickly become a crisis. Other planners may find cheap deals in areas struggling to keep business travelers as companies cut costs. And, of course, there’s always the opportunity to bring an event closer to home so attendees can drive when gas prices are good (and good for planners’ budgets). While prices have risen by about 30 cents since January’s low point, they remain about $1 lower per gallon than in spring 2014.
Is the positive outlook sustainable? Probably not. And that’s on all fronts. “Motorists should be careful what they wish for,” says Patrick DeHaan, senior petroleum analyst at GasBuddy, a company that specializes in examining prices at the pump. “The lower prices go in the short term, the more they go up down the road as oil companies go bankrupt and lay off workers. That’s the long-term picture.”
Let the Good Times Roll
When Saudi Arabia shifted its approach to embrace low oil prices last fall, it caused a global chain reaction, says DeHaan. Iraq, Iran and other countries reliant on oil sales were forced to follow suit. In the United States, prices plunged at a rate typically only seen in a recession.
Among the early beneficiaries in the hospitality industry were transportation vendors like Todd Szilagyi, COO of Best Chauffeured Worldwide, a limousine service specializing in shuttling attendees of corporate events to and from Southern California’s six major airports.
Based in affluent Orange County’s Huntington Beach, California, Szilagyi always keeps an eye on whether or not gas costs $4 per gallon (that’s the threshold for the company to charge a 4 percent fuel surcharge to clients, who then try to make it a negotiating tool). Prices were closer to $5 per gallon for several months last year, Szilagyi says. But his worst-case scenario is when prices are just under $4 per gallon—meaning Best Chauffeured doesn’t collect the surcharge yet pays premium gas prices. “This has been a huge relief for us,” he says. “It’s helping us recover after being crushed the past few years.”
Szilagyi first caught wind of the current trend at the Chauffeur Driven Trade Show and Conference in Atlantic City, New Jersey, in November 2014. The talk back then was “bring it on,” he says. Few expected the steep drop—he never anticipated prices in his market to drop below $3 as they did—and now Szilagyi is acting as if January’s low point was a blip before they return to more customary numbers. “We’re squirreling away the extra money now,” he says. “I look at it as a first-quarter bonus.”
Issa Jouaneh, vice president and general manager of American Express Meetings & Events, says the timing couldn’t be better for planners. “Meeting professionals are looking to do more with less,” says Jouaneh, discussing his company’s prediction that more events will be held closer to attendees’ bases this year. Cutting down on travel is an easy way for planners to save.
Gas costs will certainly be a factor in future planning, he notes, but they’re only one of many in assessing value of an event. “It might be a bonus,” says Jouaneh.
Davis is already seeing that side of the equation. Oil companies are hunkering down, looking to bring top minds together to assess the damage of low gas prices. “My clients are having to circle the wagons to figure out a strategy for what they are going to do,” she says. Ironically, part of that plan is to bring meetings closer in so attendees can drive rather than fly. “Clients are trying to do things on a smaller scale, even having meetings at their own facilities,” she says.
“We get excited about these great gas prices from a consumer standpoint but don’t realize there is a larger picture. If a guy in Oklahoma or Texas works for an oil company, he spends his dollars at the local QuikTrip, tanning bed or the movies. Those dollars get spent throughout the community. Whenever oil companies go from $100 per barrel to $50, people start losing their jobs. This will affect everyone eventually.” — Dianne Davis, TulNet Marketing and Events
Davis says she’s helped organize a flurry of in-person strategy sessions. While that’s good for her paycheck now, she knows that companies reducing their workforce by 20 percent as their profits are halved will negatively affect the entire U.S. economy.
There’s already talk of reverting to practices seen after the AIG and General Services Administration scandals, in which organizations replaced meetings with conference calls and webcasts, says Davis. She also predicts hotels dependent on fracking (a technique used to extract oil and gas from rock at a high pressure) in states like New Mexico and North Dakota will struggle to fill rooms, just as restaurants in those areas will have fewer potential diners.
One possible perk of low gas prices—lower airfare—has failed to materialize. When American Airlines CEO Doug Parker announced in January the company earned a record $4.2 billion net profit in 2014, he added American has no plans to drop prices to match lower fuel costs.
Davis and her clients are incredulous over such statements. “It seems like a no-brainer,” she says of lowering airfares. “But the airlines haven’t done themselves any favors in the industry. That’s a whole other story.”
Szilagyi says he faces some of the same questions about lowering prices, and his response is that he’s making up for lost time while he has the chance.
Houston, We Don’t Have a Problem
Depending on your point of view, the good/bad news is gas costs have probably bottomed out, says DeHaan. His best guess is that prices will steadily rise until late April or early May as they usually do before dropping again, as is a summer tradition. By August’s end, he says the national average for gas will be between $2.50 and $2.75 per gallon, still lower than the more than $3 per gallon price tag most the country experienced throughout 2014.
That positive view is shared by John Solis, vice president of sales for Greater Houston Convention and Visitors Bureau. “I like to think the worst has occurred,” he says. If that’s the case, he adds, then Houston—one of the country’s oil meccas—escaped relatively unscathed. “There’s no panic in the air,” he says of the hospitality and meetings scenes.
Solis says the NAPE Summit, a major networking event in the energy sector held Feb. 10-13 in Houston, was expected to draw 16,500 attendees this year—just shy of 2014’s total of 16,800. Another top oil event was ahead of projections three weeks into registration, adds Solis, who says the city’s oil companies reiterated their financial commitment to Houston hosting Super Bowl LI in 2017.
In oil-rich areas not as fortunate as Houston, Davis says planners should be able to strike good deals for the foreseeable future. They’ll also enjoy paying less than $3 per gallon driving to and from airports, hotels, convention centers and other venues. She understands the feeling, but hopes the lower prices are not coming at too high a cost.
“I love seeing this price for gas,” she says. “I wish we could have it forever, but there is an impact. We all need to realize it.”
Related Post: Q&A: Dianne Davis, owner of TulNet Marketing and Events
Photo credit: Julio Cortez/AP