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John G. Edwards

Gasoline Prices Won't Cause Tourism to Sputter

24 March 2005

LAS VEGAS -- Gasoline prices continue to climb in Las Vegas and Nevada but analysts see no reason to worry yet about it affecting the area's tourism.

The average price of a gallon of unleaded regular registered $2.31 in Las Vegas on Wednesday, up almost 17 percent from Dec. 14 and 4 cents more than Tuesday's average price, according to AAA Nevada.

Still, the typical tourist is not going to stay home because of the price increases, analysts and local tourism officials say.

Not only will higher gasoline prices not discourage Southern California motorists from driving to Las Vegas, it won't reduce their spending here, said Rob Powers, a spokesman for the Las Vegas Convention & Visitors Bureau.

Powers estimated that higher gasoline prices will add $5 to $10 to the cost of a round trip from Southern California, and "that's not going to discourage someone from coming here."

Tracy Clark, associate director at the Bank One Economic Outlook Center at Arizona State University, acknowledged it's difficult to measure the impact of gasoline prices on leisure travel by car. For example, a Southern California family might drive a short distance to Las Vegas, rather than going someplace farther away, he said. "They may have to stay in a less fancy hotel or something like that," he surmised.

However, Deutsche Bank officials on Tuesday advised investors not to worry about gasoline prices affecting the hotel industry.

The report noted that PriceWaterhouse Cooper estimated gasoline prices would have to rise another 23 percent to cause a 1 percentage point decline in hotel occupancy levels nationally. In addition, utility bills, which are affected by higher fuel costs, only represent about 4 percent of room costs for full-service hotels, concluded Marc Falcone and other analysts at Deutsche Bank. "Thus, we do not view higher energy costs as a significant threat to (profit) margins," the report observed.

Hotel occupancy rose to 61.3 percent nationally in 2004 from 59.1 percent in the prior year despite the trend toward higher gasoline prices nationally, according to Smith Travel Research. But revenue per available rooms increased 7.8 percent to $52.93 last year, according to the research firm.

Higher gasoline prices also aren't causing people to trade in their large sport utility vehicles for smaller cars, said Justin Findlay, owner of Findlay Volkswagen in Henderson. People who need the space an SUV provides will not switch to small cars because of gasoline prices, he said.

However, motorists who bought SUVs just because they liked them are trading them in for smaller cars.

"We do see these people coming to trade their cars in and get something smaller," Findlay said.

He also sees increased demand for diesel powered cars, which are popular in Europe and have a reputation for being more economical than gasoline powered vehicles.

However, the U.S. Energy Information Administration shows the cost of diesel in California last week was $2.48 a gallon, compared to $2.31 for regular gasoline. AAA Nevada, similarly, reported that a gallon of diesel cost $2.39 in Las Vegas on Wednesday, compared to $2.31 for regular gasoline.

The federal government is predicting that the average cost of regular gasoline nationally will peak at $2.15 in May, up from $2.11 on Monday.

However, the federal government based that projection on predictions that crude oil prices, which fell $2 on Wednesday to $53.81 per barrel, will decline, said Neil Gamson, an economist with the U.S. Energy Information Administration.

"It's possible that our projections might be on the low side by a few cents," Gamson said.

It's more difficult to project how high Las Vegas gasoline prices will rise based on national numbers.

California, which provides 95 percent of the gasoline consumed in Nevada, has gasoline prices that run 17 cents per gallon higher than nationally. That would result in an average price of gasoline in Los Angeles of $2.32 per gallon in May and June.

The California Energy Commission, however, refuses to make projections, said Rob Schlichting, a commission spokesman.

Many factors can affect the price of gasoline, including unanticipated refinery outages and temporary gasoline pipeline shutdowns, he said. Critics point to increased profits for oil companies.

"Because of the tight inventories of gasoline, the price is going up much faster than the price of crude, which means the refiners are getting even richer, particularly on the West Coast where the spread is about twice what it is in the rest of the country," said Martin Lobel, a Washington, D.C., attorney and expert in the petroleum industry.

"Right now, if you own a gasoline refinery or oil company, this is a good time," said Sean Comey, a spokesman for AAA Nevada. "They are making a ton of money."

Analysts see a couple of encouraging developments for consumers. A company in Arizona is seeking approval to build a new refinery in Yuma, Ariz., and that could increase supplies in gasoline for the Southwest. Schlichting also mentioned proposals to build a gasoline pipeline from El Paso, Texas, to Tucson, Ariz., which would provide a new source of gasoline for the region.

Meanwhile, the California Energy Commission urges motorists to buy gasoline wherever they find the lowest prices because members sees little difference in the quality of gasoline. The commission also advises not using premium or a midgrade gasoline unless your vehicle calls for those grades.

John G. Edwards
John G. Edwards