What happens when Oil hits $250 a barrel?

The oil price super spike that drove prices well over $100 has thankfully let up over the last month, which is great news for many business and consumers. Record oil prices peaked at $147.25 on July 16, but have fallen off over $34 per barrel as of close of New York light sweet crude futures trade on August 12. That is a remarkable reversal of direction in less than a month, after several months of relentless gains for the resource.

Retail gas prices have dropped as dramatically over the same period of time. According to AAA and the Energy Information Administration, national average retail gas prices in the US had fallen over 31 cents as of August 12, from a record high over $4.10 per gallon on July 17. Current prices at the pump average a couple cents under $3.80.

The rapid turnaround of direction in oil prices has had major global impact for both consumers and companies. Consumers in most developed countries had significantly lowered their average miles driven as gasoline climbed to and over $4 per gallon. Many businesses have been greatly impacted as well. Airlines, trains, and trucking companies have had to cut routes and scheduled trips due to lowered consumer demand. High prices make it extremely expensive to operate transport vehicles, so air flights and shipping charge had priced many consumers out of the market.

Oil and gas prices are still relatively high compared to all time price trends, but they have dropped off significantly, which should contributed to increased demand from consumers and business at some point. Gas prices have fallen over 8 per cent in a month, which is remarkable.

Current downward price trends might leave many travelers and transporters hopeful, especially given forecasts that indicate the likelihood of flat oil prices over the next twelve months. However, it is also widely anticipated that at some point, market and political factors will once again force oil to rise beyond where it has already been. Goldman Sachs boldly predicted $200 oil within twelve months in the early summer. Their prediction came at a time when prices were hovering in the $130s and $140s, however. Still, many medium-to-long-term oil forecasters believe $200-$250 per barrel oil is not that far away.

So, what would $250 per barrel oil, and certainly $5 per gallon, or even higher, gasoline and diesel prices, mean for the marketplace? In the coach industries, high transportation costs would impact different companies in different ways, depending on business philosophy and market strategy.

Companies that are well-positioned as high quality, high service, coach service providers would certainly be in the best shape to survive, and dare we say, thrive if the $250 oil mark is reached. Consumers that pay premium coach prices for a better trip experience would be less impacted by modest adjustments in trip prices than travelers who are already struggling to find the cheapest, or most economical, transport. This makes it tough for companies that have positioned themselves as low-cost or value-oriented coach providers since they would have to absorb higher fuel costs with little ability to demand a higher price from consumers.

High quality, high service, or more profitable coaches would not only be better equipped to survive the transition into higher oil and fuel, they would probably benefit in some ways, based on competitive factors. Struggling low cost companies that cannot afford to maintain low prices would find it tougher to market their products and services at more comparable price points with coaches that have established a reputation as high end. Some companies would surely be forced out of business. Also, consumers would begin to look around and realize for a little bit more money, they could take their trip with a more respected coach, and have a higher quality experience.

Many coaches that do currently maintain a value-oriented market strategy have found it challenging enough to stem the tide of falling market demand for vacations. Airlines, coaches, and other transporters have cut trips due to low consumer demand. Some of these companies may reexamine their market position and decide a repositioning is necessary to prevent business closure when $200-250 oil hits. The window of opportunity may be limited, but it is never too late for any company to figure out what customers expect, what makes them satisfied, and what factors drive them to your coach besides a low price point.