As the United States government forecasts gasoline prices in the coming months to reach beyond historic record highs, chauffeured limousine and other car service providers are bracing for rising costs that in the past have led to default rate increases for passengers.
The U.S. Energy Information Administration this month said it expected gas prices to average $2.10 a gallon between April and September, marking a 20-cent jump from the same period last year and surpassing last May's record high of $2.06 per gallon. As such, drivers by the droves could be paying significantly more at the pump.
"Recently, gasoline prices have been rising in response to late winter rising crude oil prices and high rates of refinery utilization," the EIA report said. Crude prices early last week hovered around $55 per barrel on the New York Mercantile Exchange.
EIA said that on March 7 the average price paid at the pump across the United States was $2 per gallon—more than a 7-cent increase from the prior week and up about 9 cents from one month ago.
As of press time, the average cost of a gallon of regular unleaded gasoline in the United States was $2.03, hovering just below last May's record high, according to AAA.
As a crucial component of operational costs among car service providers, jumps in gasoline prices often bring rates up for customers.
BostonCoach, the Everett, Mass.-based chauffered car services provider, said that it is maintaining the gasoline fuel surcharge it imposed in April 2003 and still maintains is temporary. Other major car service providers have found other ways to make up for the fluctuating costs or pass them along to customers.
"As you might imagine, fuel represents a significant portion of BostonCoach's operating expenses and sharp variances in the price of fuel greatly impact our cost structure," a BostonCoach spokesperson said.
BostonCoach—one of the largest providers of chauffeured transportation services in the United States—said it has implemented a 4 percent fuel surcharge "on all reservations based on ride fare, stops while in route and waiting time."
"While the surcharge is intended to be temporary, BostonCoach closely monitors the national fuel cost average and will assess whether modifications are appropriate based on a sharp increase or decrease in the cost of fuel," the company told BTN in a statement.
Ground transportation players Dav El and Empire International have opted not to take the surcharge route, but contend that fuel fluctuations typically impact corporate rates.
In the past, rising gas costs have been a critical factor in Dav El's financial performance. CEO Scott Solombrino said fuel costs—coupled with insurance rates—last year helped detract from a more robust bottom line
(BTN, May 24, 2004). Yet, Solombrino said clients understand the cost's impact on rates. "Most of the customers are very receptive because they turn on the evening news and they're seeing what I'm seeing. People aren't stupid. They're not oblivious to this," he said.
Empire International has tried to make up for the rising cost of gas in other areas and also has been able to avoid fuel surcharges in light of escalating prices. The company said that moving such services as confirmations and receipts online has yielded savings that offset the rising cost of fuel.
BostonCoach also is looking at creative ways to save money. While its fuel surcharge will help make up for rising costs, the company also is working on conserving gas, making its drivers wary of the woes of gas waste.
"Additionally, everyone at BostonCoach is mindful of ideas that help us to reduce our expenses and fuel conservation is an important component of our efforts in this area," according to the company's prepared statement. "Our drivers avoid unnecessary idling. Likewise, we are all focused on finding creative ways to minimize the impact the cost of fuel has on our overall cost structure and our customers."
Meanwhile, even for those who don't rely on such chauffeured car services, fluctuating gas prices have caused headaches for companies that use a fixed mileage reimbursement rate for travelers who use personal vehicles for business purposes.
According to results from Business Travel News' first annual Expense Managers Survey
(BTN, Dec. 6, 2004), 82 percent of 236 expense managers said they use the Internal Revenue Service's fixed safe harbor rate when reimbursing drivers, which is updated only once a year and is based on historical variable costs—primarily gas prices—from the previous year. IRS on Jan. 1 upped its rate to 40.5 cents per mile from 37.5 cents. The rate increase largely was due to higher gas prices throughout 2004, yet more cost increases this year could further offset the delta between actual costs and the rate used for reimbursement
(BTN, June 7, 2004)."The IRS rate was never meant to be a reimbursement number. I don't know if anybody knows that," Lee Czarapata, director of client relations at Runzheimer International. "It's meant to be a tax deduction guideline for people who don't keep receipts."