Mike Sasina, owner of Metro Pavers in Denver, has changed the way he bids street-paving jobs because asphalt prices are so unpredictable.
“There’s so much volatility in the oil pricing. If you’re not awarded the contract in a 20-day period, you have to rebid the project,” he said.
Prices for asphalt, an oil-based product, jumped from $32 a ton to $47 a ton at the beginning of July. A fast-food restaurant parking lot takes about 1,500 tons of asphalt to resurface, and Sasina said he can’t absorb a price change of thousands of dollars for such a job.
Oil prices that surpassed $70 a barrel in mid-April – and for the most part stayed there – are affecting virtually every sector of the economy. Businesses including paving companies, pizza-delivery services, trucking companies, grocery stores and airlines have responded by raising prices to recapture their expenses – or have been forced to take a hit on their profits.
Stephen Brown, director of energy economics at the Federal Reserve Bank of Dallas, said energy costs are a primary reason the growth rate in the gross domestic product has slowed each year by about half a percentage point since late 2003.
Violence in the oil-rich Middle East, increasing demand from surging economies in China and India, and a shortage of refining capacity are contributing to price run-ups in oil-based products.
The average price of unleaded gasoline in Colorado surpassed $3 a gallon Friday, a 31 percent increase from a year ago. Still, consumers show few signs of cutting back on their personal gas consumption. Americans bought 10 percent more gasoline in the first half of this year than in the first half of 2000, although the price has increased by 75 percent, according to an analysis by BusinessWeek magazine.
The sustained high prices have affected a wide range of Colorado businesses.
At three south metro Abo’s Pizza locations, owner Gunther Mueller has added a $1 fuel surcharge to deliveries to defray not only higher gas prices but also higher natural-gas and electricity prices.
Mueller said he will drop the fee when fuel prices fall. He calls the surcharge an easier business step than raising and lowering all his pizza prices.
Gene Cookenboo, owner of Presidential Limousine, said his customers haven’t objected to a 5 percent surcharge he has tacked onto the $80 base price of a limo ride.
“I have not had one customer complain about it,” Cookenboo said. “We weren’t covering prices with 4 percent, and costs have gone up.”
Presidential’s trips are up sharply – 93 per day in May 2006, compared with 67 per day in May a year ago – but so are its costs. This year, the company’s monthly gasoline bill is about $22,000; last year it was $18,000, Cookenboo said.
Grocers such as Wild Oats have taken a different tack – contracting to buy locally grown produce to keep transportation costs down.
“Obviously, if we’re not having to pay the fuel or transportation costs, we’re not getting hit with that added cost,” said Sonja Tuitele, a Wild Oats spokeswoman. “We save on transportation because we have a huge push for local products, especially in the summer, that will give us a little bit of relief.”
On average, she said, out-of-state fruits and vegetables travel 1,500 miles to a grocery store.
“It’s less impact on the environment, with less fuel, and more money in your local economy,” Tuitele said.
George Fischer, vice president and managing director of the Vail Cascade Resort, said his steakhouse, Chap’s Grill and Chophouse, has had to raise prices because of higher transportation costs for food, especially high-cost items such as beef, fish and chicken.
“We keep getting price increases from our vendors based on the price of transportation,” Fischer said.
Jose Calvo, the resort’s director of purchasing, said vendors are now charging a delivery fee on all products, and the fee on his steaks is between $3 and $7.
He’s had to bump the price of his buffalo ribeye, the steakhouse’s second most popular item, from $33 to $36.
Chris Romer, director of sales and marketing at Destination Resorts Vail, which manages six condominiums in the mountain resort town, created a $50 “Fuel Your Fun” gift card for guests who book three nights or longer at any of his properties.
“Our rationale behind it was due to the fuel cost,” he said. “They can use it for anything – groceries or dinner or whatever they want.”
The card promotion was released July 14, and it’s also being offered at other properties in the Destination Hotels & Resorts Mountain Collection chain in Aspen, Telluride and Snowmass.
Romer said despite higher gasoline prices, the chain’s Colorado resorts are booming. Visitors are up 36 percent from May 1 to July 26 from the same period last year.
In Denver, Mike Michna, chief engineer at the Oxford Hotel, said the hotel asks the housekeeping department to turn off any lights, air conditioners or heaters in vacant rooms to cut down on energy costs.
He said the hotel has seen a 30 percent increase in natural gas from the previous winter. He said the electricity bill has risen about 8 percent from last summer.
The hotel hasn’t raised it rates. It is, however, replacing items such as curtains, carpets and beds less frequently than it has in the past, he said.
Denver-based Frontier Airlines, like United Airlines, the other major carrier at Denver International Airport, hedges against high jet-fuel costs by locking in extended contracts for lower-priced fuel.
Frontier was only 15 percent hedged in the June quarter, is 24 percent hedged this quarter and 14 percent hedged in the December quarter. United has 28 percent of its fuel consumption hedged right now at an average price of $1.66 per gallon.
Frontier imposes a fuel surcharge of between $5 and $10 on some of its ticket prices but says its ability to pass on fuel costs is limited, in part because of competition.
“It’s just an ongoing battle, and we do everything we can to mitigate fuel,” said Frontier Airlines spokesman Joe Hodas.
Those efforts include taxiing on a single engine instead of two, buying extra fuel and transporting it from low-fuel-cost cities, known as tankering fuel, and removing weight from the aircraft.
In the trucking industry, companies are trying to reduce their fuel burn by cutting back on the amount of time truckers are idling their engines. Trucks idle during rest periods to keep the vehicle warm or cool depending on the season or to run electrical appliances.
Some truckers are using auxiliary power units to cut idling. But they cost thousands of dollars and can weigh more than 300 pounds. Extra weight can reduce the load that some trucks can carry.
Slowing down, using cruise control, coasting when appropriate, using smooth braking and accelerating, and limiting unnecessary gear shifting are other techniques being employed by drivers.
“In some cases a tenth of a mile per gallon can make the difference between making money on a trip or losing money,” said Gregory Fulton, president of the Colorado Motor Carriers Association.
Staff writer Steve Raabe contributed to this report.
Staff writer Beth Potter can be reached at 303-820-1503 or bpotter@denverpost.com.
Staff writer Kelly Yamanouchi can be reached at 303-820-1488 or kyamanouchi@denverpost.com.
Staff writer Ameera Butt can be reached at 303-820-1233 or abutt@denverpost.com.
