As the motorcoach industry rebound continues to gather steam, carriers from coast-to-coast are finding new business and enjoying new revenues. But some of those gains are rapidly being eaten away by huge increases in diesel fuel prices.

Diesel nationally averages more than $2.30 a gallon, that's 65.5 cents a gallon higher than it was a year ago, according to the federal Energy Information Administration, which tracks fuel prices. Regionally, average diesel fuel prices range from $2.24 cents a gallon in the Lower Atlantic states, to more than $2.54 on the West Coast. California tops all states with an average of $2.58 a gallon.

What's the answer for carriers to this bottom-line threat? Fuel surcharges.

Operators tell Bus & Motorcoach News they are adding 2 to 7 percent to their regular tour and charter rates and their long-term contracts when they come up for renewal.

Some companies are even including language in new contracts that allow them to increase their rates further if diesel prices reach a certain level.

And a number of operators that put surcharges in place last year have made those increases a permanent part of their rates, and inserted additional surcharges this year.

Even the few carriers that have held back, and have yet to do anything, say they are on the verge of acting.

"I think it's coming very, very soon, possibly in the next 30 days," said Dennis Levering, president of Gray Line Tours of Nashville, who plans to add a surcharge when his local fuel price hits $2.25 a gallon, just a few pennies below what he last paid.

Levering is uncertain how he will calculate the surcharge but says he'll look at either a per-mile charge or a flat percentage.

Many methods
Operators have adopted lots of methods of determining surcharges, although most seem to base them on the percentage that fuel costs take from their revenues or make up of their total operating expenses.

"If the amount your fuel expense takes from your gross revenues goes from 8 percent to 9 percent, and you want to keep the same margin, then you have to raise your prices or have a surcharge of one percentage point," said Jeff Polzien, president of Red Carpet Charters in Oklahoma City, Okla.

Last year, Red Carpet initiated a 2 percent surcharge, folded that amount into its new rate schedule that began in January, and then added another 2 percent surcharge in February when diesel prices took off again. "Now it looks like we're going to have to raise it to 4 percent because the prices keep going up," said Polzien.

Mike Waters, general manager of Coach USA San Francisco, said his company uses fuel costs as a percentage of total operating expenses to figure its surcharge, and adds a penny to it for every 10-cent increase in the price of fuel. The current surcharge is 7 percent, up from 5 percent earlier this year.

Surcharge table
Carl R. Bieber Tourways of Kutztown, Pa., developed a fuel surcharge table that allows it to adjust its line-haul rates each month based on the federal EIA national average diesel price, explained Boyd Kreglow. The latest surcharge is 6.75 percent.

He said the table, which is similar to ones used by such package delivery giants as FedEx and UPS, and major trucking companies, increases by one-half percent as the fuel price goes up or down. It is based on the percent that fuel costs reduce gross revenues and is adjusted so the revenue stream remains the same.

"We've once or twice even lowered our prices because fuel costs went down and that pleased our customers because we showed them we were doing just what we said we were going to do," he added.

Rather than impose the surcharge on its tour and charter rates, he said the company opted to increase those rates by 5 percent because of the many bookings it makes months and often a year in advance. "Our customers needed a fixed price because they are going back to sell the tours," he said.

Dean Brown, assistant manager of Lamer Tour and Travel in Green Bay, Wis., said his company based its 6 percent surcharge on what its fuel costs were over the pass 12 months and then came up with a figure that would allow it to recoup part of the cost. "We don't expect our customers to meet all of the increases," he noted.

Projections used
Gray Line of Seattle used fuel-cost projections to settle on its 5 percent surcharge, although reaching that figure was somewhat complicated, according to David Gudgel, general manager. He said the company charges by the mile and by the hour, and had to mix both the local and over-the-road miles into the model. "We wanted to have the same increase for all of our customers," he said.

The company also has developed long-term contracts that contain fuel price triggers that will allow it to increase its charges up to a set percentage if the cost of fuel continues upward.

Mike Bazelides, executive vice president of Indian Trails in Owosso, Mich., said the company used projections to calculate its 5 percent surcharge, but prices have been so unstable lately that it ended up missing what it was hoping to take in by a wide margin.

"It's certainly not an exact science," he said, adding that the company was looking for prices to peak at 50 to 60 cents below the current price.

Meanwhile, diesel fuel projections remain a difficult guessing game. Bazelides points to recent reports from two analysts, one says crude prices by year's end could drop to $45 a barrel, and the other says they could reach $105. "They're all over the board so you have to go with the one you trust the most," he said.

Most operators say customers are understanding of the situation because they see that gasoline prices have gone crazy. "Most of them just accept it because they're buying gasoline at the pumps, too, and they know what's going on," said Waters.

Any easy sell
Polzien agrees, noting that a fuel surcharge is the easiest increase to sell to customers because of their keen awareness of gasoline prices. "And they don't seem to question the amount of the surcharge, either," he noted.

He suggested, too, that while the high price of diesel might create short-term problems for motorcoach carriers, it could actually benefit the industry in the long run.

"We have a lower percentage of fuel costs for our operations than any other form of transportation, so the higher cost of fuel makes us cheaper relative to cars and airplanes," he said. "Maybe we ought to be embracing them instead of griping."