The record high crude oil prices are becoming a serious social issue in Japan today. As winter started, not only the price increase of kerosene oil was announced recently, prices of numerous consumer products also have rose, affecting the Japanese economy day by day. The question arises how will it affect the travel industry?

One obvious problem is the higher fuel surcharge for international air tickets. Provisionally introduced in February 2005, the surcharge has been added to the price of tickets as shown below (chart 1). For tickets issued on/after January 1 2008, many airlines again will raise the fuel surcharge. The new levels for Japan Airlines will be raised substantially by 4,000 yen one-way to 17,000 yen for the U.S./Europe/Oceania routes and by 2,600 yen one-way to 12,500 yen for the Hawaii routes.

Despite the economic recovery and the absence of negative factors such as terror attacks and SARS, the number of Japanese travelers abroad is estimated to fall short of that of 2006. The steep increase in fuel surcharge can be one of the significant reasons. It is affecting price-conscious FITs in particular, because they are likely to avoid expensive surcharge. The continued escalating fuel surcharge could be an obstacle to the Japanese government's numerical goal to send 20 million Japanese abroad by 2010 stated in the Tourism Nation Promotion Law.

Another factor is the steep increase in gasoline prices across Japan. The regular gas price per liter rose more than 15 yen between January and November 2007(chart 2). With a rather high proportion of per-household number of cars, driving plays a considerable role in Japan's domestic travel. However, if the gasoline prices should remain high or keep increasing, it might cause a serious decline in traveling and leisure activities by driving cars.

The travel industry in Japan is currently facing a relative deterioration in the presence of Japanese travelers overseas. It also encounters obstacles in vitalizing tourism in Japan's regional areas. The high increase in crude oil prices, too, could be a large subject placed on the travel industry in Japan today.

Chart 1:
Trends in fuel surcharge since first imposed
(Japan Airlines, per sector, unit: Japanese Yen)

Chart 2:
Trends in regular gasoline prices across Japan in 2007(national average)