Russian war’s impact on South Florida economy most likely to stem from energy prices, experts say

If there is to be fallout for South Florida economy from Russia’s invasion of Ukraine, the main consequences are already being felt in the form of rising prices at the gasoline pump.

But the degree to which the warfare might affect the region’s bread-and-butter tourism and other consumer service industries is hard to calculate at this point.

“We’ve seen over the last few months that prices have gone up and people have been consuming as much or more as ever,” said William Luther, an economist and assistant professor at Florida Atlantic University. “The source of those higher prices was primarily on the demand side. People spending the wealth they accumulated over the last two years has been driving up prices. If we see prices rise in response to this Russian situation, that’s a constraint on the supply side of the market.”

“The primary channel we should expect this to affect is the oil and gas markets,” Luther added. “If Russia is exporting less oil and given the sanctions … the countries that import from Russia will have to start looking elsewhere.”

Already, the price of gasoline in Florida spiked 4 cents a gallon last week and more price hikes could be on the way, according to AAA-The Auto Club Group. Overnight trading in crude oil has seen prices surge amid concerns that the invasion could constrict global supplies. Russia is the second largest oil producing country in the world behind the U.S. and ahead of Saudi Arabia, according to a recent study by Tufts University.

Would that deter drive-in vacationers from visiting Florida destinations? And what about the airlines that labor to keep fares low for leisure travelers?

Most tourists are likely to keep coming, experts say.

“Here in South Florida we have some time on our side,” Luther said. “We’re entering the end of the tourism season and a lot of the trips in the next few months or so have already been planned, already paid for.”

So if the war is not prolonged, there should not be much of a disruption.

“We still see extraordinarily high demand, especially for warm weather beach destinations,” said Stacy Ritter, president and CEO of Visit Lauderdale, the tourism promotion agency for Broward County.

Ritter said tourism revenue for 2021 “broke every record we ever had,” with the agency falling just $12,000 short of the $100 million mark in tourist development tax collections. In 2019, the year before the COVID-induced collapse in visitor levels, collections stood at $90 million.

Indeed, Florida’s tourism-heavy economy is on a roll, Gov. Ron DeSantis told reporters at a Vero Beach press conference Monday.

“Florida set its all-time record for domestic visitations,” he said. “That’s blowing away pre-COVID numbers.”

He attributed the tourism surge to Florida policies that kept the economy open in the face of COVID, including prohibitions against mandatory masks and other restrictions.

And rising prices have not been a deterrent, thus far.

“So far we have not seen any effects of inflation on the South Florida tourism market — our numbers continue to remain strong,” said Lindsey Weigmann, public relations director at Discover the Palm Beaches, the tourism promotion arm for Palm Beach County.

She said Jorge Pesquera, the agency’s CEO, would not discuss the war in Ukraine.

Given the war’s upward pressure on energy prices, it’s plausible that the airlines could pass along the increases to passengers.

“They’re going to pass on anything they can pass on,” said Jeffrey Miller, a marketing lecturer on hospitality and transportation at FAU’s College of Business.

That could well include an extra $5 to hoist a bag into the overhead bins at Spirit Airlines or some other discount carrier.

A spokesman at Spirit Airlines of Miramar, the leading carrier by flights at Fort Lauderdale-Hollywood International Airport, deferred on the issue of price hikes.

“We always strive for affordable fares for our guests,” said spokesman Erik Hofmeyer. He said the price of fuel is a topic reserved for quarterly earnings discussions, and he had nothing further to share.

Delta Air Lines, another large carrier serving Fort Lauderdale, did not have any current fuel prices available. But at the end of 2021, it reported fuel expenses of $1.6 billion for the fourth quarter had risen 4% from the previous quarter. The carrier was paying $2.10 per gallon in the fourth quarter, up 8% quarter-over-quarter on higher market prices.

A possible side-effect from the war, as seen during the pandemic, is Americans traveling domestically, often to Florida, instead of flying internationally. And cruise lines are canceling calls at all Russian ports, with MSC Cruises becoming the most recent to announce it will bypass the region this summer.

Russian airline changes course

The most immediate aviation-related impact of the war predictably fell on Aeroflot, the Russian state airline, which operates three flights a week between Miami International Airport and Moscow. As members of the European Union moved to shut their air space to Russian commercial aircraft, the airline temporarily suspended its South Florida service.

“Aeroflot has been flying the Moscow-Miami route three times per week, but they have cancelled their remaining MIA flights this week,” said spokesman Greg Chin. It also halted service to New York, Washington and Los Angeles.

The action took place before President Joe Biden announced at the State of the Union address Tuesday night that the U.S. was banning Russian airlines from operating in American airspace.

Aeroflot’s flight out of Miami on Sunday drew the attention of Canada, which barred Aeroflot flights from passing through Canadian airspace on their way to and from Moscow.

“We are aware that Aeroflot flight 111 violated the prohibition put in place earlier today on Russian flights using Canadian airspace,” Transport Canada said Sunday on its Twitter account.. “We are launching a review of the conduct of Aeroflot and the independent air navigation service provider, NAVCAN, leading up to this violation. We will not hesitate to take appropriate enforcement action and other measures to prevent future violations.”

The airline appeared to have altered its routes so it could resume service from Miami. Reached by phone, a reservation agent said Aeroflot was operating a Miami to Moscow flight via Istanbul, Turkey on Tuesday night. After a four-hour wait, she said, the flight was to continue on to Moscow.

But the war hasn’t done much to disrupt international air traffic to and from South Florida, which continues to see a recovery in overseas traveler volumes from the COVID-pandemic.