Expensive Gas Could Squeeze Vacation Industry

April 11, 2006 — -- The expected climb of gas prices to near historic levels could have consequences for many businesses that make their money off Americans' summer vacation travel.

The U.S. Energy Department's seasonal outlook on gas prices, released today, projects that this summer the price for regular-grade gasoline will average $2.62 a gallon, about 25 cents higher than last summer.

Gas prices have skyrocketed since February and jumped nearly 34 cents in the last four weeks, to an average price of $2.68 for a gallon of regular unleaded gas. That's 40 cents higher than the same time last year, not a good sign with the summer vacation season right around the corner.

Americans typically don't cancel vacation plans due to increased travel costs, preferring instead to cut back in other areas or finance vacations on credit and pay them off later. So far, despite the higher prices and the early predictions for a sustained run of expensive gas, few in the industry have noticed a drop-off in business.

"It would appear that the higher price of gas hasn't had much effect yet. In fact, we've seen no indication that it's had an effect at all. But of course that could change if prices keep climbing," said Pat Funk, spokeswoman for the Association of Retail Travel Agents.

Some in the industry said that any increase above the government forecast could put pressure on the travel and tourism businesses.

"High gas prices affect your daily pocketbook and daily budget more than people's vacation plans," said Cathy Keefe, spokeswoman for the Washington-based Travel Industry Association. "But I think we might see $3 gas all summer, and that could really throw a glitch into things. That's 30 cents more per gallon than last year."

Shorter Trips, Fewer Hotels

The TIA estimates that 82 percent to 86 percent of American summer vacations are driving vacations, with the average length being about four nights. Last year, when gas prices climbed, the organization estimated that the higher prices tacked an extra $40 to $45 onto the total average vacation expense.

Few people, Keefe said, would cancel plans based on another price increase. But the higher prices could have a ripple effect if families plan shorter trips to destinations closer to their homes in an effort to avoid long drives and frequent fill-ups at the pump.

Car rental businesses could take a hit if families decide to eschew gas guzzling SUVs, which are more expensive to rent, for more fuel-efficient cars. Some people could also choose alternate modes of transportation like trains or bus service.

Travelers might also avoid higher-priced hotels and search for inclusive deals that would provide things like a free breakfast, which could save a few dollars for a family of four. And some business could funnel away from hotels altogether as vacationers find cheaper alternatives like campgrounds or plan trips to visit and stay with family or friends for free.

High Airfares Leave Few Other Options

With airfare prices expected to be 10 to 15 percent higher than last year, car travel will still be the way to go for most Americans. But trips are likely to be more regional for families who are pinched by the high fuel prices.

"Places that are 'drive-to' destinations tend to benefit -- places like the Wisconsin Dells that are accessible by a large number of people just a few hours away will attract a lot of people who might have normally taken a longer trip. A lot of people will decide to stay in their region," Keefe said.

On the flip side, budget conscious travelers are likely to avoid more expensive destinations like big cities or plan shorter stays in the cities and spend more time in less expensive outlying rural areas.

"The big cities like D.C. and New York have been going like gangbusters -- hotel occupancy is up and prices are rising, and it would be hard to imagine that trend reversing. But some smaller cities could see a drop-off," Keefe said."

As of now, travel agents and tourism bureaus are still gearing up for an active travel season, and travelers making early plans have appeared unaffected by the price concerns.

"We haven't been hearing any complaints about gas prices. I think the public has been starting to accept that they're going to have to pay more for gas. It's just a fact of life," said ARTA's Pat Funk.

But any upward variation could change that. The TIA is waiting until next month to release its annual travel forecast, and Keefe said gas prices could still have an impact on summer plans.

"We've never seen $3 gas for a sustained period, so it's tough to tell how much it will change things, but it will definitely have an effect," she said.