What rising fuel costs means to travel recovery

The rebound in travel has generally been in a recovery mode but rising gas prices could do more than raise airfare tickets and torpedo the airline recovery: What might the even higher prices mean to the overall travel industry?
 

“When gasoline prices shoot up, it’s never good for the tourism industry,” reports National Public Radio. But how bad might it get?
 

Experts say it depends on various factors. They include the particular segment of the industry; how reliant cities and destinations are on drive-in tourism business; and perhaps most critical of all: how much will oil prices rise?
 

Travel was not so long ago celebrating the end of the recession. Hotels said rising occupancy rates meant they could raise their prices. Leisure travel companies reported signs of growth. Business travel was also rebounding, reported PhoCusWright.
 

“Rising gas prices have an enormous impact on the tourism industry,” writes US Congressman J. Randy Forbes in a newsletter to his constituents in Virginia.
 

“Airlines, cruise lines, and bus lines all need fuel to operate; hotels, resorts, and restaurants need energy to heat and cool their buildings; and families traveling by car who have to pay over $3 per gallon are beginning to limit their normal travels,” he writes.
 

An example of how an area might suffer from rising gas prices at the pump is Las Vegas, where estimates are drive-in traffic accounts for a majority of the total visitor volume. There’s little doubt continued rising prices will discourage some visitors.
 

Also, areas such as Orlando that rely on high ticket prices for attractions will feel the impact sooner than areas such as Mammoth Lakes, Calif., where there are many free attractions to offset added driving costs.
 

“We’re in a location where there are a lot of no-cost things to do, like hiking, cycling, mountain biking and fishing,” said John Urdi, Tourism Director. The same is applicable to other areas.
 

One major impact could be on increased business for local attractions.
 

Some destinations such as North Dakota are already taking advantage of that to appeal to locals. Sara Otte Coleman, head of the tourism division for the Department of Commerce in North Dakota, said ads are stressing the state’s affordability and free attractions.
 

Some major North American areas dependent on tourism do not seem at all desperate.
 

"We’re optimistic," said Chris Thompson, president and CEO of Visit Florida, the state’s tourism marketing company. So far, Thompson says, he’s confident that gas prices won’t have "a huge impact."
 

Other travel industry experts warn that the optimism could fade if prices continue to climb to $4 a gallon, a tipping point for many consumers. Forecasting firm IHS Global Insight says its modeling shows consumers curtail their driving once gas prices pass $4 a gallon.
 

In an interview with NPR, Transportation Secretary Ray LaHood said fuel prices already are getting high enough to begin forcing some Americans to rethink their upcoming travel plans. "People may forgo a vacation," he said.
 

Business travel? Most experts think that despite the airlines’ steadily rising rates and increased baggage fees, biz travel should recover in 2011.
 

The Global Business Travel Association predicts that business travel will remain steady even if oil prices pas-on costs continue to rise. The availability of hotel discounts once travelers arrive at their destination is thought to play a role in continued business travel despite the increased cost of airfare.
 

Leisure travel, however, may see a shift, says PhoCusWright.
 

Instead of buying an airplane ticket, consumers who have foregone travel during the recession may decide to take their vacations within driving distance. Although rising gas prices will impact the cost of a road trip, a destination within driving distance is still likely to be less expensive to reach than one that requires a cross-country plane ride.
 

The gas prices will almost certainly mean some cutbacks on travel expenses, at the very least.

"They (travelers) may stay at less expensive hotels, eat at cheaper restaurants," AAA national spokesman Troy Green said.
 

A recent Royal Bank of Canada survey found US consumers already are reacting negatively to rising gas costs. A third of respondents said higher pump prices already have led them to cut their discretionary spending.
 

Some experts say gas would have to go drastically higher for motorists to consider seriously cutting back. It’s partly a matter of attitude: the assumption of many Americans that any cost incurred does not matter because they’re “on vacation.”
 

Some economists say the US economy is better-prepared to handle this price spike than it was in 2008, when the economy was in recession. The general feeling is that the recovery likely won’t be derailed unless prices rise further and remain high.
 

The bottom line is perhaps good news: hotels and other companies in the hospitality industry say that people want to travel now that their incomes are recovering, but they just might not be willing to travel as far as they would before oil and gas prices started climbing.
 

By David Wilkening