U.S. Travel Plans Hit The Skids

A traffic jam on a California freeway.
Oil prices rose above $135 a barrel for the first time Thursday, with supply worries, global demand and an ever weakening U.S. dollar driving crude futures up.

As the cost of oil continues its surge, it is almost certain to dampen travel plans for millions of Americans heading into the Memorial Day holiday weekend and the upcoming summer months.

A new Rand McNally survey says two-thirds of Americans planning road trips this summer are either altering their plans to shorten their trips or canceling altogether. AAA predicted the number of Americans planning to drive more than 50 miles over Memorial Day weekend is down by 1 percent. Air travel will decline slightly as well, AAA said.

"We're really in kind of tenuous territory," said Suzanne Cook, research vice president at the Travel Industry Association.

The survey comes as American Airlines announced it will start charging $15 for the first checked bag, cut domestic flights and lay off possibly thousands of workers.

The airline plans to cut domestic flight capacity by 11 percent to 12 percent in the fourth quarter, after the peak summer season is over. That is more than double American's previous plans to cut flying by 4.6 percent in late 2008.

"I do think it's a bubble, but i don't think we'll go back to the numbers between $20 and $60 that we saw before," oil and gas analyst Tom Kloza told CBS' The Early Show Thursday of the rising oil prices. He added: "I don't think it will burst. It will come off substantially."

In the casino capital of Las Vegas, things already are tough.

Room occupancy rates have fallen slightly, forcing casinos to lower hotel room prices. Gambling giant MGM Mirage Inc. and local casino operator Station Casinos have cut their work forces. Las Vegas Sands, which opened a massive new casino on the Strip in January, unexpectedly swung to a loss of $11.2 million in the first quarter of the year.

Analysts expect the slowdown to be most dramatic at mid-market Las Vegas resorts that rely on tourists driving in from southern California. Those tourists already began staying away in the early part of the year, before gas prices rose again.

U.S. travelers have no choice but to cut back.

Margaret Stone, from small-town Lucas, Ohio, is hosting two exchange students from Europe and recently brought the two teenage boys to see the monuments and museums on the National Mall in Washington.

But she may have to cancel a planned trip to North Carolina in September when her newest granddaughter is born. "I'm on a fixed income," Stone said. "It's not going to change. So I'm going to have to make some adjustments."

On the steps of the National Air and Space Museum in Washington, Lynn Johnson, of Greenville, South Carolina, said she was on a trip with her daughter's fifth-grade class. But she said the family might not be able to afford another long-distance trip. They might escape to the closest beach this summer instead.

With the summer months fast approaching, tourism officials are waving discounts, freebies and other marketing ploys to draw visitors who might be reluctant to open their purse strings, especially outside major cities.

In Rehoboth Beach, Delaware, innkeepers are advertising free gas cards with a reservation or an extra night for free, hoping to soothe tourists' concerns about gas prices.

Just south of Washington, George Washington's Mount Vernon estate in Virginia has created a discount promotion with the Corcoran Gallery of Art to tie in with the exhibit, "The American Evolution: A History Through Art." A ticket purchased at one attraction is worth a half-price discount at the other. In June, Mount Vernon will try giving away reproductions of George Washington's china to one visitor each day.

"We're interested to see if it might bring out people who just need that extra little push," said Emily Coleman Dibella, Mount Vernon's spokeswoman.

Tourism officials believe destinations in urban corridors may be most insulated from rising prices. Washington, for example, is ranked as one of the most expensive tourist destinations with an average price of $352 a day for a family of four, according to AAA figures. But local tourism officials say the city benefits from its proximity to cities within a day's driving range, and the influx of European tourists taking advantage of the dollar's weak value.

In New York City, some officials are even more optimistic, saying the U.S. economic downturn might even benefit city businesses. In the first three months of 2008, an estimated 9.5 million people visited New York City, up by 1 million from the same period a year earlier. Visitor spending rose by an estimated $700 million.

Faced with an expensive euro and tighter budgets, Americans who might usually choose a trip to Europe are more likely to take a shorter trip to New York, said George Fertitta, who heads the city's tourism office.

"A trip to New York versus a trip to London," he said, "dollar for dollar this is as good as it gets."

Meanwhile, the world's top energy watchdog is preparing a sharp downward revision of its oil-supply forecast, according to a report in The Wall Street Journal reported.

Light, sweet crude for July delivery rose as high as $135.09 before falling back slightly. By midday in Europe, the contract stood at $134.37 a barrel in electronic trade on the New York Mercantile Exchange, up $1.20 on Wednesday's close of $133.17.

That settlement price, up $4.19 on Tuesday's close, marked NYMEX crude's largest one-day price advance since March 26.

Meanwhile, July Brent crude on the ICE Futures exchange in London also reached a new record of $135.13 a barrel Thursday. By midday in Europe, it had retreated to $134.35, a gain of $1.65 on its Wednesday close.

"Simply put, this is a market you cannot afford to be short in," said U.S. analyst and trader Stephen Schork about Brent futures in his Schork Report.

With gas and oil prices setting new records nearly every day, analysts have begun to wonder what might stop prices from rising. There are technical signals in the futures market, including price differences between near-term and longer-term contracts, that crude may soon fall. But with demand for oil growing in the developing world, and little end in sight to supply problems in producing countries such as Nigeria, few analysts are willing to call an end to crude's rally.

"The sentiment in the market is very bullish at the moment," said David Moore, commodity strategist with the Commonwealth Bank of Australia in Sydney. "The U.S. dollar was weaker last night, and also the U.S. EIA report showed an unexpected decline in U.S. commercial crude oil inventories, so there's a combination of factors pushing the oil prices higher."

Crude prices breezed past $130 early Wednesday, then accelerated when the U.S. Energy Department's Energy Information Administration said U.S. crude inventories fell by more than 5 million barrels last week. Analysts had expected a modest increase.

Investment bank Goldman Sachs last week revised its oil price forecast for the second half of 2008 from $107 to $141 a barrel. But some analysts saw the new target becoming a reality much sooner.

The Wall Street Journal reported Thursday that the Paris-based International Energy Agency is in the middle of its first attempt to comprehensively assess the condition of the world's top 400 oil fields.

For years the IEA has predicted that supplies of crude and other liquid fuels will arc gently upward to keep pace with rising demand, topping 116 million barrels a day by 2030, up from around 87 million barrels a day currently.

The agency is now concerned that aging oil fields and diminished investment mean that companies could struggle to surpass 100 million barrels a day in production over the next two decades, the paper reported.