Rising Costs Give Airlines, Hotels, Car Rental Companies Fuel for Thought.

TRAVEL IS AN INDUSTRY whose fortunes are closely tied to fuel prices. While few expect Americans to travel less, home heating bills might put a crimp in spring travel plans.

The Travel Industry Association is forecasting that leisure trips by U.S. residents will increase just 2% this year, versus 4% in 2005. If so, marketers will have to press harder than ever for the shrinking discretionary income from consumers who will see higher prices across the board in their travel searches.

"People are more apt to search for deals, particularly as travel costs increase," said Kathy Sheehan, vp-Roper Reports at GfK NOP, New York. "Travel is viewed by many Americans as a key component of their idea of the 'good life' … they'll continue to be deal-seeking in reaction to higher travel expenses in order to reach their travel and adventure aspirations."

U.S. Travelers are seeing more differentiation among hotel brands than at any time in the past decade, per a Roper survey. But beyond price, they are uncertain as to what is most important in choosing lodging for a vacation. Sheehan said hotels can help consumers by melding their brand with key benefits.

The National Business Travel Association projects there will be more business trips, and that travel costs for U.S. corporations will rise 9% in 2006 because of increases in air fares, meals, hotel and car rental rates. Mid-tier hotels could benefit because corporate travel managers in the NBTA survey said they are shifting bookings away from luxury accommodations.

So far, the only impact of rising fuel prices on car rentals is that corporate clients are requiring employees to fill up themselves rather than buy a full tank from the rental company, said Becky Alseth, vp-brand marketing at Cendant Rental Group, which includes Avis and Budget.

Airlines were able to raise fares more than 8% last year with the help of record travel volumes. But fuel costs, coupled with mismanagement, will have carriers posting their worst loss since the industry fell $10 billion in the red in 2002. Low-cost carriers such as Southwest kept fares in check.

Analysts differ on the subject: CreditSights has a bullish outlook for the sector while Goldman Sachs warns that oil prices could see super price spikes to $105 a barrel, making jet fuel costs even more outrageous.

As United crawls out of Chapter 11, expect the airline to be a leaner and internationally focused operation, with costs approaching that of Southwest.

Meanwhile, Southwest is competing with American's Dallas/Fort Worth hub by chipping away the 1979 Wright Amendment, which restricted large aircraft service at Dallas' Love Field to just Texas and adjoining states. Southwest started service last month between Dallas, Kansas City and St. Louis after convincing a Missouri congressman to insert an amendment into a transportation bill exempting the state from the Wright Amendment. Look for Southwest to pursue other lawmakers to follow suit.

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By Mike Beirne