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Traveling in a troubled economy

/ Source: Independent Traveler

Even as American taxpayers bailed them out, executives of AIG enjoyed a $440,000 spa getaway to the decadently luxurious St. Regis resort in Dana Point, Calif. If those guys think travel seems like a good idea now, who are we to argue, right?

Actually, that could well be the case. While the still-unfolding global economic meltdown may seem like a major threat to your next vacation, the news may not be all bad. If you are careful, plan for contingencies, pick your travel dates well, take a sensible vacation and look for the bright spots on the travel horizon, you can do very well at the moment — even if not "billion dollar bailout baby" well. Here are my tips on where to look, and where to look out, when planning your next trip.

Reality check yourself
Your first consideration, obviously, should be your own financial situation. Many of us need and deserve a vacation, but nothing says you need a full-on splurge for a stay in a luxury resort (even if you are a bailout recipient) or a week on a private beach. Even the high costs of a trip to The Mouse (Disney World, that is) might stretch your budget to a breaking point if the current financial situation gets any worse — or if it starts affecting our day-to-day life more than it does in the immediate moment.

If you are inclined to irrational exuberance about what you want and can afford in a vacation, taking a hard look at what a vacation actually costs you can sometimes be a good exercise. Thus, I recommend you ...

Do a travel budget
If there was ever a time to do a proper travel budget, this is it. Most travelers I know tend to do a quick accounting of the big expenses — airfare, hotel, car rental, park or attraction admission — add them up, and call it a budget. However, in a classic case of lots of small costs adding up to big expenses in the end, the less obvious costs incurred while traveling can turn out to be the actual budget breakers. Toward creating a more accurate budget, remember to research and include the following when planning:

  • Parking at airports or attractions
  • Attraction entry fees
  • Activity costs such as bike rentals, scuba lessons, boat rides, etc.
  • Hotel tips and parking where necessary
  • Rental car gasoline
  • Pricey airport and theme park meals
  • Internet access
  • Cell phone roaming charges
  • Travel insurance
  • Equipment rentals such as child seats, strollers and the like

Need help? Check out our cool new Travel Budget Calculator.

The U.S. dollar
While most Americans worry that each dollar won't have as much clout at the local grocery store, it turns out that our currency will do much better internationally than it has in some time. Currently at $1.36 against the euro, the dollar is the strongest it's been since summer 2007.

An improving exchange rate directly decreases the toll of those day-to-day expenses that can pile up during overseas travel. These are some of the costs I outline above in the budget section — things you purchase on the spot in local currency, and which thus actually get cheaper when the dollar picks up a little strength.

Tip: As exchange rates fluctuate, sometimes updates on rate quotes in U.S. dollars on items like hotels and other fixed price purchases can lag. That is, just because the dollar is doing better this week does not mean that the hotel you hope to book has adjusted their USD price quotes or updated their Web site — chances are that those rates are exactly the same as they were a month ago. When booking hotels, if the hotel offers a USD rate, compare it to the current exchange rate to see how it stacks up, and ask for a better rate if you appear to be taking a hit.

Gas prices down
As of this writing, national gas prices are pegged at around $3.40 per gallon, down 25 cents from a month ago, over 70 cents from the July 2008 high and even almost five cents from October 7, just a day earlier! That said, prices remain up considerably compared to just one year ago this week, when a gallon averaged $2.76. So you are still worse off than you were at this time last year, but gasoline prices are not quite the bank breaker that they were just a few weeks back.

Airfares likely going up?
As I predicted in this space this past summer, immediately after Labor Day the airlines cut back considerably on available seat miles. Most of the big domestic airlines reduced capacity in the 7 - 12 percent range, including upstart airlines like JetBlue, which eliminated just under 12 percent of its capacity. The putative reason for the cutbacks was to save on costs, but the real reason was the hope of creating a supply shortfall while demand remained steady, allowing prices to climb.

The airlines weren't, ahem, banking on a massive financial collapse, however, and it now seems inevitable that demand will in fact fall, as both leisure and (most critically) business travelers become more cautious with their money. Business travel in particular will be hard hit, as companies struggle merely to stay alive. It is very hard to predict at present whether the airlines will actually be able to increase fares, or if they were just lucky, in a sense, that they cut capacity right before all of their customers were likely to curtail travel dramatically.

One special note: If you have been researching airfares lately, you may have noticed the return of the dreaded Saturday night stay requirement. The airline practice of charging more for flights that depart and return inside the same work week, which had largely fallen by the wayside the past couple of years, has recently returned with a vengeance.

If you can book your flights to include a Saturday night stay, you may find significant savings — I have seen fare drops in the $400 - $500 range simply by including a Saturday night stay. This may in fact be good news for leisure travelers, who usually include at least one weekend in their itineraries; it is less so for business travelers. Note that we may see this pricing practice scaled back once again if businesses curtail employee travel considerably.

Fuel surcharges going down?!
I have to say I am almost astounded — it must be a public relations trick of some kind — but on Thursday Northwest actually announced that the airline is reducing fuel surcharges. North of the border, Air Canada and WestJet have done the same; as these surcharge rollbacks get more publicity and momentum, we can probably expect other airlines to follow suit.

Some airlines could fail
Given who got us into this mess and how they have behaved since, it can be hard to take the word of executives at face value, but I'll bite for now. Several international airline execs have said that we could see upwards of 50 or more airline failures worldwide in the next few months. The current market certainly hasn't treated the airlines well; last Tuesday, three of the five biggest stock drops were airline stocks: United fell over 25 percent, Continental over 19 percent, and American over 18 percent. If the news gets much worse, you will want to book away from airlines that start to look likely to go under, and at the very least purchase ...

Travel insurance
Hoo boy, this is a tough one. Travel insurance seems like the best hedge against airline failures, route cutbacks, flight cancellations, staff cuts and more. However, one of the biggest travel insurers is ... AIG!

While you may want to avoid AIG, I do recommend travel insurance for many reasons, including ...

Staffing uncertainty
Staffing issues at airports, airlines and even hotels may affect bookings just when you least want them to — at the last minute, when you are standing at the counter. Cutbacks are inevitable, if not in the actual staff headcount, then in some of the practices airlines and others rely on to conduct what they call business as usual — including overtime. Be careful particularly when booking flights at the end of the month, when pilots may have piled up their maximum flight hours; either they may be unwilling to fly more, or the airlines may be unable to pay them to do so.

Staffing shortages could affect every aspect of getting through the airport, from long lines at check-in and gates to late and canceled flights.

News of the odd
Without question, we have seen some unexpected stories in the news in recent weeks, whew; the severe gas shortage in the southeastern United States caused by the passage of Hurricane Ike a couple of weeks ago is just one of them. The problem was bad enough that television anchors could not get to work and were doing live spots from their neighborhoods; bicycle stores were completely sold out of bikes of any size and type; and people were walking miles to work like they were in some old-fashioned old wives tale.

Why bring this up? Contrast this to the AIG guys getting pampered out in Dana Point, and things can't get much more odd. I would say we are living in the most uncertain times in the United States in nearly a century, so any and all of the above may change at any minute, and dramatically — to the point where one guy is walking to work just to keep his job, while the other guy is getting a pedicure with an ocean view at the same time ... on the first guy's dime.