Summer Driving

The New York Times

 

 
May 27, 2006
 

Gas Prices Aren’t Deterring Summer Travelers

By JAD MOUAWAD
Behold the annual migratory ritual that has begun.

Millions of Americans are loading up their children, packing their suitcases and kicking off that great exodus known as the summer driving season.

Nearly 38 million people will travel this Memorial Day weekend, and most of them will drive on America's roads and highways — a record number of travelers, according to AAA.

High gasoline prices? Not much of a problem, it seems.

"People are traveling just as much," said Philip Reed, the consumer advice editor at Edmunds.com, an automotive Web site. "There is much complaining about fuel prices, but there is still no substitute for the car and for the family vacation. That's a priority that people aren't willing to sacrifice yet."

By Labor Day, drivers will have logged more than 800 billion miles, or 8.6 billion miles a day, and will have consumed 36 billion gallons of fuel crisscrossing the United States, according to the Energy Department.

That is why Memorial Day to Labor Day accounts for the peak in gasoline consumption, why refineries have been scrambling to prepare in time and why gasoline imports have risen to near records to make up for shortfalls. Drivers seem undeterred.

"I find it painful to pay for gasoline, as I am sure everyone else does, but gas prices didn't occur to me as I was planning a road trip for the weekend," said Whitney Radia, 28, an advertising account executive in West Hollywood, Calif. "It concerns me but it hasn't changed my lifestyle that much."

Of course, the difference with previous years is the higher price drivers are paying for gasoline. It now averages $2.88 a gallon nationwide, a 75-cent jump from last year, according to the Energy Department. Despite the extra cost, Americans are expected to make only minor changes in their driving habits this summer.

But those changes moderate the growth in demand and may help prevent gasoline prices from rising more than they normally do in the summer.

"So far, $3 a gallon is old hat," said Jan Stuart, an energy economist at UBS in New York. "The question is, What kind of price levels do you need for people to stay at home?"

This is not to say that Americans are immune to changes in energy prices, whose effects are slowly spreading through the economy. Lower-income households, which devote a higher share of domestic spending to energy, are feeling the pain, certainly, much more than higher-income families.

Higher energy prices have eaten into incomes, wiping out almost a third of last year's total wage increases, according to a new report by the United States Conference of Mayors and Global Insights. In 2005, energy expenditures accounted for 5.9 percent of consumer spending — up 20 percent from 2004, the report said. Households spent $287 billion for gasoline and $225 billion on other energy expenses, or 9 percent of all wages and salaries.

The Energy Information Administration of the Energy Department, in a recent report, said a lasting increase of 10 percent in the price of crude oil would lead to a 0.4 percent drop in domestic petroleum consumption over two years. While that may not seem like much for a nation that consumes more than 20.5 million barrels of oil a day, it can add up.

"The high-price environment of the last few years had caused some analysts to conclude that high energy prices are an intractable fixture and that energy demand is somehow immune to the impacts of higher prices," Adam E. Sieminski, the global oil strategist at Deutsche Bank, wrote in a recent report.

"The E.I.A. simulations suggest this is not the case but also point out, correctly, that time lags can delay the effects of price changes," he said.

While the number of miles driven each year has grown 2 percent a year over the last five years, the rate of growth has been just 1 percent in the first quarter this year, according to the agency. "We expect the lower growth to continue with the higher prices," said Tancred Lidderdale, a senior economist at the Energy Information Administration.

Gasoline prices rose to record highs this spring on the back of a big increase in oil prices. After reaching a high of $75.17 a barrel in April, crude oil remains around $70 a barrel because of concerns over the security of supplies around the world.

Gas prices are directly affected by oil's movements. A general rule is that a $10 increase in the price of a barrel of oil adds nearly 25 cents to the price of gas at the pump.

"Prices are too high; it's taking a chunk out of my budget," said Jerry Davis, a 30-year-old product engineer from Chicago. He has decided for the second consecutive year not to drive on the holiday because of gasoline prices.

"Any little blip sends oil futures though the roof; any storm scares the market," Mr. Davis said. "If something happens in Africa or the Middle East, it seems like immediately prices jump. It's ridiculous, don't you think? I'd hate to be somewhere this weekend and something like this happens."

The Energy Department anticipates that gasoline will fall somewhat from its current highs, although the average price is expected to remain above $2.65 a gallon nationwide through the summer.

Some energy analysts are not so sure. They warn that the average price of gasoline may rise above $3 a gallon again if there is a supply disruption like Hurricane Katrina last year or this year's unrest in Nigeria.

A third of all leisure travel takes place in the summer. This season, Americans will take 326 million trips, according to the Travel Industry Association, essentially the same as last year. The trade group expects Americans to spend $1,000 on each trip, but travelers are expected to save money on hotels, food and dining to make up for the higher gasoline expense.

For an 800-mile round trip, the average during the summer, the extra cost of paying a dollar more a gallon at the pump adds up to $40 for a vehicle that gets 20 miles a gallon.

"People are not going to cancel their trips, but what they might do is modify them," said Cathy Keefe, a spokeswoman for the Travel Industry Association. "Instead of taking three or four trips over the summer, people will look for ways to save money, such as staying closer to home."

Some towns are trying to lure travelers with special discounts. For example, Costa Mesa, Calif., 40 miles south of Los Angeles in Orange County, is promising a $30 check to help pay for gas and an additional $30 a day in rebates for visitors who spend a minimum of two nights in town.

"We're facing a new threshold and that's $4 a gallon," said Mr. Reed of Edmunds.com. "It's going to be interesting to see at what point will people start making substantial changes."