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TODAY contributor
updated 3/20/2008 11:28:06 AM ET 2008-03-20T15:28:06

Fasten your seat belts — oil is north of $100 a barrel. The euro is flirting with $1.60 and the dollar continues to slide against the British pound and the Japanese yen.

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The fallout of the weakening dollar and the current financial crisis is already quickly spreading to the travel industry. And depending on where you live, it's either very good news, or a real problem.

For foreign travelers planning trips to the U.S., America has become one of the world's great bargains. In 2007, 57 million international travelers came to the U.S., a staggering 11 percent increase over 2006.

The reason? We're on sale.

And this year, that number is almost certain to increase.

That's a problem for those of us planning summer trips on a number of counts, no matter where we're heading.

First, there's an almost immediate impact on local U.S. prices for hotel rooms. Those rates are going up, thanks to increased occupancy by foreign travelers in America.

Second, U.S. airlines are now less dependent on domestic travelers, or even Americans flying overseas, to fill their planes.  Foreign travelers are filling them up — and willing to pay higher prices.

An important distinction to make here: While the airlines always talk about cutting costs, the real key to understanding their behavior is their determination to increase yields. What this means is how much an airline can earn per seat per flight. And that's where things get tricky.

It's almost counterintuitive, but in hard economic times, a lot of flights that always leave the gate full of passengers are suddenly canceled and the planes redeployed to other routes. Why? Because a lot of popular routes — like Las Vegas, Hawaii, Orlando — are considered low yield. These are not heavily traveled business/first-class routes, and as such, the revenue even from full flights isn't attractive to many airlines, which often choose to take planes off those routes and reposition them either overseas, or to other routes with more profitable yields. Translation: Watch for cutbacks in flight frequencies on low-yield routes and/or fare increases.

And then there are the inescapable consequences of the law of supply and demand. Almost across the board, U.S. airlines seem to think that the only way to save themselves is to get smaller. Even in the wake of talks of imminent mergers — which may not happen soon because of huge labor integration issues — it seems that every single U.S. airline wants to cut capacity.

Not just the major legacy carriers, but the commuter carriers: United Airlines wants to trim its fleet. Delta is offering buyouts to 30,000 employees. American wants to unload American Eagle. And, quietly, Delta is in internal conversations to follow suit by preparing to sell ComAir.

Fewer seats. Fewer routes. And, when coupled with a robust foreign market eager and willing to fill domestic U.S. airline seats and hotel rooms at a higher price, this can only spell a long,  hot, expensive summer for U.S. travelers.

With reduced capacities, our options become reduced as well. Redeeming frequent-flier miles becomes exponentially more difficult. Airfares — not even tied to fuel increases — are going up. And for those travelers hoping against hope of staying out of purgatory — being relegated to the dreaded middle seat — that may be the only seat they get.

In recent days, I've seen ticket -price fluctuations of nearly 200 percent overnight on some routes. A flight from Fort Myers, Fla., to Los Angeles that was quoted at $257 jumped overnight to $458. And that was just for a one-way ticket! And hotel room rates are moving up as well.

So, how can you prepare for what seems like an inevitable perfect storm of fewer seats, higher prices and diminishing options?

Plan ahead: Don't wait for late April to make your summer plans. Act now.

Be a contrarian: Think the shoulder seasons of between May and June 15 or September 15 to October 30 to take your trips.

Think way outside the box: If you're traveling with a family, consider renting a recreational vehicle. Even if gas hits $5 a gallon, it's still an affordable option when you consider that a family of four doesn't have to buy expensive airline tickets, stay in higher-priced hotel rooms and eat out every night on vacation.

Travel midweek: Bed-and-breakfasts make their big money on the weekends, not during the week. Reserve Sunday through Thursday nights.

Buy a pass: Traveling overseas? Buy a Eurail Pass. No, this won't make you regress back to your college years, but it might be nice to at least try to approximate your college travel budget. In many cases, you can time your train trips to be overnight trips, and cut in half the number of hotel-room nights you'll need.

Practice the $2 bill tipping trick: Before leaving the U.S., go down to your local bank and get $200 in $2 bills. They are still in circulation, still legal tender. And use them to tip. A common mistake many of us make when traveling to Europe is forgetting the real exchange rate. It's one thing to tip $2 to a bellman or a skycap. But tipping 2 pounds is $4! Same with the euro. Just tip using $2 bills, and you'll cut many of your day-to-day gratuity expenses in half.

Don't wait to redeem miles: Last but not least — think way ahead and start redeeming as many of your airline frequent-flier miles as you can right now. Look anywhere from 200 to 330 days ahead and start picking what's left of available flights. Believe me, with shrinking capacity and rising airfares, there is absolutely no upside in waiting to cash in those miles.


Peter Greenberg is TODAY’s Travel editor. His column appears weekly on TODAYshow.com. Visit his Web site at PeterGreenberg.com. 

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