Western Canada's tourism industry is holding its breath as it watches fuel prices soar skyward.

Greg Hermus, associate director of the Conference Board of Canada's Canadian Tourism Research Institute, says it's difficult to accurately predict how North American tourists will react to continued high gasoline prices - but he has a pretty good idea.

"All the costs are elevated; what we're seeing is that this isn't going away quickly," Hermus says. "And because tourism is a discretionary item, your discretionary spending is going to be impacted."

Canada's tourism industry has felt the pinch since oil and gasoline prices began to climb two years ago.

In 2004, when gasoline prices were around 30 per cent higher than what had been predicted at the time, the effect was a 4.25-per-cent increase in the cost of the average trip a traveler took in Canada, which in turn resulted in a two-per-cent drop in tourism. Hermus expects the tourist industry will take a similar hit in 2005.

Anderson Vacations, a family-run tour operator based in Calgary, is feeling the jolt from the fuel-price shock.

Vice-president Corey Marshall says in recent years the company stopped marketing in the U.S. to focus mainly on the Canadian market - mostly in Ontario and Quebec - a move that has paid off. However, recent spikes in fuel costs are now hitting the company's balance sheet.

"We're selling Canada to Canadians, and what we see is that Canada is becoming a very expensive destination," he says. "We're also competing with sun vacations ... the higher gas prices don't help us a lot."

Organizing package deals that include automobile, motorcoach, train and ferry travel, Anderson Vacations now finds itself at the mercy of transportation providers that pass the higher costs on to the traveller, Marshall says.

While gas prices alone won't make or break Canada's tourism industry, Hermus says coupled with other factors - such as higher prices in hotels and restaurants, or implementation of new U.S. passport laws starting in 2008 - the result could be damaging.

"If gas prices do go to $4 per gallon in the U.S. and there is a passport requirement - that's a double whammy and we lose our advantage of being next to the U.S."

For Western Canada's travel industry, still on the road to recovery following 9/11, spiralling fuel prices are the last thing it needs.

"I think everyone is anticipating the U.S. traffic to be down," says Lynn Flury, vice-president of sales at Tourism Saskatchewan. "There is a combination of factors and clearly things like fuel prices and other issues that are in the general psyche of U.S. travelers right now - they're staying closer to home."

Saskatchewan relies in part on drawing American anglers and hunters to experience "our outdoor product," Flury says. However, the absence of a large U.S. urban centre nearby makes the province a long-haul destination and therefore less dependent on American visitors.

In Alberta, there is concern about long-haul visitors stemming from price sensitivity to fuel costs of both airlines and the rubber-tire market. Don Boynton, director of communications with Travel Alberta, says there has been a drop in group travel from the U.S. ever since 9/11, which has yet to rebound.

"We do know that this (gas prices) is a factor, it's on our minds and we will be researching the issue in the coming months," says Boynton.

Rising fuel prices have also set off alarm bells in B.C. The Council of Tourism Associations of British Columbia (COTA) worries that higher pump prices are prompting tourists in long-haul U.S. markets to book holidays closer to home.

"Without a doubt the price of oil has resulted in significant price increases at the gas pump and, if sustained, may result in both tourists and tourism operators adjusting their behaviour to account for increasing fuel and input costs," says COTA CEO Mary Mahon Jones.

Operators running motor-coach tours have been hard- pressed to absorb the increases, and fear becoming uncompetitive if they pass costs onto their customers, Mahon Jones adds.

Manitoba, meanwhile, has experienced continued drops in cross-border visits by its neighbours to the south.

According to Travel Manitoba, direct entries from the U.S. to Manitoba have fallen off by 8.3 per cent in the first six months of 2005, compared to a 7.3-per-cent decline during the same period a year earlier.

Same-day traffic is more likely to be affected by the rise in the Canadian dollar, increasing fuel prices and the false belief by some that the U.S. government's travel initiative requiring passports has already taken effect, says Linda Whitfield, Travel Manitoba's vice'-president of marketing services.

"We do expect that (fuel prices) will be a factor in any decline in visits to Manitoba," she says. "There are other things as well - the exchange rate, there is the whole area of border issues, so there's a number of logical hypotheses as to why the U.S. market is down."

Western Canadians themselves make up the largest component of tourists to the region.

COTA's Mahon Jones reports that British Columbians constitute the majority of the province's tourists, although they tend to spend less and travel for shorter durations.

In recent years, Albertans have accounted for about half of the $5 billion spent on tourism here, and Travel Alberta expects the same for this year. Tourists from the rest of Canada spend about $1.13 billion, while U.S. visitors account for about $700 million of total spending.

Banff National Park is also wary about losing the rubber-tire market, but also foreign visitors who arrive by air to Calgary and then drive or bus to the mountains.

"Certainly we do see motorhome traffic, Americans travelling up to Canada; absolutely they are an important part of our market, but our dependency is a little bit different than other markets in Canada," found closer to major U.S. centres, says Banff-Lake Louise Tourism president and CEO Julie Canning.

Both WestJet and Air Canada have been forced to charge customers more to fly, either through fuel surcharges or higher ticket prices, but the increases don't cover all the airlines' higher costs, says one airline executive.

"I think the market can cope with higher airfares - it's going to have to - to deal with the higher price of fuel," says Clive Beddoe, WestJet President and CEO.

Beddoe said fuel now represents about 36 per cent of the airline's total costs - double from a year ago.

Not everyone is worried. Go West Campers, which rents out gas-guzzling RVs, says visitors from its primary market of Europe will keep jetting to Canada and keep renting vehicles because they believe Canada is still a bargain.

"They think we're cheap," says Jutta Wegener, Go West rental manager in North Vancouver. "The value of the Euro keeps going up, and it's always been more expensive over there (to buy gasoline) in Germany and the rest of Europe. It's very expensive. So when they come here, they think it's cheap."

-With files from the Canadian Press

(John Ludwick can be reached at ludwick@businessedge.ca)