Economy Clouds Tourism Outlook

March 28, 2005
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WEST MICHIGAN — Donald Holecek, director of the Michigan Travel, Tourism and Recreation Center at Michigan State University and editor-in-chief of Michigan Tourism Business, admitted his projections won’t be finalized for another month, but he did have enough national and state data to make some preliminary estimates.

“The composite picture is that it will really be another one of those slow-growth years,” he said. “By and large we’re getting a little growth in volume and a little growth in spending, but much of the spending is offset by inflation.”

He predicts no more than a 1 percent to 2 percent increase in Michigan’s tourism industry. With inflation and rising operations costs, industry profit margins should slip for the fourth year in a row. The travel deficit should inch closer to $3 billion.

“We’ve been fairly stagnant here since basically 9-11, and looking forward, my general sense is that I don’t see anything that is going to pull us out of it,” he said. “There isn’t anything bright on the horizon.”

Much of the forecast picture is still blurry, but a handful of influential factors are all but guaranteed to have a negative impact.

Gas prices remain high and will likely only get higher as summer draws near.

“It has some impact, although it tends to be overblown,” Holecek said. “But it’s definitely going to be a negative.”

For most travelers, gas prices will be a concern, but only a secondary one. That could change, however, if an unforeseen supply interruption or international event causes a spike.

Consumers generally adjust to gradual increases in gas prices, he said, while sudden spikes often drive a panic.

“During a peak month like July or August, it could really hurt us badly,” Holecek said.

Michigan’s unemployment situation has shown no signs of improvement. Likewise, Ohio, Illinois and Indiana have suffered through a parallel economic decline.

The lone bright spot this year is likely to be Ontario, he said, with stateside buying power of the Canadian loonie having never been stronger. Both the loonie and dollar have weakened over the past two years, but the dollar has seen a steeper decline.

In the early months of 2003, the American dollar was worth $1.55 Canadian. At the close of 2004 the dollar had dropped and held steady at or under $1.20 Canadian.

A February report from Statistics Canada raised doubts as to the exchange rate’s impact, suggesting that the close relationship between the Canadian dollar and stateside travel has broken down. For the first time in 20 years, it said, the number of Canadians traveling south of the border has not responded to a stronger loonie.

Canada has been very much like the rest of the world in shunning the United States as a destination, despite the surge in several other major currencies against the U.S. greenback,” the report said.

The study based its conclusions on the number of same-day auto trips south of the border.

During the last spike in 1991, there were 59.1 million trips. When the dollar stabilized a year later, trips fell 55 percent to 35.9 million.

In the first 11 months of 2004, on which the report was based, Canadians made only 21.4 million trips, only marginally higher than the 20.9 million of 2003, a post-1974 low.

While a widely used measure of cross-border shopping, Holecek pointed out that the deterrents for same-day trips — like long lines and difficult customer service at the border — do not hold the same impact for longer stays, the only category likely to reach West Michigan

In fact, he believes these deterrents have been greater in the other direction, with border Canadian markets like Windsor hit hardest.

The Canadian report to some degree supported that notion, stating that while same-day trips accounted for 75 percent of stateside travel in 1991, it represented only 60 percent today.

On a related note, many analysts across the country have said the strength of the euro will provide a tourism windfall.

Bjorn Hanson, global industry leader for PricewaterhouseCoopers Hospitality & Leisure Practice, wrote in February that the euro has benefited U.S. lodging demand.

During 2004, the weakness of the U.S. dollar resulted in an incremental increase of 30,857 occupied rooms per night. Assuming the same dollar weakness in 2005, he forecast another incremental increase of 11,162 occupied rooms per night.

The effect of this was strongest in gateway markets like New York and Washington, D.C., Hanson noted.

“That won’t have any effect on Michigan,” Holecek said. “There is very little marketing done here to the international market. We can’t just crank it up because the euro is going to grease the track.”

In addition, Michigan isn’t prepared to host a surge of international visitors. There are few answers for language barriers, and as far as capitalizing on the euro, few local banks are able to exchange it.

Even with the sizable macroeconomic negatives, Holecek believes the single largest problem facing Michigan tourism this year will be the state government’s budget shortfall.

“Promotion budgets at the state level are being cut,” he said. “We’re not doing anything to promote Michigan outside of Chicago, Cleveland (and) Indianapolis

“Our prices are 40 percent lower and not inflated like they would be in Florida or California, but because of the budget cutting, we’ve have had to pull in our horns, and the word isn’t out there.”

Worse yet, Holecek said, even a rosy economic situation would be overwhelmed with weather like that of the 2004 vacation season. Historically, the only constants in market performance have been temperature, precipitation and humidity.

This has a greater impact in the Internet age, with travelers not planning vacations as far ahead, much less so than even five years ago. A flexible schedule allows for more discretion for weather.

“One of the things that is hard to pull out of the data, but I believe to be true, is that what happens in early spring really sets the tone for the summer,” Holecek said. “If we get some good weather here soon, people will get into the camping, boating and outdoor routine.

“It’s very important to the northern part of the state and the coastal areas to have good weather on the front end.”

Marci Cisnero, executive director of tourism for The Chamber of Grand Haven, SpringLake and Ferrysburg, said weather was the driving factor for an estimated 8 percent decline in Grand Haven’s tourism revenue last year.

“The combination of rain in May and cool weather throughout was unique,” she said. “We’re hopeful for the coming year, but unfortunately the same signs are coming back. Gas prices are high, and it’s almost 10 degrees colder than it should be for this time of year.”    

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