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The Atlanta Fed's SouthPoint offers commentary and observations on various aspects of the region's economy.

The blog's authors include staff from the Atlanta Fed's Regional Economic Information Network and Public Affairs Department.

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Travel Outlook Remains Bright, but Challenges Remain

Members of the Atlanta Fed's Travel and Tourism Council recently met at the Bank's Miami Branch to discuss economic conditions in the travel and tourism sector. Optimistic about current conditions, council members agreed that the sector remains strong and has a positive outlook for the remainder of 2013.

Driving council members' confidence is continued strength across key metrics of growth such as occupancy, average daily rate, revenue per available room, and bed tax collection. The consensus among members is that the health of the industry continues to improve throughout the Sixth District. As a result of robust activity in leisure travel and strong demand from international visitors, South Florida has experienced significant increases across all measures of growth. Though government and business bookings have slightly decreased because of budgetary constraints, council members expect that activity during the next six months will continue to grow.

The only exception to the positive momentum is casual dining, which is experiencing flat to negative growth. As noted in a previous SouthPoint post, consumers have begun to modify spending in an effort to absorb the impact of the payroll tax increase, elevated gas prices, delayed tax refunds, and increased health insurance premiums. As an increased number of consumers forgo dining out, casual-dining restaurants are feeling the impact of these choices. Hungry for business, the restaurant industry has experienced a 5 percent decrease since the beginning of the year, with some restaurants experiencing double-digit decreases in sales. Council member reports noted that that this recent decline is the weakest performance that the industry has experienced since 2009. Unlike their counterparts in casual dining, fast food restaurants and fine dining establishments are not experiencing similar headwinds.

While socioeconomic class is a key driver of demand for restaurants and currently highlights divergent preferences among income groups, consumers across all income levels continue to show strong demand for travel and tourism. Advisory council members reported that consumers—even in challenging economic times—go on vacation and seek tourism opportunities. Whether it's to take the kids to Disney World, go on a cruise, or listen to jazz in the French Quarter, consumers make vacation a top priority in their household budget. Council members agreed that this consumer preference makes the travel and tourism industry one of the last sectors to feel the effects of a sluggish economy.

The industry is not totally insulated from macroeconomic challenges, however. Council members expressed concern about the impact of sequestration on travelers and, in turn, the potential economic fallout in their industry. Several members reported that sequestration is having a negative impact on government-related travel. As sequestration has imposed limitations on travel for government employees, cancellations of government bookings have increased.

In addition to its impact on government travel, the sequestration is also affecting airline passengers. As noted in Jack Nicas and Susan Carey's recent article in the Wall Street Journal, flight delays and cancellations have dramatically spiked as a result of the Federal Aviation Administration's furloughs of air traffic controllers. Our council reported that 1,000 passengers missed their connecting flights at the Miami International Airport in one day alone after the cuts were implemented. As 50 percent of travelers arriving in Miami International Airport are international travelers looking to connect to other flights or visit Miami, the airport is experiencing high volumes of travelers frustrated by missing connecting flights or standing in long lines in customs.

The Miami airport is not alone. As Nicas and Carey noted, delays and cancellations are occurring across the nation. Similarly, the sequestration's impact on Customs Border Patrol has led to significantly longer lines for travelers who must pass through customs. As international travelers have been key drivers of recent demand for travel and tourism in the Southeast, especially in South Florida, the sequestration's effect on them presents a headwind to the industry in this region.

The hotel and airline sectors are not the only ones in the industry to feel the impact of the sequestration. Cruise lines are experiencing the negative effects of not having timely custom clearance. Our council reported that the disembarkation of cruise line passengers has, in some cases, taken as long as two hours. Tourism destinations that offer government-funded programs such as military air and sea shows are also experiencing disruptions. Many of these shows, which draw large numbers of tourists, have been cancelled. Without the shows on the calendar for coming months, cities that host these events expect cancellations of travel bookings.

If prolonged, the widespread delays, cancellations, missed flights, and long lines present a potential headwind to the outlook for the travel and tourism industry. Why? As council members noted, experience and image are integral to consumers' assessment of a travel or tourism encounter and their decision to make future travel plans. Negative experiences, or the anticipation of one, can lead to cancellation or alteration of plans. Thus, while business for the short- and medium-term is booked and council members' organizations are not currently experiencing a significant increase in cancellations, council members agreed that review of activity in three to six months will allow the industry to gauge the economic impact of the sequestration on travel and tourism.

By Jennifer Staley, a Regional Economic Information Network director in the Atlanta Fed's Miami Branch

May 2, 2013 in Tourism , Travel | Permalink


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