California Travel & Tourism Outlook. September 2016

Transcription

1 California Travel & Tourism Outlook September 2016

2 California travel forecast overview Total visitation to California is forecast to grow 2.2% in 2016, following a 4.8% expansion in 2015, which outperformed our previous forecast. The near-term outlook for California travel has been downgraded slightly on weakness abroad while long-term prospects have remained unchanged. 2 Visits to California from overseas will grow by 5.1% in 2016, moderating in the short-term before picking back up post Recent declines in travel from Brazil and Japan, and weak demand from Europe, exacerbated by the Brexit referendum, are largely to blame. Domestic visitation will expand 2.2% in 2016 after outperforming expectations in 2015 with a 4.9% gain. The boost to domestic day visitor growth from low fuel costs will remain, albeit less so than in 2015, amidst firm domestic leisure travel demand drivers and more tepid business travel growth. Growth in visits to California is easing from robust rates seen during the recovery after the Great Recession. Domestic demand drivers remain strong, but long-term growth in U.S. travel to the state will track closer to 2.0%. The relatively strong dollar and weakness in several of California s key international markets are weighing on inbound travel growth. As these factors fade, total inbound visitor growth will average closer to 4.4% through 2020.

3 Economic overview Softening economic growth and financial market volatility have weighed on the inbound travel outlook for several key California source markets, while recession in Brazil, weak travel demand from Canada, and the UK Brexit referendum have lowered near-term expectations. Long-term prospects are improving, though risks remain slanted toward the downside. A strong labor market and gradual wage gains are supporting consumer sentiment, and low fuel costs continue to aid demand for domestic travel. Yet, firm confidence is waning on lackluster financial market performance and weak investment, stymieing business travel growth. Near-term domestic economic performance depends on the outcome of the 2016 presidential election which could usher in a period of weaker output growth and lower confidence. Our baseline outlook has U.S. GDP growing 1.6% in 2016 before averaging 2.1% over the forecast horizon. World GDP is expected to grow 2.2% in 2016 and will average just under 3.0% in the coming years, representing lackluster growth for a recovery period. 3

4 California travel forecast summary California Tourism Summary (Annual % change) Total Visits 9.0% 4.9% 3.1% 5.6% 3.5% 4.8% 2.2% 2.5% 2.3% 2.1% 2.2% Domestic Total Visits 9.0% 4.7% 3.1% 5.6% 3.4% 4.9% 2.2% 2.5% 2.2% 1.9% 2.0% Leisure Visits 12.2% 5.7% 4.9% 6.8% 4.1% 5.3% 2.3% 2.7% 2.4% 2.1% 2.2% International Total 9.4% 8.8% 3.5% 4.5% 5.1% 3.6% 2.8% 3.6% 4.0% 4.3% 4.4% Overseas 19.3% 10.3% 0.8% 6.7% 9.9% 5.7% 5.1% 5.0% 5.6% 5.6% 5.5% Mexico 1.8% 7.5% 5.7% 3.4% 1.3% 3.0% 1.9% 2.5% 2.6% 3.1% 3.3% Canada 10.0% 8.8% 4.6% 1.6% 3.7% -2.8% -3.4% 2.5% 2.6% 3.0% 3.5% Total Expenditures ($ billions) % change 8.9% 7.0% 3.0% 2.5% 4.5% 3.4% 3.6% 4.1% 4.8% 4.5% 4.7% Domestic % change 8.9% 5.9% 2.7% 0.7% 4.2% 3.0% 3.5% 3.8% 4.4% 4.1% 4.2% International % change 8.9% 11.7% 4.1% 11.1% 5.7% 5.3% 4.2% 5.1% 6.1% 6.4% 6.7% Source: Tourism Economics; DKSA, TNS Global (domestic); CIC Research; OTTI (international); Dean Runyan (expenditures) 4

5 California travel forecast summary Annual Person Trips to California (Millions) Total Business Leisure Domestic Total Business Leisure Day Overnight International Total Overseas Mexico Canada Business Leisure Source: Tourism Economics; DKSA, TNS Global (domestic); CIC Research, OTTI (international); Dean Runyan, CIC Research (expenditures) 5

6 California travel forecast summary Forecast Comparison Percentage Point Change in the Forecast, September 2016 versus August 2016 Vintage Total Visits (0.1) (0.0) (0.0) Domestic Total Visits (0.1) (0.0) (0.0) Leisure Visits (0.1) (0.0) (0.0) International Total % change (0.1) Overseas (0.0) Mexico (0.1) 0.0 (0.2) 0.1 (0.1) Canada (0.2) (0.2) (0.2) Total Expenditures % change (0.1) (0.1) Domestic % change (0.1) (0.1) 0.2 (0.0) (0.0) International % change (0.0) (0.0) Source: Tourism Economics 6

7 7 California Travel Outlook SUMMARY

8 Recent performance: Softer demand in 2016 Room demand through August 2016 grew by 1.7% over the previous year, slowing from California continues to outperform the nation in room demand growth, albeit by a slimmer margin. Occupancy rates in California hotels increased to 77.0% through August 2016, driving 6.1% growth in average daily room rate. APIS air passenger data through July 2016 show disparate growth across top foreign source markets to the United States. While China still leads the charge, Brazil has posted year-todate declines. 8 Hotel Performance through August 2016 % change year ago; change in rate for occupancy California Pacific US US -1 Rooms sold Occupancy ADR RevPAR Source: Tourism STR Economics YTD growth for air arrivals in the US, Jul-16 Annual % change, YTD China Korea Asia Australia Overseas UK Europe Total Latin America Germany Japan France Brazil -14.4% 8.3% 7.3% 5.6% 4.5% 3.7% 3.5% 3.0% 1.8% 0.8% 0.2% 12.8% 17.8% -20% -10% 0% 10% 20% 30% Source: Tourism Economics, APIS

9 with moderation expected in 2016 and 2017 Moderating demand will lead to softer visitation growth for California in the near term. Total visits will grow by 2.2% in 2016 before ticking up to 2.5% in 2017 and easing further through Weak visitor growth from Japan and the United Kingdom, coupled with a decline from Brazil will weigh on overseas visitation in Further declines from Canada will also weigh on inbound travel while demand from Mexico holds up. Strong domestic fundamentals are supporting travel demand, particularly in the leisure segment, though visitor growth is slated for more moderate rates through California Total Visits annual % growth 25% 20% 15% 10% 5% 0% -5% -10% Overseas (blue) Mexico (gray) US (dark blue) -15% F 17F 18F 19F 20F Sources: Tourism Economics, OTTI, CIC Research, DKSA, TNS Global

10 California Travel Outlook DOMESTIC FORECAST 10

11 Business and leisure travel California domestic business travel growth will trail that of the U.S. through 2017 and throughout the forecast horizon. Domestic leisure travel will lead the California visitor market in growth as a strong national labor market and firm consumer sentiment support demand, along with expansions at Disneyland s Star Wars and Marvel theme parks. Total Arrivals to California By forecast vintage, % 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% Aug 2016 Sep F 17F 18F 19F 20F Source: Tourism Economics 11 Domestic Business Travel annual % growth 5% US total domestic business travel 0% -5% -10% -15% CA domestic business travel Origin State weighted GDP -20% F 17F 18F 19F 20F Source: : Tourism Economics, DKSA US Domestic Leisure Travel annual % growth 14% 12% 10% 8% 6% 4% 2% 0% -2% -4% CA domestic leisure travel Origin State weighted GDP -6% F 17F 18F 19F 20F Source: Tourism Economics, DKSA US domestic leisure travel

12 Day and overnight travel While day visitation will continue to be supported by low fuel prices, growth is expected to be in range of 2.0% in 2016, marking a slowdown from the 5.4% gain seen in Longer-term, day visitor growth is expected to remain around 2.0%, in line with the overnight segment. Growth in domestic visitor spending will improve to 3.5% as lodging costs continue to rise and inflation begins to pick up on the back of the Fed s gradual interest rate tightening cycle. Longer-term, growth in domestic expenditures will average 4.2%, on par with our previous outlook. CA Domestic Day and Overnight Visits % growth 12% Domestic Day 10% (dark blue) 8% 6% Domestic Overnight 4% (blue) 2% 0% -2% -4% Total Domestic -6% (gray) -8% F 17F 18F 19F 20F Source: Tourism Economics, DKSA Domestic Visitor Expenditures By forecast vintage, % 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% Aug 2016 Sep F 17F 18F 19F 20F Source: Tourism Economics 12

13 Domestic forecast growth Annual Person Trips to California (Annual % change) Domestic Total 9.0% 4.7% 3.1% 5.6% 3.4% 4.9% 2.2% 2.5% 2.2% 1.9% 2.0% Business -0.9% 0.9% -3.8% 0.8% 0.3% 2.8% 1.6% 1.5% 1.4% 1.1% 1.2% Leisure 12.2% 5.7% 4.9% 6.8% 4.1% 5.3% 2.3% 2.7% 2.4% 2.1% 2.2% Day 9.8% 5.2% 3.4% 6.1% 3.6% 5.4% 2.0% 2.7% 2.2% 1.9% 2.0% Overnight 8.2% 4.1% 2.8% 5.2% 3.2% 4.2% 2.4% 2.3% 2.3% 2.0% 2.1% Source: Tourism Economics; DKSA, TNS Global (domestic); CIC Research, OTTI (international) Domestic Person Trips to California (Annual % change) Drive 11.6% 7.5% -0.5% 8.0% 3.4% 4.9% 2.3% 2.6% 2.3% 2.0% 2.1% Fly -4.7% -13.4% 31.2% -8.7% 3.5% 4.4% 1.6% 1.4% 1.4% 1.6% 1.8% Gateway 9.8% 5.1% 3.2% 2.6% 3.1% 2.2% 2.0% 2.1% 2.3% 2.0% 2.0% Non-Gateway 6.7% 5.7% 4.0% 3.7% 4.9% 4.7% 2.4% 2.7% 2.3% 1.9% 2.0% Paid Accommodation 5.4% 4.0% 2.6% 4.3% 3.0% 3.5% 2.3% 2.6% 2.5% 2.3% 2.3% Non-paid 14.8% 4.4% 3.1% 6.9% 3.5% 5.9% 2.7% 1.5% 1.9% 1.4% 1.6% Source: Tourism Economics, TNS Global, STR Gatew ay is defined as visitation to one or more of the follow ing metropolitan areas: San Diego, Anaheim-Orange County, Los Angeles, San Francisco Bay Area; Non-Gatew ay is defined as visitation to one or more non-gatew ay destinations. 13

14 Domestic leisure forecast growth by market Annual Domestic Leisure Trips to California (Annual % change) Total 12.2% 5.7% 4.9% 6.8% 4.1% 5.3% 2.3% 2.7% 2.4% 2.1% 2.2% California 9.8% 4.1% 4.9% 7.6% 4.4% 4.7% 2.3% 2.7% 2.3% 2.0% 2.2% Primary Markets 8.8% 1.9% 4.4% 6.6% -1.4% 4.5% 2.6% 3.4% 3.3% 2.6% 2.6% Arizona 13.6% 2.6% 5.4% 6.4% -7.5% 1.4% 2.9% 3.5% 3.4% 2.7% 2.6% Nevada 8.4% 2.9% 2.4% 9.8% 2.0% 6.0% 2.4% 3.1% 3.1% 2.4% 2.5% Oregon 9.5% -1.8% 10.7% 4.6% -3.6% 6.2% 3.0% 3.7% 3.9% 2.9% 2.7% Washington 7.2% 3.7% 3.1% 4.7% 1.6% 6.5% 1.6% 2.5% 2.1% 2.0% 2.1% Utah -0.4% -2.7% 0.4% 5.8% 6.4% 6.1% 2.7% 4.1% 4.2% 3.0% 3.2% Colorado 8.6% 5.5% 5.0% 5.4% 0.9% 4.6% 2.5% 3.1% 3.0% 2.6% 2.7% Opportunity Markets 3.4% 2.4% 3.9% 8.1% 3.6% 6.2% 1.5% 3.0% 2.8% 2.7% 2.7% Texas 3.2% 3.1% 4.0% 9.6% 2.7% 6.6% 2.0% 3.9% 3.6% 3.5% 3.6% New York 4.6% 1.3% 2.6% 7.3% 5.4% 5.8% 1.1% 2.0% 1.8% 1.8% 1.9% Illinois 2.5% 2.6% 5.3% 6.7% 3.0% 5.9% 1.3% 2.7% 2.5% 2.4% 2.3% Rest of US 79.8% 35.2% 6.5% -0.5% 9.5% 12.5% 2.4% 1.9% 2.2% 2.0% 2.2% Source: Tourism Economics, DKSA, TNS Global Note on volatility of historical data and treatment in forecast: Due to smaller sample sizes and relatively smaller visitor volumes in absolute terms, the historical data of origin markets tends to be more volatile than total visitor volumes. 14

15 Domestic leisure forecast by market (Millions) Total California Primary Markets Arizona Nevada Oregon Washington Utah Colorado Opportunity Markets Texas New York Illinois Rest of US Source: Tourism Economics, DKSA, TNS Global Annual Domestic Leisure Trips to California 15

16 Domestic forecast market segmentation (Millions) Drive Fly Gateway Rural/Other Paid Accommodation Non-paid Source: Tourism Economics, TNS Global, STR Annual Person Trips to California 16

17 Domestic market comparisons Projected trip growth by source market Average annual growth in visitors, 2015 to Opportunity markets in light blue Utah Texas Oregon Arizona Source: Tourism Economics Colorado Nevada California Illinois Washington New York Real State GDP by Origin Market % growth 6% 4% 2% 0% -2% -4% California Primary Markets Opportunity Markets Rest of US -6% F 17F 18F 19F 20F Source: Tourism Economics 17

18 California Travel Outlook INTERNATIONAL FORECAST 18

19 CA inbound to lead near-term, trail long-term International inbound travel to California is expected to grow 2.8% in 2016 after a 3.6% increase in A decline in travel demand from Canada and Brazil, along with weak visitor growth from Japan and the United Kingdom are stemming gains, while still-strong travel growth from China, India, and South Korea provide support. California is less exposed than the U.S. to travel from Brazil and the United Kingdom, and is expected to outperform the nation through 2017 as demand from these source markets flags. The state s overexposure to the larger Asian markets will cause it to trail the nation in the long-run as demand growth eases from doubledigits. 19 CA International Inbound Travel Annual % change 10% 8% 6% 4% 2% 0% -2% -4% -6% -8% -10% F 17F 18F 19F 20F Source: Tourism Economics US California

20 Inbound trips forecast growth (Annual % change) Total 9.4% 8.8% 3.5% 4.5% 5.1% 3.6% 2.8% 3.6% 4.0% 4.3% 4.4% China 57.1% 22.9% 42.8% 22.1% 21.5% 16.7% 17.8% 14.8% 12.2% 11.2% 10.5% India 19.2% 1.2% 3.0% 26.3% 9.3% 11.2% 9.4% 9.0% 8.1% 8.3% 8.7% Japan 19.3% 4.8% 1.7% -4.0% 7.4% -6.5% 0.3% 1.4% 2.0% 2.2% 1.6% South Korea 47.7% -5.4% -1.7% 0.4% 2.0% 10.3% 15.6% 8.0% 9.1% 8.4% 8.0% Australia 36.6% 11.3% -5.1% 5.9% 6.4% 3.6% 4.7% 3.2% 4.5% 4.9% 4.6% United Kingdom 3.2% 7.4% -3.1% 2.6% 5.3% 2.7% 0.6% -1.6% 3.6% 3.0% 3.2% Germany 12.5% 7.4% -2.4% 5.7% 4.1% -0.6% 2.3% 1.9% 3.4% 3.1% 2.8% France 37.1% 17.9% -16.1% 4.0% 14.7% -0.9% -0.5% 2.2% 3.2% 4.2% 4.0% Italy 41.8% -3.9% -11.4% -4.2% 13.2% -0.8% 2.9% 3.0% 3.6% 4.3% 4.3% Scandanavia 21.9% 14.2% 7.9% 7.0% 11.1% 3.1% 1.2% 3.8% 4.6% 5.0% 5.2% Brazil 32.0% 34.9% 14.2% 12.8% 6.7% 2.0% -10.1% 0.9% 3.2% 4.4% 4.2% Middle East 9.3% 19.4% 26.3% 14.0% 21.9% 4.4% 3.6% 6.9% 6.1% 4.6% 3.9% Canada 10.0% 8.8% 4.6% 1.6% 3.7% -2.8% -3.4% 2.5% 2.6% 3.0% 3.5% Mexico 1.8% 7.5% 5.7% 3.4% 1.3% 3.0% 1.9% 2.5% 2.6% 3.1% 3.3% Rest of World 6.0% -4.9% -4.9% 5.3% 8.5% 8.4% 2.5% 2.7% 3.0% 3.3% 3.5% Source: Tourism Economics, CIC Research, OTTI Annual International Trips to California Note on volatility of historical data and treatment in forecast: Due to smaller sample sizes and relatively smaller visitor volumes in absolute terms, the historical data of origin markets tends to be more volatile than total visitor volumes. 20

21 Inbound trips forecast Annual International Trips to California (Thousands) Total 13,296 14,464 14,973 15,654 16,459 17,058 17,542 18,181 18,909 19,718 20,584 China ,162 1,369 1,571 1,763 1,960 2,167 India Japan South Korea Australia United Kingdom Germany France Italy Scandanavia Brazil Middle East Canada 1,356 1,476 1,543 1,567 1,625 1,579 1,526 1,563 1,603 1,651 1,710 Mexico 6,367 6,844 7,233 7,477 7,572 7,799 7,944 8,144 8,352 8,611 8,895 Rest of World 1,580 1,778 1,691 1,781 1,932 2,095 2,148 2,205 2,272 2,346 2,428 Source: Tourism Economics, CIC Research, OTTI Note on volatility of historical data and treatment in forecast: Due to smaller sample sizes and relatively smaller visitor volumes in absolute terms, the historical data of origin markets tends to be more volatile than total visitor volumes. 21

22 Mexico trips forecast by air and land Mexican Trips to California by Mode (Annual % change) Border Crossing 0.9% 6.4% 5.9% 3.5% 1.0% 3.1% 1.9% 2.5% 2.5% 3.1% 3.3% Air 18.6% 23.5% 2.7% 2.1% 5.3% 2.2% 1.6% 2.6% 2.9% 3.1% 3.4% Source: Tourism Economics, CIC Research, OTTI 22

23 International market comparisons Projected international visits by market Average annual % growth, China South Korea India Middle East Australia Scandanavia Italy Germany Mexico France United Kingdom Canada Japan Brazil Source: Tourism Economics

24 California Travel Outlook VISITOR SPENDING 24

25 Fuel costs and a strong dollar impact spending Low fuel costs are supporting domestic leisure travel, particularly day trips, while tempering average expenditures. The strong dollar is also weighing on foreign buying power in CA. Yet, rising costs of dining out and lodging are propping up visitor spending growth. CA visitor spending will grow 3.6% in 2016 before slowly ramping up as inflation strengthens on the Fed s gradual tightening of interest rates, oil prices creep up, and the strength of the dollar eases. California Visitor Expenditures % growth 15% 10% 5% 0% -5% -10% International (gray) Total (dark blue) -15% F 17F 18F 19F 20F Sources: Dean Runyan, Tourism Economics Domestic (blue) Direct Visitor Expenditures ($ Billions) Total Expenditures % change 8.9% 7.0% 3.0% 2.5% 4.5% 3.4% 3.6% 4.1% 4.8% 4.5% 4.7% Domestic % change 8.9% 5.9% 2.7% 0.7% 4.2% 3.0% 3.5% 3.8% 4.4% 4.1% 4.2% International % change 8.9% 11.7% 4.1% 11.1% 5.7% 5.3% 4.2% 5.1% 6.1% 6.4% 6.7% Source: Tourism Economics, Dean Runyan, CIC Research 25

26 Dollar strength has altered spending trajectory Expenditures and Visits Diverging Index, 2007 = Solid lines = visitors Dashed lines = expenditures Domestic International F 17F 18F 19F 20F Source: Tourism Economics 26

27 Macro forecast assumptions / CA travel model drivers US & GLOBAL ECONOMIES 27

28 Strong US fundamentals amidst global headwinds Strong domestic fundamentals: US GDP growth to remain firm Employment gains are steady, and wages are rising Consumers are optimistic, supporting spending Housing activity is gradually heating up Global headwinds: Strong US dollar weighing on buying power, increasing debt burdens Reduced capital inflows to emerging markets slowing growth Financial market volatility spooking investors World trade growth sluggish at best 28

29 US economy balance remains positive Consumer spending in the front seat, housing in the back seat, investment in the trunk and trade being pulled behind Limiting factors Global growth drag Strong dollar impacting trade Investor confidence faltering Positives Anticipated wage gains Solid consumer confidence Pent-up housing demand Low interest rates GDP Growth 2.6% 1.6% 2.1% 29

30 Global restraints limit domestic growth potential We expect to see the US economy hovering around 2.0% GDP growth in the foreseeable future with strong domestic fundamentals but two main growth constraints: Strong US dollar hurting exports Reduced global growth subduing trade and investment 30

31 Despite slowdown, H2 is looking good Principal component approach using 24 economic activity indicators

32 GDP growth hovering in 2% range 2.3% 1.5% 2.4% 2.6%

33 Employment remains generally upbeat

34 and wage growth is picking up

35 supporting spending and improving finances

36 Weighted-ISM composite points to 2-2.5% growth The spread has narrowed between the manufacturing and non-manufacturing sectors.

37 Housing recovery remains very gradual Drivers: income growth, low interest rates, modest home price inflation, and pent-up demand

38 Inflation rebounding gradually despite oil drag

39 Fed lowers rate forecasts, year-end hike possible Fed officials once again lowered their interest rate forecasts, including their long-term neutral fed funds rate projection. Fed officials are expected to maintain a low profile to achieve growth and inflation targets, suggesting a modest tightening cycle by historic standards. Oxford Economics believes the FOMC will have enough evidence to justify a hike by year-end, although a flurry of economic data and political events could derail those plans.

40 Global headwind: strong US$ persists Exchange rate depreciation, 2016 / 2014 local per $US Argentina -45% Russia -44% Brazil -32% Mexico -28% Australia -18% United Kingdom -17% European Union -17% Chile -16% Canada -16% South Korea -10% India -9% China -7% Japan -2% Source: Tourism Economics -50% -40% -30% -20% -10% 0%

41 though still in range of LR average

42 Global economic news surprising to the upside

43 World growth ~3% indicative of slow recovery 43

44 and global headwinds tilt risks to the downside

45 Alternative scenarios remain downbeat 45

46 United States Travel Outlook SUMMARY 46

47 Fuel prices expected to climb over 2016 TPI Components % growth Lodging (in blue) Forecast Food away from home (in red) Motor fuel

48 Leisure trips leading, business moderating Person Trips % growth Forecast Leisure Person Trips Business Person Trips

49 Travel expenditure growth remains moderate Total Travel Expenditures % growth 10 Forecast 5 Fall 2015 (blue) Spring 2016 (red)

50 Asia will continue to lead growth US Inbound Growth, 2016 estimates % change 15% 10% 5% 0% -5% S Korea China / HK Taiwan India Ireland Colombia Venezuela Argentina Australia Italy Japan Neth Mexico UK Sweden Spain Germany France Canada Brazil -10% 50

51 Asian inbound travel softening Asia Inbound % growth Forecast Inbound Tourist Arrivals to US 5 0 Asian GDP Growth

52 European inbound growth to remain modest European Inbound % growth Inbound Tourist Arrivals to US Forecast 5 0 EU GDP Growth

53 For more information: