Destination Marketing in an Uncertain Economic Climate. Adam Sacks President Tourism Economics

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1 Destination Marketing in an Uncertain Economic Climate Adam Sacks President Tourism Economics September 2016

2 Take aways Global economy is on shaky ground US economy is on solid footing Travel growth most likely to come from domestic leisure markets Destination marketing is even more essential now 1

3 Global Markets: unsteady and uneven

4 EMs no longer the locomotive of global growth World: GDP growth % year 8.00 World EM-China 7.00 Forecast Source: Oxford Economics/Haver Analytics 3

5 Brazil: Worst recession in a century Brazil: GDP per capita (PPP terms) US$, 2010 prices 16,000 Baseline Adjustment 15,500 Forecast 15,000 14,500 14,000 13,500 13,000 12,500 12,000 11,500 11, Source: Oxford Economics 4

6 China: GDP growth continues to slow China: GDP growth estimates % year NBS (offical estimate) 8 6 OE estimate (using bottom-up industrial VA) Source: Oxford Economics/Haver Analytics 5

7 Global economy: slow and unsteady World GDP growth for 2016: 2.2% slowest pace of global growth since Forecast for 2017 cut further to 2.7%. Strains in financial markets have abated but conditions still tighter than end-2015, and global risks are still skewed to the downside. 6

8 Global headwind: strong $US 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% 7

9 Exchange rate defining northern border flows Visits across the Canadian-US border % change Canada inbound from US 10% 8% US inbound from Canada 6% 4% 2% 0% -2% -4% -6% -8% -10% Canada to US continues to contract in 2016: -14% through April (air only -4.8%)

10 Canada arrivals are following the script Canada visits to the US and exchange rates % change Visits to US 0-5 $ exchange rate Source: Statistics Canada, Oxford Economics 9

11 Not that strong compared to LR average

12 Resilience in the first half of 2016 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

13 but headwinds will prevail July Domestic and International Travel Index Index (>50=expansion, <50=decline) International Domestic mo, mo, mo, mo, Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Source: Oxford Economics, U.S. Travel Association 12

14 US Market: Consumers leading the way

15 Household net wealth up 22% from pre-recession peak 14

16 Household balance sheets much improved 15

17 Employment remains generally upbeat 16

18 wage growth should pick up the income baton

19 Consumers remain optimistic despite elections 18

20 Housing recovery remains very gradual Drivers: Income growth Low interest rates Modest price inflation Pent-up demand 19

21 Corporate struggles evident

22 Sluggish global growth restraining exports

23 Tightening in credit conditions a factor

24 and CEOs are more cautious

25 Risks are tilted to the downside 24

26 Despite slowdown, H2 is looking good 25 Principal component approach using 24 economic activity indicators

27 The risk of a recession remains low 26

28 Weighed-ISM composite points to growth around 2-2.5% 27

29 GDP hovering in 2% range 1.5% 2.3% 2.4% 2.6%

30 Two separate trajectories of travel propensity Business and leisure trip propensity U.S. Domestic Travel, 1994= Leisure trips per employee Business trips per employee Source: U.S. Travel Association, Tourism Economics

31 evident in STR segment data Hotel Room Demand by Segment Luxury and Upper Upscale, 2010= Transient Group and contract Source: STR

32 Driving forces behind a shift toward leisure travel Consumers have been devoting an increasingly large share of disposable income to travel Meanwhile, businesses have become increasingly cost conscious as a result of both internal and external pressures Travel cost management has also become more sophisticated Virtual meeting technology advances and adoption

33 Travel gaining share of consumer spending Consumer spending on lodging Real, per capita GDP and spending on lodging Percentage change since % 250% 200% 245% Spending on lodging has increased 245% since 1980 (real, per capita basis) 150% 100% 50% 78% GDP has increased 78% since 1980 (real, per capita basis) 0% -50% Source: Bureau of Economic Analysis; Oxford Economics

34 Leading indicators show business travel slowing July Domestic Business and Leisure Travel Index Index (>50=expansion, <50=decline) mo, mo, mo, mo, 49.5 Business Leisure Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Source: Oxford Economics, U.S. Travel Association 33

35 Air travel bookings rebounding Forward-Looking US Air Travel Bookings y/y % change, advance moving-sum (month of booking) 20% 3-mo 6-mo 15% 10% 5% 0% -5% Aug-15 Oct-15 Dec-15 Feb-16 Apr-16 Jun-16 Source: Tourism Economics, ARC 34

36 Online bookings and searches expanding Forward-Looking Indicators of US Domestic Travel y/y % change, 3-mo advance moving-sum (starting month of travel) 10% Bookings Searches 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% Source: Tourism Economics, ADARA 35

37 Destination marketing: Vital to economic success

38 Why prioritize destination marketing? The visitor economy is outpacing the rest of the economy 37

39 Visitor economy outperforms other exports Hospitality and tourism has generated more US jobs over the past 15 years than any other traded cluster of its size. Job creation in traded clusters Net change in jobs 1998 to 2013, in thousands Hospitality and tourism Oil and gas production and transportation Marketing, design, and publishing Performing arts Transportation and logistics Financial services Food processing and manufacturing Construction products and services Insurance services Plastics Production techn. and heavy machinery Printing services Automotive Information tech. and instruments Note: Graph shows selected traded clusters. Excludes the largest and smallest clusters, such as business services, education, and distribution and electronic commerce, which each have greater than 2.0 million jobs and are on a different scale than the selected clusters. Source: US Cluster Mapping Project; Census Bureau; Tourism Economics 38

40 Travel-related sectors have led total job growth in 98 of the top 100 US cities Employment Growth, (CAGR) Leisure & Hospitality 5% 4% 3% 2% 1% 0% -1% 0% 1% 2% 3% 4% 5% -1% Total Employment Source: Tourism Economics, BLS

41 Travel-related employment is more important than finance, insurance & RE in 99 of the top 100 US cities Employment by Industry, as Share of Total Leisure & Hospitality 20% 15% 10% 5% 0% 0% 5% 10% 15% 20% Source: Tourism Economics, BLS FIRE Industries

42 Why prioritize destination marketing? The visitor economy is outpacing the rest of the economy The visitor economy is a catalyst for economic development 41

43 How destination marketing drives the economy 42

44 #1 Building transport networks Airlift is one of the top criteria for site selectors Air passenger volumes are a strong predictor of future population growth and employment growth. Air service is profoundly important to corporate investment and location decisions This is one of tourism s most significant contributions since the levels of air service at New Orleans far exceed what local demand could support. Stephen Moret, Secretary, Louisiana Economic Development 43

45 #2 Raising the destination profile Destination promotion strongly supports economic development through brand development, raising awareness, and building familiarity Every tourist that comes through here is a potential business lead. Jeff Malehorn, President & CEO, World Business Chicago If we do it right, the ideal brand will transcend the visitor market and support all economic development. Hank Marshall, Economic Development Executive Officer, City of Phoenix Community and Economic Development Department 44

46 #2 Raising the destination profile Familiarity is critical in attracting investment 13% of executives with site selection responsibilities state that their perceptions of an area s business climate were influenced by leisure travel and 37% reported influence by business travel (Development Counsellors International, 2014) We are learning a lot from Visit California by how they brand California and how to take their model and apply it to economic development. Brook Taylor, Deputy Director, Governor s Office of Business and Economic Development 45

47 Impact of campaign on economic perceptions Marketing influences perceptions on key decision criteria Lake Erie Shores and Islands 2014 campaign impact on the region's economic development image "A good place to..."...live...purchase a vacation home...retire...attend college...start a business...start a career +173% +157% +107% +161% +147% +128% Percent who strongly agree Aware Unaware Note: Percentages indicate the increase in "ad aware" respondents who strongly agree relative to "unaware". Source: Longwoods International (2015, July) "Destination Marketing and Economic Development: Creating a Singular Place Brand" 46

48 #3 Targeted conventions and trade shows By securing meetings, conventions and trade shows for local facilities, DMOs attract the very prospects that economic development agencies target. Our EDO doesn t have to fly to DC or China. The low hanging fruit is coming here for events. Steve Moore, CEO, Greater Phoenix CVB Economic clusters and conventions have become synergistic Tom Clark, Metro Denver Economic Development Corp. 47

49 #4 Raising the quality of life Channel of impact: The visitor economy supports amenities and a quality of life that attract investment in other sectors. Boeing s decision to relocate its headquarters to Chicago was heavily influenced by the cultural assets and vibrancy of the city. Asheville s recent win of a $125 million investment from GE Aviation was heavily influenced by its quality of life scores related to both outdoor activities and a vibrant downtown. The development of leisure attractions in lower downtown Denver has been instrumental in the relocation of 20,000 residents to the area. Traveler attractions are the same reason that CEOs choose a place. Jeff Malehorn, President & CEO, World Business Chicago 48

50 Why prioritize destination marketing? The visitor economy is outpacing the rest of the economy The visitor economy is a catalyst for economic development It actually works 49

51 SDTMD case study is telling San Diego TOT Receipts year-over-year % change 12% 10% 8% Defunding of SDTA 6% 4% 2% 0% 2011 Source: SD TMD Jan- Aug

52 San Diego stark demand slowdown in 2013 Striking lull in SD room demand Room nights, 12-mo moving sum, % change year ago 6 5 Defunding of SDTA Surge in Top 25 Comp set San Diego 0 Jan -12 Jul -12 Jan -13 Jul -13 Jan-14 Jul-14 Sources: STR, Tourism Economics

53 California TID scenario Elimination of $207 million of annual TID funding Reduction in DMO group sales and leisure marketing Loss of a portion of out-of-state visitors and their spending Loss of California jobs, income and tax revenues in tourism and downstream sectors

54 Massive impacts 8.2 million fewer out-of-state visitors 22.8 million fewer visitor nights, including 10.4 million fewer hotel room nights $3.3 billion reduction in visitor spending 52,000 Jobs 53 $460 mn Tax Revenue

55 Pennsylvania PA budget Budget, in millions of constant 2014 dollars $55 $50 $45 $40 $35 $30 $25 $20 $15 $10 $5 $0 Average '07-'08 tourism budget: $36.3 million Graph shows PA tourism budget before earmarks. After earmarks, only $2.0 million was available for statewide marketing in FY2015. Tourism budget FY2015: $7.3 million Note: PA tourism budget adjusted to real terms (i.e. constant dollars adjusted for inflation). Source: US Travel Association; Tourism Economics 54

56 Pennsylvania Marketing cuts resulted in share losses PA share of competitive state total PA share of nine-state total % 22.9% 18.4% 19.4% 14.7% 6.2% State tourism budgets Marketable overnight trips Marketable day trips Note: Nine-state competitive state region includes Pennsylvania, New York, New Jersey, Delaware, Maryland, Virginia, Ohio, West Virginia, Virginia and District of Columbia. Tourism budgets for 2009 are the FY fiscal year, where available. Source: US Travel Association; Longwoods International; Tourism Economics 55

57 Illinois State budget impasse limited state and city destination marketing for most of the past fiscal year Dropped to third from first most visited mid-west state. Illinois ranked 9th among all 50 states and is now ranked 11th as both Michigan and Ohio gained share. Hotel tax revenue from January April was down 0.7%, while the US average was up 4.9%. Inquiries about travel to Illinois were down over 70% in FY16.

58 Why prioritize destination marketing? The visitor economy is outpacing the rest of the economy The visitor economy is a catalyst for economic development It actually works Destination marketing meets a pronounced need 57

59 The need for destination promotion 1 2 Challenge The primary motivator of a trip is usually the experience of a destination, beyond the offerings of one business Effective marketing requires scale to reach potential visitors Solution: Destination Promotion Articulates the brand message that is consistent with consumer motivations Pools sustained resources to provide the economies of scale and marketing infrastructure required to generate impact 58

60 Target opportunity: 658 mn unused vacation days Unused PTO in 2015 Days of PTO per worker Total Gov't Private < (Pub/Priv Sector) (Employees) Sources: GfK and Oxford Economics 59

61 Destination marketing must reverse this trend Days Away on Vacation Annual vacation days per worker, trend is the 24-month moving average Long-term trend Long-term avg Source: Oxford Economics analysis of BLS survey results 60

62 Plenty of reasons why Obstacles to taking PTO Multiple answers allowed, share of respondents, % Would return to backlog of work I cannot afford a vacation No one else can do the work Hard to take PTO with seniority Can bank/roll over unused PTO Want to show dedication Get paid for my unused PTO Would work anyways I feel guilty using PTO Can't appear to be replaceable Work culture doesn't promote PTO Concerned about promotion/raise I would prefer to work Afraid I would lose my job Afraid of boss's perceptions Taking PTO comes with seniority Symptoms of a "work martyr" Somewhat or very difficult to take PTO because... Sources: GfK and Oxford Economics

63 But the benefits are real The Manger's View of PTO %, "By using their PTO, employees..." Improve their health/out sick less Return more efficient and productive Have better morale and less turnover Return focused and more creative Work extra when really needed Agree? Somewhat Strongly Sources: GfK and Oxford Economics

64 Take aways Global economy is on shaky ground US economy is on solid footing Travel growth most likely to come from domestic leisure markets Destination marketing is even more essential now 63

65 Destination Marketing in an Uncertain Economic Climate Adam Sacks President Tourism Economics September 2016

Outlook for the Global Economy and Travel

Outlook for the Global Economy and Travel Adam Sacks President Tourism Economics @adam_sacks November 2018 Let s pose some questions What s happening now? Outline What could go wrong? What s backwards?