Tourism Economics: Downturn will hurt industry for years

During two recent back-to-back conferences, Adam Sacks, president of analytics firm Tourism Economics, discussed the economic state of the nation and how a pandemic, a recession and closed borders are affecting travel-related businesses.

“This year will indeed be a year to forget, with unique challenges that we've not faced before,” he said as he kicked off his presentation during the AAHOA conference.

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Citing data compiled for the U.S. Travel Association that tracks monthly travel spending by both domestic and U.S. inbound travelers, Sacks said the industry hit its nadir in April with a 90 percent drop in travel. “That's basically a life support, standstill situation,” he said. The situation has improved every month since then, with July reaching a 55 percent drop from the previous year—“which still is dramatically bad, but I think that we can say that the worst is behind us and that performance does continue to improve around the country.” 

The lodging sector, Sacks continued, has made continual improvements as it responds to the crisis. “But the disparity—by different segments, by different property type—has perhaps never been as great,” he said. Looking at STR’s data for June, he noted that the economy, midscale and upper-midscale segments are outperforming the luxury and upper-upscale classes. “That reflects a number of things," he said. "It reflects the concentration of those higher-end properties in cities. [It] also reflects the exposure to groups, and group demand, of course, has fallen to almost nonexistent levels over the last five months.” 

Another determining factor is location, with destinations that have strong outdoor activity options attracting road trippers. “Occupancy rates are highest in some of those rural Midwestern and beach destinations, and they are lowest in those destinations that are really anchored by urban markets,” he said, citing Mississippi, South Dakota, Idaho, Delaware—“as a beach destination”—Wyoming and Montana as markets to watch. 

Economics & Travel

During a presentation at the Hotel Data Conference, Sacks discussed what the overall state of the American economy will mean to travel spend. “We've seen a nice rebound in the labor market over the last couple of months, but we're still by no means out of the woods,” he said.  “We've seen steady recovery through the early part of the summer, but then it's leveled off—and that plateau is something that I think is a real concern.”  

With unemployment spiking in the spring, 1.8 million jobs returned to the labor market in July. “That's wonderful,” Sacks said, “but we're still down 13 million jobs from where we were in total nonfarm payroll employment. So you can see how far we've fallen, but I think, notably, how far we have yet to go before we're anything like where we were in the beginning of the year.” 

Unemployment and the resulting loss of income, of course, affects consumer spending, consumer confidence and business activity—including travel, Sacks said. Even with unemployment claims declining, there are still 30 million Americans out of work right now. “Clearly, we've got a lot of healing to do, and in terms of unemployment claims, we're not seeing an indicator that's telling us things are repairing in a very brisk manner.”  

Looking Ahead

Tourism Economics expects U.S. travel spending this year to fall 45 percent relative to last year, largely due to a lack of international travel: “We expect spending from international visitors to the U.S. to be close to 80 percent down on a year ago, with domestic picking up some of the slack.” 

Spending should recover to within about 7 percent of 2019’s levels by 2023, he continued. “We don't quite get there in 2023, but it's at least within sight at that point.”

Domestic travel likely will dominate the industry for a while, he said during the AAHOA conference. “We are officially in the rebuild phase of international borders in terms of policy,” he said, adding that while the U.S.-Canada border could reopen by the end of the year, other borders will be much slower to allow crossings. “And even if they do, the reality is that there's not a lot of pent-up demand travel to the U.S. right now due to the state of the virus,” he added. 

The overall economy likely will contract 4.2 percent for the year, he said, but predicted a “nice pickup in economic activity” toward the latter part of this year and into 2021. “But the reality is that even as the economy accelerates, it's going to be behind where it would have been,” he cautioned, noting that large-scale events may return by the second half of next year. This could bring in more international travel. “So we're looking at a full year out before we begin to see ... these segments begin to really recover.”