WHILE GIVING A RECENT wrapup on the election and its effects on issues relating to travel and tourism, Rick Webster, director of government affairs for the Travel Industry Association of America, jokingly downplayed the results.
“I think it's a given in Washington that regardless of whether Bush or Kerry won, the most important person may not even have been on the ballot,” he said. “That's Alan Greenspan …. A steady hand at the Fed may do more to assist the economy than anything that comes out of a Bush second term.”
And a strong economy is what meeting industry watchers are hoping for as they look to the near future. “The meeting economy is coming back,” says Colin Rorrie, president of Meeting Professionals International. “Corporations are spending more money on meetings. … The overall picture is that a growing economy will mean more meetings.”
As our industry begins to revive, some policies of the new Bush Administration could further stimulate meeting business, while others could have a negative impact. We took a look at various factors, from homeland security to visa issues, to try to predict what lies ahead.
The Shrinking Dollar
In the past year, the dollar has declined in value by 28 percent against a passel of foreign currencies, including the euro. Economists generally agree that the weak dollar can be blamed on the U.S. trade and budget deficits, which skyrocketed under the current administration, and see few signs of change in a second Bush term. And while the effects of a weak dollar can be painful — more expensive imported goods, higher bond yields leading to higher interest rates — there is one clear benefit. As the TIA's Webster puts it: “We're a bargain.”
Foreign individual travelers are more likely to come to the United States because they can buy more. For example, tourism from the United Kingdom to Florida is at a four-year high, according to a report by the Association of British Travel Agents.
The dollar's weakness is apparently having some effect on meetings in the United States as well. A cheaper dollar does make it less expensive to do business in the United States, and an MPI report to be issued this month shows that travelers are arriving in increasing numbers to attend meetings here.
But if foreign travelers, particularly Europeans, can buy more here, the opposite holds true as well: Americans are less able to afford to travel overseas because of the expense, and anecdotal evidence shows that this is deterring planners from looking at Europe as an incentive destination. Jim Henson, senior vice president and chief marketing officer for Shenandoah Life in Roanoke, Va., recently changed his mind about an incentive trip to Ireland, primarily because of the weakness of the dollar against the euro.
As an example of how far the dollar fell in 2004, Henson in May pre-purchased euros at $1.08 per euro, in advance of a Danube River cruise. By December, when he was considering Ireland, the value of the dollar had fallen to $1.33 against the euro. “That's an extra $50,000 or $60,000 in my budget,” he says. So instead of going to Ireland, Henson is going to Hawaii.
The situation won't change any time soon. “What is really striking,” says Ashraf Laidi, chief currency analyst with MG Financial Group of New York, “is the unanimously negative sentiment against the dollar.” Laidi expects the dollar to continue to decline over the short term, and says, “The majority of analysts believe the dollar will fall to $1.38 against the euro” by early this year.
The reason? “The twin deficits [trade and budget], which account for 10 percent of the GDP,” he says, adding that when it comes to the budget deficit, “the sentiment [against the dollar] has worsened since the election. The belief is the Bush Administration will do nothing to temper its profligate spending. The re-election … is an explicit continuation of the policy status quo, which is the continuation of the budget deficit — and that's a negative for the U.S. dollar.”
Struggling Airline Industry
Another major issue affecting travel has been the soaring cost of oil. Expensive oil not only drives up the price of travel, but it also fuels the explosion in the U.S. trade deficit, which is helping to drive down the value of the dollar.
Prior to the election, many analysts believed that a Kerry victory could drive down the cost of oil because a Kerry presidency could have a settling effect on the volatile Middle East. Now, with a second Bush administration, the war in Iraq, and Bush's opposition to using U.S. strategic oil reserves, oil prices are not expected to come down.
This translates into a continuing competitive environment in the airline industry, particularly as airlines struggle with excess capacity. “There is so much capacity now that everyone is fighting to fill the last seats,” says Darryl Jenkins, director of the Aviation Institute at The George Washington University. The airlines will continue to have to “suck it in” and eat the extra costs, he says. “The days of the airlines making a lot of money off the business traveler are long gone.”
This could mean opportunity for meeting planners. “Certainly if you are smart in the way you book, you will have a lot of flexibility this year,” Jenkins says. “And it will be this way for a long time to come.”
Hotel Industry Upswing
Historically the lodging industry performs well in the first year of a new administration. So far, so good, says Bjorn Hanson, a lodging consultant with PricewaterhouseCoopers LLC, who notes that the “business community, as indicated by the stock market, is pleased by the outcome of the election.”
The hotel industry is creeping back toward performance levels reminiscent of the glory days of the late 1990s. A recent report by the Hospitality Research Group, the research affiliate of PKF Consulting of Atlanta, found that by the end of 2004, the top 50 U.S. hotel markets had achieved an average occupancy of 64.8 percent — a 5.4 percent gain over 2003. And occupancy is forecast to increase to 66.6 percent this year, with accompanying increases in the average daily room rates.
Numbers like this, as well as anecdotal evidence across the industry, indicate a return to a seller's market. Whether a planner is looking at room rates, meeting room charges, or food and beverage costs, the balance of power is shifting from the buyer to the supplier.
During the election campaign, Bush talked about overhauling the tax system; however, pundits see little chance for implementation of a major reform plan. Instead, some analysts predict a Bush second-term push for tax simplification by reducing credits and deductions while lowering individual and corporate tax rates. Hanson believes the lodging industry will follow closely any attempt by the Administration to follow through on a tax simplification proposal. “This is generally viewed to be positive for the lodging industry,” Hanson says.
Several other possible second-term tax initiatives could have an effect on the lodging industry, business travel, and meetings. Business and travel associations, such as the Business Travel Roundtable, have long lobbied for full restoration of the business meal entertainment tax deduction and the spousal travel tax deduction. Past congressional action reduced the business meal deduction from 80 percent to 50 percent and eliminated what had been a 100 percent spousal travel deduction.
Now, more than three years after September 11, 2001, the strengthened security precautions that meeting attendees see as they travel have “become a way of life,” as MPI's Rorrie puts it. “I don't hear a lot about that from my colleagues. They just accept it.”
Not that increased security precautions, particularly at airports, don't create headaches. Darryl Jenkins believes that the business traveler may become increasingly inconvenienced and upset by the implementation of what he sees as intrusive search procedures, which he calls “the airport groping test.”
The Transportation Security Administration in September implemented a more vigorous pat-down procedure for travelers randomly selected for secondary screenings. Since then passengers have complained that the pat-downs are too vigorous and an unnecessary invasion of privacy. It's all becoming too much, Jenkins says. “Some of us believe that just going to the airport is too painful of an experience.”
One homeland security — related issue that could affect meetings is the Terrorism Risk Insurance Act. The legislation, enacted in 2002, ensures that through a temporary federal program, terrorism coverage for hotels and other businesses will be available and affordable in the private insurance market. But it expires at the end of this year, and the last Congress was unable to agree on an extension.
That's potentially bad news for the hotel industry, which was hit hard by the high cost, and in some cases unavailability, of terrorism insurance after 9/11. The Coalition to Insure Against Terrorism, which includes the American Hotel and Lodging Association and several major hotel chains, is lobbying heavily for a two-year extension. Joe McInerney, president of the AH&LA, Washington, D.C., believes the new Congress, particularly the Senate, with four more Republican members, is likely to extend the act.
Without the extension, the coalition argued in a letter it sent to the White House last April, the ability of its members, such as Hilton Hotels and Marriott International, “to obtain comprehensive and cost-effective terrorism coverage will be diminished substantially in 2005.”
The consequences? “Higher insurance costs,” McInerney says. Increases, he adds, that — if the market is strong enough — could end up affecting room rates.
More important, McInerney argues, is that this would have a significant effect on new construction. “Maybe a city won't be able to build a new convention center because the insurance will be too costly,” he says. “That's what held up lots of construction after 9/11.”
A RECENT STUDY taken within the G8 economic nations found that foreign travelers are avoiding the United States because of their opposition to U.S. foreign policy. The poll, taken by independent market researcher GMI Inc. of Mercer Island, Wash., surveyed 8,000 people from the eight countries, and it found that 55 percent of Japanese, 36 percent of Germans, and 32 percent of French are less likely to travel to the United States because of its “unilateral” war on terrorism and foreign policies.
This sentiment most likely translates to group travel. “I do believe the image of the U.S. is suffering,” says Rick Webster, director of government affairs for the Travel Industry Association of America, adding that the negative images Europeans and other have of the United States must “enter into the minds of decision-makers when it comes to bringing meetings to the U.S.”
Roger Tondeur, CEO of the Geneva, Switzerland — based MCI Group, one of Europe's largest incentive houses, confirms that there is now just about “zero traffic for pure incentives” from Europe to the United States. “The problem is that Bush is not well-liked.” This anti-Bush feeling is being translated, he says, into European groups avoiding the United States. “North America used to be the most popular [long-haul] destination,” he says, “Florida, Nashville, Las Vegas, Monument Valley — all of these places. That's gone right now.”
Another issue causing some companies to cancel international meetings scheduled for the United States is the increasing difficulty of getting visas. The good news is that the Department of State has taken steps to address the delays. The department now has a Web site that tells visitors how long it takes to get a visa in a particular country. “This helps travelers with planning,” says Webster.
It's also a way of holding the department accountable for delays, Webster says. “It shouldn't take 55 days to give somebody a visa in Seoul,” he explains. “If I see that happening, I can call someone in State and say, ‘What's going on in Seoul?’” If everything works as it should, Webster says, he'll then see an increase in the consular staff in Seoul.
There are also signs that the administration is being more flexible when it comes to the Visa Waiver Program, under which residents of 27 countries can travel to the United States without a visa. The Bush Administration, as well as travel and tourism groups, had lobbied for a two-year extension of the requirement that the 27 VWP countries include biometrics in their passports. Congress ultimately accepted only a one-year extension.
In the meantime, anyone from a VWP country attending a meeting in the United States must go through the U.S. Visitor and Immigrant Status Indicator Technology program at all U.S. airports and seaports. US-VISIT requires travelers to provide digital index finger scans and a digital photograph in order to verify their identities. If, by the end of September, any of the VWP countries do not meet the biometric passport requirement, and the United States does not grant another extension, travelers from those countries will have to go through the visa process. Webster expects to be lobbying for another extension later this year.
The U.S. Immigration and Naturalization Service has also established a “professionalism initiative,” Webster says, through which immigration officers are being asked to put their best feet forward in dealing with foreign visitors. “There is a huge culture change,” Webster says. “There is a recognition that they [immigration officers] are front-line ambassadors of the U.S.”
The Latest from Congress
THE INTELLIGENCE BILL passed in December contains several provisions that can potentially affect meetings, particularly when it comes to travel:
A section directing the Secretary of State to implement a registered travelers program. This would not only help inspectors prevent terrorists from entering the United States, it would expedite the passage of previously screened travelers across U.S. borders.
A directive to the Director of Homeland Security and the Secretary of State to increase from five to 25 the number of pre-inspection stations in foreign airports. These stations, observers say, would facilitate the travel of admissible foreign visitors while reducing the number of inadmissible foreign visitors, including potential terrorists.
The extension of a section of the Aviation and Transportation Security Act that requires airlines operating on the same routes to fly passengers with tickets on defunct airlines if space is available. Airlines are allowed to charge passengers up to $50 on a roundtrip basis, and travelers must make those alternative arrangements within 60 days of an airline ceasing operations.
A requirement that all visa applicants between the ages of 14 and 79 submit to face-to-face interviews. This essentially codifies a practice in use since 2003.
A provision calling for an increase in the number of consular officers. Travel industry groups have maintained that a shortage of consular officers has increased the time foreign visitors must wait for visas.
Rick Webster, director of government affairs for the Travel Industry Association of America, says that many of these provisions are recognition that while security concerns will always be paramount, there is no reason why homeland security systems can't also be “efficient and welcoming.”