While giving a recent wrap-up 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 election outcome. “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.”
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.
Over the last three years the dollar has lost about one-third of its value against 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 issued in January 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 overseas travel, and anecdotal evidence shows that this may be deterring planners from looking at Europe as a meeting destination.
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. “The majority of analysts believe the dollar will fall to $1.38 against the euro” by early this year, he says.
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.”
OIL COSTS HURT AIRLINES
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. 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.” (As we went to press, Delta Air Lines announced plans to overhaul its entire pricing policy, cutting fares across the board. Other airlines are expected to follow suit. Look for a related report in our next issue.)
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.
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.
ANTI-AMERICANISM, VISA ISSUES
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.”
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.
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 to October 2005.
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. 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 established a “professionalism initiative,” Webster says, through which immigration officers are urged to deal with foreign visitors with consideration. “There is a huge culture change,” Webster says. “There is a recognition that immigration officers are front-line ambassadors of the U.S.”
The Intelligence Bill passed this past 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 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.
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.