EconSouth (First Quarter 2001)


The past five years have been good for tourism in Florida and for the state as a whole. The state’s official tourism tracking service, Visit Florida, estimates that tourism has grown by 5 to 8 percent annually since the mid-1990s. Florida’s unemployment rate was 3.6 percent in December 2000 — lower than the nation’s 4.0 percent. In response to the growing tourism market, vacation venues have multiplied and diversified. But how will the vacation landscape fare in the wake of the recent economic slowdown nationally?

Most analysts agree that Florida will continue to lure work-weary travelers and retirees in sufficient numbers to avoid anything like a major slowdown, but certain segments of the tourism industry may suffer setbacks. Further, the impact of a slowdown is likely to vary across Florida’s regions, which draw significantly different groups of visitors.

Visit Florida spokesperson Tom Flanigan estimates growth in tourism activity will slow to 1 to 2 percent in the coming year — a definite weakening of tourism’s robust pace compared to the last half-decade. But “slower growth isn’t the same as no growth,” says John Robertson, the Atlanta Fed officer in charge of the regional research team. According to Robertson, the pace of Florida’s economy generally has been very high over the last few years, so a return to more normal levels will be a noticeable drop in the pace of growth.

When the pace of national economic growth cools, its effect on Florida’s tourist markets is usually lagged. Kelly Repass, director of research for the Orlando/Orange County Convention and Visitors Bureau, points out that most people make their vacation plans and book in advance, so that any weakening in demand would not be felt immediately. Flanigan concurs. “There have been no rumblings of negativity” from those in the tourism industry thus far, he said. “But by summer we may see some fallout.”

Cruising along
Some segments of the industry are likely to feel a slowdown more than others. Cruise lines, for example, have been flirting with overcapacity. Responding enthusiastically to growth in passenger volumes, companies launched 14 new vessels in 2000. Another 51 ships are expected to come on the market between 2002 and 2005. Ships are getting bigger, too. Some hold as many as 3,000 passengers. Keith Cobb of Fort Lauderdale, chairman of Laundromax Inc. and former CEO of Alamo Rent A Car, serves on the board of Renaissance Cruises Inc. If cruise lines experience difficulty, “they might like to blame a downturn,” he said, but the problems would be the result of overcapacity rather than an economic slowdown.

Faced with increased competition for passengers, cruise lines cut their prices 20 to 30 percent during 2000 in hopes of attracting new customers, according to cruise consultant Peter Wild. The tactic apparently worked, since both Miami and Port Canaveral boasted record numbers of passengers in 2000. Share prices for some major lines dropped dramatically last year, nonetheless. Wild said Carnival Corp., P&O Cruises and Royal Caribbean saw price declines of as much as 60 percent. Because excess capacity has already made them vulnerable, major cruise lines could suffer further repercussions if demand slows.

But travel analysts believe that significant segments of the cruise market have yet to be tapped. The percentage of Europeans who take cruises, for example, is low compared to the percentage of Americans who take cruises. Travel agents are also trying to draw younger customers with an informal atmosphere and lower prices.


Home away from home
Although the traditional vacation trade may not slow seriously with subdued gains in the national economy, sales of vacation properties and second home markets will probably feel the pinch, according to Cobb.

Slowing second home and vacation home sales would affect the real estate industry, but real estate has seen 15 to 20 percent gross annual growth for the last five years, according to Pete Harrison, who manages Cushman & Wakefield’s Florida real estate activity. Harrison projects growth slowing to 5 to 7 percent this year. Though the slower pace represents a distinct cooling, it’s nothing to cry about. Cobb noted that second homes and vacation properties account for only a small percentage of overall construction in the state. Still, a slackening in these properties’ sales could contribute to the modest slowdown predicted for Florida’s building industry.

International intrigue
Because Florida’s tourist market is fueled by three distinct groups of visitors, a deceleration in the national economy will play out differently in various regions of the state. Miami, for example, draws 55 percent of its visitors from Europe and Latin America. Slower domestic economic growth will not necessarily have much impact on Miami’s tourist influx. On the other hand, Miami’s tourist industry is extremely sensitive to fluctuations in the exchange rate or inflation. Thus, unfavorable shifts in the exchange rate or retail price increases could discourage European visitors.

Miami’s popularity as a trendy tourist destination has been on the rise, according to travel analysts. One British booking agent, Premier Travel, declared Miami the fastest-growing destination in the United States. According to Premier, Florida bookings rose by 14 percent in 1999, largely on the strength of Miami’s appeal.

Hoteliers have been quick to respond to Miami’s increased activity. Five new luxury hotels are slated to draw an upscale clientele, including the $100 million Mandarin Oriental, which opened in late 2000, with regular rooms priced at $525 to $740 per night during the high season and suites ranging from $1,200 to $4,000 a night. Following in its wake will come three Ritz-Carlton additions in 2001 and a Four Seasons scheduled to open in 2002.

In all, 7,900 hotel rooms valued at $1.4 billion are being planned for Miami. Will the slower economic growth predicted by many for this year support this added capacity? Bill Anderson, director of marketing research for the Greater Miami Visitor Center, is optimistic. “We put on over 2,000 rooms in 2000,” he says, “and occupancy rates were higher and so were room rates.” Anderson firmly believes that Miami will weather any economic turbulence without much fuss.

Miami’s unemployment rate of 5.8 percent in 1999, which remains significantly higher than that for the state as a whole, continues to edge downward but did not show as great a decline in 2000 as it did in 1999 or 1998. The biggest gains in employment for the Miami metro area in 2000 were in the construction industry.

Orlando, a seasoned market that charts the vital signs of its tourist trade with scrupulous attention, recorded one of the lowest unemployment rates in the state — 2.3 percent in December 2000. Services, registering gains of around 6 percent for the last six months of 2000, led the job growth that accounts for this low unemployment rate. Finance, insurance and real estate followed close behind, though job gains appeared to be slowing from a high of 6.2 percent in July to 5.2 percent in December 2000. Retail trade employment showed a similar pattern of slowing, despite strength, dropping from 5.5 percent job growth in August to 4 percent in December.

Like Miami, Orlando has built energetically in the last few years to accommodate a swelling stream of visitors. In 1999, more than 7,000 new rooms came on the market, according to Orlando/Orange County Convention and Visitors Bureau statistics. While the demand for rooms continues to grow — up 3.9 percent in 1999 over 1998 — occupancy rates have dropped steadily from a high of 80 percent in 1996 to 72 percent in 1999, a reflection of increased capacity. Offsetting the higher percentage of vacancies is an increase in the average daily rate of rooms, up from $73 a night in 1996 to $85 a night in 1999.

Orlando attracts a significant number of international visitors — nearly 3 million in 1999 (the most recent year for which statistics are available) — but over 90 percent of its 42 million visitors in 1999 were domestic. Of the domestic visitors, 21 percent were business travelers. The number of domestic visitors increased by 11 percent in 1999. Of Orlando’s domestic visitors who were not Florida residents, 53 percent drove to the city, while 41 percent arrived by air. Top cities of origin were New York (10 percent), Chicago (6 percent), Atlanta (5 percent) and Philadelphia (4 percent).

The number of overseas visitors to Orlando, in contrast to the number of domestic visitors, declined slightly in 1999. Top countries of origin were the United Kingdom (40 percent), Germany (7 percent), Brazil (6 percent), Argentina (4 percent) and Japan (3 percent). Orlando tied Miami in 1999 for third place among U.S. destinations visited by overseas travelers, each claiming an 11.7 percent market share.

A significant slowdown in the U.S. economy could eventually affect Orlando’s largely domestic tourist trade. In addition, some analysts think the prices of Orlando’s theme parks may already be climbing out of the range of average-income families. But given its solid growth rate and its experience in reading the market and responding to it, Orlando is likely to be able to shift its strategy to keep visitors coming. For example, the same analysts believe a move to offer lower-priced incentive packages might keep volume high.


Being neighborly
Northwestern Florida tourist trade is supported almost completely by domestic visitors who drive in from neighboring states. While the average length of stay for non-Florida domestic visitors in Orlando is 5.7 nights and for international visitors, 8.7 nights, visitors to the northwest coast tend to stay an average of 3.8 nights. These figures suggest that Florida’s Gulf Coast is more likely than other parts of the state to be a destination for weekend getaways and that its tourists may not make their plans as far in advance as do visitors to other areas. Thus, northwest Florida could feel the impact of tightening in the national economy before the state’s other tourist destinations do.

According to Julie Hilton, president and co-owner of Hilton Inc., which owns and operates six properties in Panama City, there is already some cause for concern. She points out that bed-tax revenues in Panama City’s Bay County, a strong indication of tourism earnings, stalled in 2000 after gaining only 1 percent in 1999, while hoteliers’ costs have risen, eating into profits. Hilton reports that although bookings for spring break are up at one of her properties, they are down at all the others.

“When the economy drops, leisure spending is the first thing to go,” says Hilton. But the problem, she says, is only partly related to a slowdown in demand. Another factor is increased competition from new accommodations coming on the market. She estimates that anywhere from 1,000 to 2,500 new units appeared last year. “The growth of south and central Florida is moving up to the ‘great northwest’ now,” she said. As in Orlando, villa-style accommodations are becoming increasingly popular and competing with traditional hotels for customers. Most of Hilton’s cost increases have been in renovation and repair to keep her facilities updated and attractive.

A study by Rick Harper and Nestor Arguea, economists for the Haas Center for Business Research and Economic Development at the University of West Florida in Pensacola, found a significant correlation between unemployment figures in various cities of origin for tourists (including Atlanta, Baton Rouge, Houston, Birmingham, Minnesota, Dallas, Memphis, New Orleans and St. Louis) and bed-tax revenues. While the study predicted a growth pattern of 5.5 to 6.5 percent for tourism revenues in northwest Florida’s Escambia County, it indicated that “factors like unemployment rates, or even the behavior of the stock market, or other business cycle indicators, could have some impact on tourist-related expenditures.”

Although Harper remains generally positive about northwest Florida’s prospects, he says there could be some fallout from a national slowdown in cities like Panama City and Fort Walton, which are heavily dependent on tourist trade. Other metropolitan areas such as Pensacola and Tallahassee have more diversified, noncyclical employment that will help to cushion any weakness in tourism.

Harper notes that since energy-related employment in two important feeder states to the area — Texas and Louisiana — has dropped as a percentage of overall employment by more than half since the 1980s, to about 10 percent, strong energy prices won’t help visitation to the area as much they used to. However, the fact that northwest Florida provides an economical alternative to travel further south may be a saving grace. If vacationers decide to scale back their spending, they may choose northwest Florida over more costly venues. Hilton agrees that slower economic growth could be “a two-edged sword” for the region.

Long-term, says Hilton, the region’s potential has only begun to be tapped. She cites plans for improved air transportation facilities that would bring visitors to the area from more distant points of origin, new shopping and recreational complexes, and travel packages that will draw tourists to the area.

Meeting challenges
Florida’s tourism pundits, experienced purveyors of recreation, seem poised to meet any challenges that stress in the national economy might present. Never at a loss for new angles, marketers are creating “off-the-beaten-track experiences” to draw visitors to less-explored areas of the state — eco-tourism itineraries that feature flora and fauna or tours oriented toward history, art and architecture for those too driven to lie on the beach sipping sodas.

Confidence remains high that as long as the sun shines, people will find their way to Florida. And there are likely to be plenty of good deals to draw them.

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