[Senate Hearing 107-1146]
[From the U.S. Government Publishing Office]
S. Hrg. 107-1146
STATE OF THE TOURISM INDUSTRY ONE YEAR AFTER SEPTEMBER 11TH
=======================================================================
HEARING
before the
SUBCOMMITTEE ON CONSUMER AFFAIRS, FOREIGN COMMERCE AND TOURISM
OF THE
COMMITTEE ON COMMERCE,
SCIENCE, AND TRANSPORTATION
UNITED STATES SENATE
ONE HUNDRED SEVENTH CONGRESS
SECOND SESSION
__________
SEPTEMBER 25, 2002
__________
Printed for the use of the Committee on Commerce, Science, and
Transportation
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SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION
ONE HUNDRED SEVENTH CONGRESS
SECOND SESSION
ERNEST F. HOLLINGS, South Carolina, Chairman
DANIEL K. INOUYE, Hawaii JOHN McCAIN, Arizona
JOHN D. ROCKEFELLER IV, West TED STEVENS, Alaska
Virginia CONRAD BURNS, Montana
JOHN F. KERRY, Massachusetts TRENT LOTT, Mississippi
JOHN B. BREAUX, Louisiana KAY BAILEY HUTCHISON, Texas
BYRON L. DORGAN, North Dakota OLYMPIA J. SNOWE, Maine
RON WYDEN, Oregon SAM BROWNBACK, Kansas
MAX CLELAND, Georgia GORDON SMITH, Oregon
BARBARA BOXER, California PETER G. FITZGERALD, Illinois
JOHN EDWARDS, North Carolina JOHN ENSIGN, Nevada
JEAN CARNAHAN, Missouri GEORGE ALLEN, Virginia
BILL NELSON, Florida
Kevin D. Kayes, Democratic Staff Director
Moses Boyd, Democratic Chief Counsel
Jeanne Bumpus, Republican Staff Director and General Counsel
------
SUBCOMMITTEE ON CONSUMER AFFAIRS, FOREIGN COMMERCE
AND TOURISM
BYRON L. DORGAN, North Dakota, Chairman
JOHN D. ROCKEFELLER IV, West PETER G. FITZGERALD, Illinois
Virginia CONRAD BURNS, Montana
RON WYDEN, Oregon SAM BROWNBACK, Kansas
BARBARA BOXER, California GORDON SMITH, Oregon
JOHN EDWARDS, North Carolina JOHN ENSIGN, Nevada
JEAN CARNAHAN, Missouri GEORGE ALLEN, Virginia
BILL NELSON, Florida
C O N T E N T S
----------
Page
Hearing held on September 25, 2002............................... 1
Statement of Senator Carnahan.................................... 2
Statement of Senator Dorgan...................................... 1
Statement of Senator Fitzgerald.................................. 7
Witnesses
Durst, Jr., John K., Executive Director, South Carolina
Department of Parks, Recreation and Tourism.................... 4
Prepared statement........................................... 6
Hentschel, Noel Irwin, Chairman and CEO of AmericanTours
International.................................................. 37
Prepared statement........................................... 40
Lounsberry, Fred, National Chair, Travel Industry Association of
America........................................................ 32
Prepared statement........................................... 34
McDowell, Ann, Chairwoman, Marketing Advisory Council of the
Branson/Lakes Area Chamber of Commerce......................... 8
Prepared statement........................................... 10
Rosenbluth, Hal F., Chairman and CEO, Rosenbluth International... 13
Prepared statement........................................... 14
Tisch, Jonathan, Chairman, Travel Business Roundtable............ 21
Prepared statement........................................... 24
Appendix
Wright, Samuel H., Senior Vice President, Government Relations,
Cendant Corporation, prepared statement........................ 53
STATE OF THE TOURISM INDUSTRY ONE YEAR AFTER SEPTEMBER 11TH
----------
WEDNESDAY, SEPTEMBER 25, 2002
U.S. Senate,
Subcommittee on Consumer Affairs, Foreign Commerce
and Tourism,
Committee on Commerce, Science, and Transportation,
Washington, DC.
The Subcommittee met, pursuant to notice, at 2:31 p.m. in
room SR-253, Russell Senate Office Building, Hon. Byron L.
Dorgan, Chairman of the Subcommittee, presiding.
OPENING STATEMENT OF HON. BYRON L. DORGAN,
U.S. SENATOR FROM NORTH DAKOTA
Senator Dorgan. Good afternoon. We are holding another
hearing slightly less than a year after the hearing we held
last year in the aftermath of September 11th. In the wake of
that tragedy, Congress acted quickly and responsibly to help
the airline industry, since it had been shut down on September
11th and remained down for some days. We helped the airline
industry both in terms of financial assistance and new security
measures so that the flying public would be confident that it
is safe to fly.
It is clear that the aviation industry is not the only
sector of the economy that was deeply affected by September
11th. This became evident in last years hearing in which we
heard from executives and representatives of other portions of
the travel and tourism industry. Much of that industry was
deeply affected by September 11 and it continues to be affected
in a significant way today.
The travel and tourism industry is a significant part of
our economy. It is the third largest retail industry,
generating more than $582 billion in revenue each year and
directly and indirectly employing more than 18 million people.
No industry took a bigger hit after September 11th last year
than travel and tourism. Yet, this industry received nothing to
help stabilize it or help it recover after September 11.
The taxpayers in this country, correctly in my judgment,
extended $5 billion in grants and $10 billion in guaranteed
loans to the airline industry to help it recover. I supported
that assistance. I did not feel we had much choice. But no such
help was offered to other parts of the travel and tourism
industry which were devastated as a result of the terrorist
attacks.
Some in Congress, myself included, along with my colleague
from Missouri and my colleague from Nevada, offered and
proposed legislation to help the industry and workers recover.
That legislation was not enacted.
The purpose of this hearing, nearly a year later, is to
examine how the industry is doing. This is an important
question to ask. The tourism industry really has gone it alone
for the last year. The freedom to travel is a basic freedom. It
is a freedom that depends on having a network of successful
hotels, travel agents, car rental companies, restaurants,
airlines, and attractions to give us places to go, things to do
and to take care of us as we travel and when we get to where we
are going.
Today we seek to understand the extent of the damage that
was done to the tourism industry as a result of the terrorist
attacks as well as the economy's response to those attacks. We
want to understand what has happened to the people employed in
the industry so we can evaluate what, if anything, needs to be
done in public policy to respond to it. How is the industry
doing?
We know that international arrivals in the United States
were down by 12 percent in the first quarter of this year, but
what about American travelers? We know if the hotel employees
and restaurant employees international union could be here
today--they are not able to be here--they would tell us that 15
percent of their members are still out of work. We know that
the airlines are still suffering from fewer business passengers
and hemorrhaging in red ink. So, are people traveling less? Is
the hassle factor of going through airport security,
encouraging people to travel by car? If that is the case, do
these new travel patterns have implications for the rest of the
industry?
In the part of the country that I come from, we are well
familiar with disasters. We know what it is like when, through
no fault of your own, the world falls out from under you as a
result of a natural disaster. But there was nothing natural
about the cowardly and deadly acts of September 11th last year,
and they were certainly unpredictable, unexpected, and clearly
beyond the control of anyone who was affected by them.
Just as our country has generously responded to natural
disasters, now we must determine the best way to help our
economy heal. The first step towards that end is understanding
what has happened, what is the current status of this industry?
We have invited a number of witnesses to join us today. We
appreciate the fact that they have traveled here, and we are
anxious to have a discussion and complete a record for our
colleagues here in the Senate on the state of the tourism
industry in this country today.
We are joined by Senator Carnahan, and we will be joined by
others on the Subcommittee later. Senator Carnahan, do you have
a statement?
STATEMENT OF HON. JEAN CARNAHAN,
U.S. SENATOR FROM MISSOURI
Senator Carnahan. Yes. Thank you, Mr. Chairman, for
conducting this hearing today. I certainly appreciate your
leadership on this Committee in this matter.
Tourism is one of the most important industries in
Missouri, a $7.8 billion a year industry. The industry employs
nearly 191,000 people. Spending by travelers generates about
$625 million a year in State taxes and $272 million in local
taxes. The importance of the tourism industry in my State has a
lot to do with the diversity that Missouri has to offer. From
the Gateway Arch in St. Louis to the traditions of jazz and
blues and barbecue in Kansas City, Missouri is rich in history
and culture.
In fact, one of the most dynamic tourism destinations in
the Nation is located in my State. In February 2002, Byways
magazine named Branson, Missouri the top motor coach
destination during the entire decade. The National Tour
Association and Group Leaders of America ranked Branson as the
number 10 most popular overall tourist destination in the
country, and Family Fun magazine named Branson the top family-
friendly tourist town in the midwest. Branson is considered the
live music show capital of the world. It is home to 49 music
theaters with a total theater seating capacity of 61,714 seats.
That is more seats than are available on Broadway in New York.
Mr. Chairman, I am extremely pleased that we have a
resident of Branson here to testify before this Committee
today. Ann McDowell is the co-owner and general manager of Ride
the Ducks in Branson which was recently named the Small
Business of the Year in the Branson/Lakes Area. She is also the
chairwoman of the Marketing Advisory Council of the Branson
Chamber of Commerce. I am grateful for her willingness to take
time out of her busy schedule share her insights with the
Committee today, particularly the impact that September 11th
has had on tourism.
Thank you again, Mr. Chairman, for holding this hearing and
for exploring this timely topic.
Senator Dorgan. Senator Carnahan, thank you very much. I
would have been disappointed, after that description of
Branson, had we not had someone on the panel from Branson.
[Laughter.]
Senator Dorgan. I was in the State of Missouri with Senator
Carnahan last Friday, and I guess I was not so much aware of
the barbecue sauce in Kansas City, but I escaped without
having----
Senator Carnahan. Well, I regret we did not share that with
you.
Senator Dorgan. Perhaps we can remedy that at some point.
Let me thank you for your comments and say that we have an
interesting panel of witnesses. We have Mr. John Durst,
Executive Director of the South Carolina Department of Parks,
Recreation and Tourism; Ms. Ann McDowell, Chairwoman, Marketing
Advisory Council of the Branson/Lakes Area Chamber of Commerce;
Mr. Hal Rosenbluth, President and CEO of Rosenbluth
International; Mr. Jonathan Tisch, Chairman of the Travel
Business Roundtable; Mr. Fred Lounsberry, National Chair of the
Tourism Industry Association of America; and Ms. Noel
Hentschel, Chairwoman and CEO, AmericanTours International.
Let us begin with Mr. Durst. Mr. Durst is Executive
Director of the South Carolina Department of Parks, Recreation
and Tourism. He will talk to us about the South Carolina
tourism industry and initiatives from the Southern Governors
Association. Mr. Durst, we thank you very much for being with
us. Why don't you proceed, and then when you are finished, I am
going to call on the ranking member, Senator Fitzgerald, for a
statement.
STATEMENT OF JOHN K. DURST, JR., EXECUTIVE DIRECTOR, SOUTH
CAROLINA DEPARTMENT OF PARKS, RECREATION AND TOURISM
Mr. Durst. Thank you, Mr. Chairman, and good afternoon to
you and also the other distinguished Members of the
Subcommittee.
My name is John Durst. I have the honor of appearing before
you today representing South Carolina Governor Jim Hodges, our
State's tourism industry, and the South Carolina Department of
Parks, Recreation and Tourism. I serve as the Director of PRT.
It is my great honor to testify on the topic of South
Carolina's tourism industry in the aftermath of September 11.
The past 12 months have been a time of testing and
challenge for South Carolina's tourism industry, just as it has
been for our sister States. South Carolina, a State known for
its southern hospitality, its smiling faces, and its beautiful
places, has proven to be resilient, and today I would like to
share with you how our tourism industry, the Governor, the
legislature, and the people in our great State have worked in
partnership to achieve a remarkable recovery.
Travel and tourism has become South Carolina's number one
industry. It employs nearly 13 percent of our work force,
generates over three-quarters of a billion dollars in State and
local taxes, and represents 8.8 percent of our gross State
product. In fact, in most southern States, tourism ranks among
the top three industries.
As we all know, even before the tragic events of September
11th, the effects of a slowing national and global economy were
having a negative impact on every State's revenue stream.
Tourism, however, had remained stronger than many other sectors
of the economy. Unfortunately, the terrorist attacks sent our
tourism industry, along with that of our sister States, into a
tailspin and with it the economy of most southern States.
We in South Carolina recognized the economic importance of
travel and tourism to our State. So in the aftermath of
September 11th, we aggressively moved forward to proactively
address these unprecedented challenges. Within a month of
September 11, Governor Hodges convened a summit on tourism and
travel to gain input from tourism industry leaders from across
our State. That summit led to our developing a 10-point plan
for recovery and our forming a special tourism resilience
committee to implement the summit's recommendations.
Later that same month, in response to a request from
Governor Hodges and with bipartisan support from our
legislature, our State Budget and Control Board provided a $2
million emergency loan to our agency for the immediate
development of an aggressive tourism marketing and promotion
program. My agency then leveraged these funds with dollars from
our private sector partners to further extend the reach and
frequency of our marketing at a critical moment. I want to
commend those partners for their invaluable support which was
nothing short of economic patriotism.
The results of these strategic actions and the partnerships
forged between State government and our private sector partners
were both immediate and dramatic. In the past 12 months, almost
every measurable segment of South Carolina's tourism industry
has, comparatively speaking, shown strong recovery. We have
realized a return on the marketing dollars invested in that
emergency program of about 20 to 1 and our general assembly
forgave the $2 million loan.
I would be remiss if I did not note that our State has
always been a major drive destination for leisure travelers. We
are not as dependent as many of our sister States on air
transportation to maintain our industry's economic health and
well-being, nor are we as dependent upon the business traveler
or conventions and meetings, though they are an increasingly
significant segment of our tourism economy.
We are, however, extremely cognizant of the fact that the
travel industry's overall health is dependent upon the
continued strength of our sister States' tourism industries. We
are all interrelated and we are all interdependent.
Having said that, it should be noted that continued State
revenue State revenue shortfalls are having major negative
impacts on our ability to market and therefore sustain our
tourism industry's momentum, limiting our ability to generate
much-needed revenue for our State. At the very time we need to
generate revenue the most, our efforts are being impaired due
to State agency budget reductions arising from continued
revenue shortfalls.
It is with this in mind that we respectfully believe that a
strong tourism partnership, based on the successful
partnerships we have developed between our State and our
private sector partners, must be forged between the Federal
Government and the States in order to move this vital industry
forward significantly.
I would like to suggest, Mr. Chairman, two arenas in which
this partnership can have a major and measurable impact that
involve both the domestic and international travel sectors.
First, State tourism development of international markets
is dependent upon reliable data to guide our strategic
planning. The current in-flight surveys of international
travelers has been so underfunded that it provides insufficient
sample size for any reliable analysis. The success of this
program relies on sufficient, recurring funding for the surveys
and voluntary cooperation by the airlines in helping to
administer the surveys which are distributed during flights. We
respectfully submit that it is imperative that sufficient
funding be provided to the Office of Tourism Industries in the
U.S. Department of Commerce on a consistent basis to better
assist individual States and regions in international
marketing.
Second and final, we would further respectfully submit that
it is in both our interests, State and Federal, to forge a
cooperative partnership that helps leverage existing State
government expenditures for travel and tourism advertising and
assist with marketing efforts to regain and retain traveler
confidence. To this end, we would urge you to support
legislation similar to that introduced late last year to grant
Federal funds to States based on tourism advertising dollars
expended.
Gentlemen, lady, a strong national travel industry is vital
for the economic health of our States and our Nation. Forging
and funding a partnership between the Federal Government, the
States, and our thousands of industry partners can help ensure
its strength and thereby benefit all Americans.
Mr. Chairman, thank you again for the opportunity to
discuss this important issue with you and the other Members of
the Committee.
[The prepared statement of Mr. Durst follows:]
Prepared Statement of John K. Durst, Jr., Executive Director, South
Carolina Department of Parks, Recreation and Tourism
Good Afternoon Mr. Chairman and Members of the Committee.
My name is John Durst. I have the honor of appearing before you
today representing South Carolina, Governor Jim Hodges, our state's
tourism industry and the South Carolina Department of Parks, Recreation
and Tourism. I serve as the Director. It is my great honor to testify
on the topic of South Carolina's tourism industry in the aftermath of
September 11.
The past twelve months have been a time of testing and challenge
for South Carolina's tourism industry; just as it has been for our
sister states. South Carolina--the State known for its southern
hospitality, its Smiling Faces and its Beautiful Places has proven to
be resilient. And today I'd like to share with you how the tourism
industry, the Governor, the legislature and the people of our state
have worked in partnership to achieve a remarkable recovery.
Travel and Tourism has become South Carolina's number one industry.
It employs nearly 13 percent of our workforce and generates over three
quarters of a billion dollars in state and local taxes. In fact, the
tourism economy in South Carolina represents 8.8 percent of our Gross
State Product. In most southern states, for instance, tourism ranks
among the top three industries.
As we all know, even before the tragic events of September 11, the
effects of a slowing national and global economy were having a negative
impact on every state's revenue stream. Tourism, however, had remained
stronger than many other sectors of the economy. Unfortunately, the
terrorist attacks sent our tourism industry and that of our sister
states, into a tailspin, and with it, the economies of most southern
states.
We in South Carolina recognized the economic importance of Travel
and Tourism to our State. So, in the aftermath of September 11 we
aggressively moved forward to proactively address the unprecedented
challenges. Within a month of September 11, Governor Hodges convened a
Summit on Tourism and Travel to gain input from tourism industry
leaders from across our state. This summit led to our developing a 10-
point plan for recovery and our forming a special Tourism Resilience
Committee to implement the summit's recommendations. Later that same
month (October of 2001), in response to a request from Governor Hodges,
and with bi-partisan support from our legislature, our state Budget and
Control Board provided a $2 million emergency loan to our agency for
the immediate development of an aggressive tourism marketing and
promotion program. My agency then leveraged these funds with dollars
from our private sector partners to further extend the reach and
frequency of our marketing at a critical moment. I want to commend
those partners for their invaluable support, which was nothing short of
economic patriotism.
The results of these strategic actions and the partnerships forged
between state government and our private sector partners were both
immediate and dramatic. In the past twelve months, almost every
measurable segment of South Carolina's tourism industry has,
comparatively speaking, shown strong recovery.
We have realized a return on the marketing dollars invested in this
emergency program of about 20 to 1. And our General Assembly forgave
the $2 million loan.
I would be remiss if I did not note that our state has always been
a major drive destination for leisure travelers. We are not as
dependent, as many of our sister states on air transportation to
maintain our industry's economic health and well being. Nor are we as
dependent upon the business traveler or conventions and meetings,
though they are an increasingly significant segment of our tourism
economy. We are, however, extremely cognizant that the travel
industry's overall health is dependent upon the continued strength of
our sister state's tourism industries--for we are all interrelated and
interdependent.
Having said that, it should be noted that continued state revenue
shortfalls are having major negative impacts on our ability to market,
and therefore sustain, our tourism industry's momentum, limiting our
ability to generate much-needed revenue for our State. At the very time
we need to generate revenue the most, our efforts are impaired due to
state agency budget reductions arising from continued revenue
shortfalls.
It is with this in mind that we respectfully believe that a strong
tourism partnership--based on the successful partnerships we have
developed between our state and our private sector partners--must be
forged between the Federal Government and the states, in order to move
this vital industry significantly forward significantly.
I would like to suggest two arenas in which this partnership can
have a major and measurable impact involve both the domestic and
international travel sectors.
First, state tourism development of international markets is
dependent upon reliable data to guide our strategic planning. The
current ``In-flight Surveys'' of international travelers has been so
under-funded that it provides insufficient sample size for any reliable
analysis. The success of this program relies on sufficient, recurring
funding for the surveys and voluntary cooperation by the airlines in
helping to administer the surveys, which are distributed during
flights. We respectfully submit that is imperative that sufficient
funding be provided to the Office of Tourism Industries in the U.S.
Department of Commerce, on a consistent basis, to better assist
individual states and regions in international marketing.
Secondly, we would further respectfully submit that it is in both
our interests, federal and state, to forge a cooperative partnership
that helps leverage existing state government expenditures for travel
and tourism advertising and assists with marketing efforts to regain
and retain traveler confidence. To this end, we would urge you to
support legislation similar to that introduced late last year to grant
federal funds to states based on tourism advertising dollars expended.
Gentlemen (and Ladies), a strong, national travel industry is vital
for the economic health of our states and our nation. Forging and
funding a partnership between the Federal Government, the states, and
our thousands of industry partners can help ensure its strength and
thereby benefit all Americans.
Mr. Chairman, thank you again for this opportunity to address you
and the other distinguished Members of this Committee.
Senator Dorgan. Mr. Durst, thank you very much.
Let me call on the ranking Member of the Subcommittee,
Senator Fitzgerald from Illinois.
STATEMENT OF HON. PETER G. FITZGERALD,
U.S. SENATOR FROM ILLINOIS
Senator Fitzgerald. Thank you, Senator Dorgan, and I am
glad that you are holding this hearing because I think it is
important that we hear from more than just the airlines in the
travel and hospitality industry. I am concerned that too much
of the focus on Capitol Hill has been on how can we get our
checkbooks and write more checks to the airlines. Last year we
provided them with $15 billion in relief. If you add that to
the roughly $15 billion we also spent last year on security and
airport improvements, it really piles up to about $30 billion
that were given to the airlines. But I think that the tourism
and hospitality industry consists of a lot more than airlines.
I am glad to see travel agencies represented here, as well as
hotels, tour bus companies, and a broad cross section of the
tourism and travel industry.
I would like to hear your ideas on what you think we can do
to keep tourism going in America. As you may have heard, the
airlines are back asking for more money, and they have an awful
lot of clout on Capitol Hill. Last year they got a lot of
money, and everybody else was left twisting in the wind. I will
be interested to hear your perspective on the possible specter
of Congress doing the same thing all over again, with you guys
being left out. I hope you will be more aggressive this year in
not letting Congress forget about the rest of the hospitality
and tourism industry.
So, thank you all for being here, and we will look forward
to asking you questions.
Senator Dorgan. Senator Fitzgerald, thank you very much.
Next we will hear from Ms. Ann McDowell, Chairwoman,
Marketing Advisory Council of the Branson/Lakes Area Chamber of
Commerce. Ms. McDowell will tell us about the Branson, Missouri
tourism market one year after September 11 and the health of
the Missouri tourism issue in general. So, Ms. McDowell, thank
you for being with us.
STATEMENT OF ANN McDOWELL, CHAIRWOMAN, MARKETING ADVISORY
COUNCIL OF THE BRANSON/LAKES AREA
CHAMBER OF COMMERCE
Ms. McDowell. Thank you, Mr. Chairman. It is my honor to be
here to represent Branson, Missouri.
The tragedies of September 11th created an immediate impact
in Branson, Missouri, similar to other tourism destinations
throughout the United States. While we are no longer reeling
from the impact, there is a lingering uncertainty about our
economic future. As you might suspect in a city of less than
5,000 residents, a city that hosts 7 million visitors annually,
the people of our community are significantly dependent on
tourism for our economic well-being.
Senator Dorgan. Ms. McDowell, would you tell us where
Branson is?
Ms. McDowell. I will. It is the southwest corner of the
State of Missouri. We are about a 3-hour drive from St. Louis
or from Kansas City.
To understand the impact of this incident on Branson, it
would be important to know a little bit about how Branson
became a tourism mecca. Located in the Ozark Mountains in an
area too rugged for farming and too remote for other industrial
development, Branson developed a tourism industry in the early
1900's. Lakes, mountain scenery, and the simple lifestyle of
the Ozarks described in a popular novel of the time entitled
The Shepherd of the Hills drew early visitors. Float trips,
fishing, and water activities sustained the tourism industry
until the 1960's when several major tourism developments were
formed. A theme park called Silver Dollar City helped to make
Branson a regional tourism destination.
In the mid-1980's, celebrity entertainers who had been
occasional featured guests in music shows in Branson began to
move into the community and perform full time. By the early
1990's, Branson was a household name across America, famous for
live music shows and family entertainment, largely because of
some exposure we received in 1991 on the 60 Minutes program.
It is difficult for any tourism destination to provide a
definitive answer as to why people come, and certainly no
single event or incident can be blamed or credited with a
destination's year-end results. It is always a combination of
factors that result in success or disappointment in ours, or
probably any industry. However, for the first time in over 20
years, Branson experienced a decline in visitation during 2001.
Year-end numbers indicated a decrease of approximately 3
percent.
While Branson has certainly felt an impact since September
11th, it has suffered less than other national tourism
destinations. We believe this is because of where we are
located and what we are.
Branson, Missouri is located, as I mentioned, in the
southwest corner of our midwestern State within a day's drive
of about half the Nation's population. About 7 million each
year visit Branson and over 90 percent of them drive to Branson
in their automobiles.
Understanding where Branson is located relative to our
Nation's population and the heavy propensity for drive-in
traffic explains some of our resilience to this tourism crisis,
but equally important is the significance of what Branson is
really all about.
Branson's core values of celebrating the American spirit
and patriotism, its long-time appreciation for military
veterans, and its faith-based, family-friendly environment have
given it broad appeal for many years. The community's
commitment to these values was established 50 years ago and
supported continuously throughout our development. Visitors
know these values are not just a marketing ploy by Branson but
rather an intrinsic part of the culture and lifestyle of our
area.
American Demographics published a major study in its
September 2002 magazine that examined consumer behaviors,
including travel habits, relative to September 11. In October
of 2001, 12 percent of Americans with young children said they
planned to take a family vacation in response to the attacks on
September 11th. By June of 2002, almost twice as many, 20
percent, said they had, indeed, taken a vacation with their
loved ones. There is also a change in the way people are
spending their dollars. Overall, only 12 percent of those
surveyed said they are spending more for vacations than they
did prior to September 11th.
The increased number of leisure family travelers has helped
to buoy Branson. Because our area is perceived as a value
destination as well, a flat or decreased spending pattern by
vacationers, coupled with a softening national economy, may
well make Branson an even more appealing travel destination.
During the first quarter of 2002, tourism taxes collected
in our area indicate Branson travel was up more than 10 percent
over the first quarter of 2001. Now, although those results are
promising, it is important to understand that the first quarter
of Branson's business is really our off-season and represents a
very small portion of our total economic picture. A more
realistic look is probably our 2002 year-to-date room demand
through July that shows a 2.9 percent increase over the prior
year. We feel extremely fortunate to show any discernible
increase during these lean and turbulent times for tourism.
Branson rebounded quickly but not without considerable and
ongoing effort. Everyone in Branson is working harder and
reaching further for new ideas to maintain our economic
stability.
In summary, in the aftermath of September 11th, Branson has
been more fortunate than most tourism destinations. While we
have not suffered great losses, we also have not enjoyed our
traditional or expected growth. Our best explanation is that
our resiliency is the result of where we are and what we
represent. Branson's location in the heart of America is
accessible for many by car who may be reluctant to fly. For the
growing numbers of people in search of a great vacation value
and a destination closer to home, Branson is an appealing
alternative. Branson represents the wholesome family values,
patriotism, and faith-based foundation that comfort Americans
in times of crisis. We provide a safe haven of traditional
family values in a world that is suddenly more uncertain than
ever before.
Coincidentally, our advertising message for 2002 was a
remake of a marketing effort for our community that was
originally developed in 1994. So, by no means was this a new
branding or positioning effort on our part, but it was a
message clearly more meaningful than ever before. It's title
was Rediscover America, and it said: ``This year visit a place
in the heart of America. A place where you can sit outside and
look at the stars, or come inside and do the same thing. A
place where getting `high' means a roller coaster ride or a
walk on an Ozark mountain top. A place of spectacular sights,
and smiles on faces you love. Where family values and the
American spirit endure. It's called Branson, Missouri. And it's
for everyone who wants to rediscover America.'' For those
reasons, Branson has a positive message to report today.
Thank you.
[The prepared statement of Ms. McDowell follows:]
Prepared Statement of Ann McDowell, Chairwoman, Marketing Advisory
Council of the Branson/Lakes Area Chamber of Commerce
SUMMARY
Branson, Missouri
Located in the Southwest corner of Missouri, Branson's population
is less than 5,000 yet it attracts nearly seven million leisure
visitors annually. Travelers of all ages come to experience the natural
beauty of the Ozark hills and lakes as well as an immense and diverse
selection of music shows, theme parks and other wholesome, family-
friendly attractions.
Branson/Lakes Area Chamber of Commerce and Convention & Visitors
Bureau
Over 900 business members strong, the Branson/Lakes Area Chamber of
Commerce fulfills its mission to enhance the economic health of the
Branson/Lakes Area. Our vision is to lead the Branson/Lakes Area in
becoming one of the most recognized in America for quality of life,
business and vacations. The activities of this organization are
implemented by four separate councils addressing membership/funding,
marketing, small business and tourism development.
Marketing Advisory Council
The Marketing Advisory Council of the Branson/Lakes Area Chamber of
Commerce is responsible for all marketing efforts designed to attract
visitors to the area. The dollars expended for these efforts, $4-5
million annually, are generated from memberships, donations, fund
raising efforts and a citywide tourism tax on area lodging, theaters
and attractions.
Ann McDowell, Witness
McDowell is an elected member of the Board of Directors for the
Branson/Lakes Area Chamber of Commerce and currently serves as the
Chairman of the Marketing Advisory Council. She has 18 years of
experience in travel and tourism marketing. For the past eight years
Ann has worked with her husband Bob in their own Branson-based
business, Ride The Ducks International, LLC. The company remanufactures
amphibious vehicles and carries in excess of 300,000 passengers
annually on land and water sightseeing tours in Branson, MO and in
Baltimore, MD (as Discovery Channel Ducks.) Their vehicles are also in
use in Boston, MA and Seattle, WA with plans to expand to additional
markets in the near future.
The Impact Of September 11 Attacks On Branson, Missouri
While no single event can be blamed with a tourism destination's
results, Branson visitation showed a year-end decline of 2.9 percent in
2001, for the first time in 20 years. Our area has been more fortunate
than most in terms of a 2002 rebound. Our year-to-date room demand is
up 3.9 percent through July 2002 and many other economic signs are
positive for our community that is significantly dependent on tourism.
Our belief is that our Midwestern, small town location, as well as the
predominance of visitors who drive to our destination, as opposed to
flying, have been positive attributes under these particular
circumstances. In addition, our history of overt patriotism, genuine
hospitality, and family values seem to be in perfect alignment with the
current mood of our nation and disposition of the traveling public.
TESTIMONY
The tragedies of September 11, 2001 created an immediate impact in
our vital tourism community of Branson, Missouri, in the same way it
did other tourism destinations and other small towns throughout the
United States. While we are no longer reeling from the impact, we feel
a lingering uncertainty about our economic future. As you might suspect
in a community of less than 5,000 residents, that hosts 7 million
visitors annually, the people of Branson are significantly dependent on
tourism for our economic well-being.
Branson History
To understand the impact of this incident on Branson, you should
know a little about how Branson became a tourism phenomenon. Located in
the Ozark Mountains in an area too rugged for farming and too remote
for other industrial development, Branson began to develop a tourism
industry in the early 1900s. Lakes, mountain scenery and the simple
lifestyle of the Ozarks as described in a popular novel, ``The Shepherd
of the Hills,'' drew early visitors. Float trips, fishing and water
activities sustained the tourism industry until the late 1950s and
early 1960s, when several major developments including the theme park
Silver Dollar City, made Branson a regional tourism destination. In the
mid-1980s, celebrity entertainers who had been occasional guests in
family owned music theaters began to move into the community. By the
early 1990s, Branson was a household name across America, famous as a
live music show and entertainment destination. Andy Williams, the
Osmond Family, Mickey Gilley, Moe Bandy, Jim Stafford, Bobby Vinton,
Mel Tillis, Yakov Smirnoff, Sons of the Pioneers and many others
currently call Branson their performing ``home.''
2001 Year End Results
No tourism destination can provide a definitive answer to why
people come. And certainly no single event or incident can be blamed or
credited with a tourism destination's year-end results. It is always a
combination of factors that result in success or disappointment in the
tourism industry. However for the first time in over twenty years,
Branson experienced a decline in visitation during 2001. Year-end
numbers indicated a decrease of approximately 2.9 percent.
Impact On Branson Less Severe
While Branson has certainly felt an impact since September 11, it
has suffered less than other national tourism destinations. We believe
this is because of where it is, and what it is.
Branson Missouri is located in the Southwest corner of our state,
within a day's drive of about half the nation's population. About seven
million people visit Branson each year, and 96 percent of them drive to
Branson in their automobiles.
Across the nation, urban destinations were impacted more severely
than drive-to destinations. Losses immediately following the attacks
were greatest among the northwest and south regions, to businesses
catering primarily to international visitors and airlines, tour
operators and travel agencies, according to the Travel Industry
Association of America (TIA). Losses were least among rural areas, the
western region, and businesses serving primarily the domestic market.
As vacationers shifted from air travel to auto travel following the
attacks, stable gas prices, a shift to closer-to-home travel and
growing interest in family travel helped to support the drive-to
destinations, like Branson.
Understanding where Branson is located relative to our nation's
population, and the heavy propensity for drive-in traffic explains some
of our resilience to this tourism crisis. But and equally important
element is the significance of what Branson is.
Branson's core values of celebrating the American spirit and
patriotism, its longtime reputation of appreciation for military
veterans, and its faith-based environment have given it a broad appeal.
The TIA shows a shift in core consumer values to focus on the following
related qualities: family, community, integrity, balance, authenticity
and security.
The community's commitment to those values was established a half-
century or more ago and supported continuously through its development.
Visitors know these values are not just a marketing ploy but rather an
intrinsic part of the culture and lifestyle of Branson.
American Demographics published a major study in its September 2002
magazine that examined consumer behaviors, including travel habits, in
light of the 9-11 attacks. In October 2001, 12 percent of Americans
with young children (up to age 11) said they planned to take a family
vacation in response to the attacks on September 11. By June 2002,
almost twice as many (20 percent) said they had taken such a vacation
with their loved ones. There is also a change in the way people are
spending their dollars. Overall 12 percent of those surveyed said they
are spending more for vacations than they did prior to September 11.
The increased number of travelers has helped to buoy Branson. Because
our area is perceived as a value destination, decreased spending on
vacations coupled with a softening national economy may well make
Branson an even more appealing travel destination.
2002 Results So Far
During the first quarter of 2002, tourism taxes collected indicate
Branson travel was up more than 10 percent over the first quarter of
2001. Although these results are promising, it is important to
understand that the first quarter is Branson's ``off-season''
representing a very small portion of the total economic market, where
small changes can generate significant percentage growth numbers. A
more realistic look is probably our 2002 year-to-date room demand
through July that shows a 2.9 percent increase over the prior year.
Still we feel very fortunate to show even minor increases in these lean
and turbulent times for tourism.
Branson rebounded quickly after the immediate effects of September
11, but not without considerable and ongoing effort. Everyone in
Branson is working harder than ever and reaching further than ever
before, for new ideas to maintain economic stability.
Summary
In summary, in the aftermath of September 11, Branson has been more
fortunate than most tourism destinations because of where we are and
what we represent. While we have not suffered great losses, we also
haven't seen our traditional and expected growth. To stay level with
last year's numbers, we are working much harder.
Where we are. Branson's location in the heart of America is
accessible for many by car, who may be reluctant to drive. For
the growing numbers of people in search of a great vacation
value and a destination closer to home, Branson is an appealing
alternative.
What we are. Branson represents the wholesome family values,
patriotism and faith-based respect that comfort Americans in
times of crisis. It's a comfortable, safe haven of traditional
family values in a world that is suddenly more uncertain than
ever before.
Coincidentally our advertising message for 2002, was a remake of a
marketing effort for our community originally created in 1994, so it
was by no means a new branding or positioning of our destination, but
it was a message clearly more meaningful than ever before. It said . . .
``This year visit a place in the heart of America. A place
where you can sit outside and look at the stars, or come inside
and do the same thing. A place where getting ``high'' means a
roller coaster ride or a walk on an Ozark mountain top. A place
of spectacular sights, and smiles on faces you love. Where
family values and the American spirit endure. It's call
Branson, Missouri. And it's for everyone who wants to
rediscover America.''
Senator Dorgan. Ms. McDowell, thank you very much.
Next we will hear from Hal Rosenbluth, President and CEO of
Rosenbluth International. Hal's company is truly an
international company, but we are also very pleased and proud
that his company has a significant presence in our State. So,
Hal Rosenbluth, why do you not proceed. Thank you for being
here.
STATEMENT OF HAL F. ROSENBLUTH, CHAIRMAN AND CEO, ROSENBLUTH
INTERNATIONAL
Mr. Rosenbluth. Thank you, Mr. Chairman, Members of
Committee on Commerce, Science, and Transportation. I am
pleased to have the opportunity to speak with you today about
the current state of the travel industry one year after the
attacks of September 11th, 2001. I offer this testimony not
only to provide statistics demonstrating the economic
challenges faced by the industry during this past year, but
also to leave you with my plan for industry recovery. Please
note that the statistics and information provided in this
testimony are not reflective of Rosenbluth International, but
rather an overview of travel companies as a whole.
The past 12 months have been among the most dramatic in the
history of the travel industry. In my testimony before you last
year, I discussed the tremendous loss of travel agency revenues
in the days immediately following the attacks of September
11th. One year later travel agencies are still struggling to
recuperate, which is demonstrated by the following statistics
released just this past September 12th by the Airline Reporting
Corporation.
In the past year alone, 11.3 percent of all agency
locations have closed. This translates to a closing of 3,274
travel offices.
Also in this past year, 12.9 percent, almost 13 percent, of
all agency firms have closed. This percentage translates into
the closing of over 2,260 travel agency businesses, all of them
family businesses.
Total airline sales have decreased by 17 percent during
this past year, for a loss of $9 billion in sales.
In this past month of August, 104 agencies defaulted on
their payments to airlines for tickets issued on their behalf,
which is nearly twice that of last August.
A survey of 200 corporate travel managers conducted from
August 29th to September 5th by the National Business Travel
Association determined that corporate travel is still below
normal one year after September 11th, 2001.
Seventy percent of these travel mangers responded that
their travel in their companies is down from this time last
year by as much as 20 percent.
Seventy-two percent of the travel managers said that their
travel was below 2000 levels, which is the last time travel was
considered normal. I am not sure there is any normal anymore
and they need to change the definition of normal in the
dictionary. In fact, 31 percent of respondents said that travel
was down by 20 percent of more since the year 2000.
Sixty-two percent of these same travel managers think the
recovery will take at least another 12 months. I certainly
agree.
In addition, 45 percent of the travel managers referred to
the need for airline price reform in order for business travel
to return to normal levels.
From these statistics, it is clear that something concrete
and immediate needs to occur in order for the travel and
tourism industries to recover. It is no secret that most major
airlines are in a state of financial crisis. In addition, the
turbulent atmosphere of the U.S. economy and the prospect of
war with Iraq can only hinder the improvement of our industry.
Despite a slight increase in positive sentiment toward travel
at the beginning of 2001, the Travel Industry Association of
America's latest Traveler Sentiment Index shows a decline in
the third quarter of 2002. The drop is mainly due to consumer
concerns about not having enough money to travel due to the
current sate of the economy.
That same association also stated that with the economy
recovering slower than expected, business travel is faring even
worse than leisure travel and that dropped nearly 9 percent for
January through June of 2002 as compared to the same time frame
a year earlier.
It is imperative that we act quickly and effectively to
enable a return to a prosperous travel industry. In conjunction
with my testimony, I have submitted A Fare Plan for Airline
Recovery, which maps out both short- and long-term plans for
the rejuvenation of the airline industry, which is critical to
both strong travel agency recovery and commerce as a whole in
the United States.
We estimate that our Fare Plan will result in an additional
$5 billion of annual revenue for the airlines, more passengers
flying at fair prices, and companies better able to leverage
their dollars while having a credible airline system necessary
to conduct business. None of that requires any Government
action whatsoever.
The second part of the plan for airline and travel industry
recovery introduces a reconstructed and new distribution model.
It is a complex and rather arcane subject, so I have
submitted in writing this plan in its entirety. I will,
however, be happy to answer questions you might have relative
to the white paper later in the session.
A healthy airline industry, through the realignment of
faring and distribution, in addition to cost-cutting measures
now taking place, should result in the return to a strong
travel industry and the resultant positive effects on commerce.
Thank you very much.
[The prepared statement of Mr. Rosenbluth follows:]
Prepared Statement of Hal F. Rosenbluth, Chairman and CEO, Rosenbluth
International
Mr. Chairman and Members of the Committee on Commerce, Science and
Transportation, my name is Hal F. Rosenbluth, Chairman and CEO of
Rosenbluth International. I am pleased to have the opportunity to speak
with you today about the current state of the travel industry, one year
after the terrorist attacks of September 11, 2001. I offer this
testimony not only to provide statistics demonstrating the economic
challenges faced by the industry during this last year, but also to
leave you with my plan for industry recovery. Please note that the
statistics and information provided in this testimony are not
reflective of Rosenbluth International, but rather an overview of
travel companies as a whole.
The past 12 months have been among the most dramatic in the history
of the travel industry. In my testimony last year, I discussed the
tremendous loss of travel agency revenue in the days immediately
following the terrorist attacks of September 11, 2001.
One year later, travel agencies are still struggling to recuperate,
which is demonstrated by the following statistics released on September
12, 2002 by the Airline Reporting Corporation (ARC):
In the past year alone, 11.3 percent of all agency locations
have closed. This translates to the closing of 3,274 travel
offices.
Also in the past year, 12.9 percent of all agency firms have
closed. This percentage translates to the closing of 2,260
travel agency businesses.
Total airline sales have decreased by 17 percent during the
past year, a nearly $9 billion loss in sales.
In August 2002, 104 agencies defaulted on their payments to
airlines for tickets issued on their behalf, which is nearly
twice that of last August.
A survey of 200 corporate Travel Managers, conducted from August 29
to September 5, 2002 by the National Business Travel Association
(NBTA), determined that corporate travel is still below normal one year
after September 11, 2001:
70 percent of Travel Managers responded that travel in their
companies is down from this time last year by as much as 20
percent.
72 percent of Travel Managers said their travel was below
2000 levels, which is the last time travel was considered
normal. In fact, 31 percent of respondents said their travel
was down by 20 percent or more from 2000.
In addition, most Travel Managers see business travel recovery
coming slower than previously expected:
62 percent of Travel Managers think that recovery will take
more than 12 months.
In addition, 45 percent of Travel Managers referred to the
need for airline price reform in order for business travel to
return to normal levels.
From these statistics, it is clear that something concrete and
immediate needs to occur in order for the travel and tourism industries
to recover. It is no secret that most major American airlines are in a
state of financial crisis. In addition, the turbulent atmosphere of the
U.S. economy and the prospect of war with Iraq can only hinder the
improvement of our industry. Despite a slight increase in positive
sentiment toward travel at the beginning of 2001, the Travel Industry
Association of America's (TIA) latest Traveler Sentiment Index (TSI)
shows a decline in the third quarter of 2002. The drop is mainly due to
consumer concerns about not having enough money to travel due to the
current state of the economy. The overall index fell 5.5 percent to
98.1 in third quarter 2002, which is within 1 percent of the index
during third quarter 2001.
TIA also stated that with the economy recovering slower than
expected, business travel is faring even worse than leisure travel,
dropping nearly 9 percent for January through June 2002, as compared to
the same timeframe last year.
It is imperative that we act quickly and effectively to enable the
return to a prosperous travel industry. In conjunction with my
testimony, I have submitted ``A Fare Plan for Airline Recovery,'' which
maps out both short and long-term plans for the rejuvenation of the
airline industry, which is critical to both strong travel agency
recovery and commerce, as a whole, in the United States.
We estimate that our Fare Plan will result in an additional five
billion dollars of annual revenue for the airlines, more passengers
flying at fairer prices, and companies better able to leverage their
dollars while having a credible airline system necessary to conduct
business. The second part of the plan for airline and travel industry
recovery introduces a reconstructed and renewed distribution model.
It's a complex and rather arcane subject so I have submitted in
writing this plan in its entirety. I will, however, be happy to answer
questions you might have relative to the white paper later in the
session.
A healthy airline industry, through the realignment of faring and
distribution, in addition to cost cutting measures now taking place,
should result in the return to a strong travel industry and the
resultant effects on commerce.
About Hal F. Rosenbluth:
Harvard Business Review, inc. Magazine, CIO Magazine, The Financial
Times and Fortune have recognized Hal F. Rosenbluth, Chairman and CEO
of Rosenbluth International, as an unconventional leader, a visionary
and a trend-setter. Dozens of periodicals, including USA Today, The New
York Times, Wall Street Journal and Working Woman, have recognized Mr.
Rosenbluth's business philosophies and practices. Hal Rosenbluth's
dedication and vision have grown Rosenbluth International to a global
company employing 5,200 associates worldwide.
The Business Enterprise Trust honored Mr. Rosenbluth for his
company's courage, integrity and social vision in business with its
Business Enterprise Trust Award. The National Conference of Christians
and Jews bestowed him with its 60th Anniversary Humanitarian Award for
outstanding contributions to the advancement of respect and
understanding among all people.
In response to widespread requests for information on Rosenbluth
International's growth, corporate culture, and human development
programs, Mr. Rosenbluth co-authored a book titled, The Customer Comes
Second and Other Secrets of Exceptional Service (William Morrow, Inc.
1992). The book was an immediate best seller, and has since been
translated and distributed in the Asia Pacific region, Europe and the
Americas. In June of 1998, Mr. Rosenbluth released another book titled
Good Company (Caring as Fiercely as You Compete) published by Addison-
Wesley. This book focuses on how companies are able to change
dramatically while holding fast to core values.
Mr. Rosenbluth joined the travel management firm in 1974 and worked
in all areas of the company before being named president in 1985, CEO
in 1987 and, most recently, chairman. Rosenbluth International has
grown steadily and rapidly under Mr. Rosenbluth's direction, with
annual sales increasing from 20 million USD in 1974 to more than 6
billion USD today. Rosenbluth International now has the second largest
presence in travel management in the world with corporate owned offices
in 24 countries. Despite tremendous growth of the 108-year old
organization, its commitment to providing the highest level of quality
service has remained unchanged for more than a century. The company
also has received numerous honors for its dedication to its associates
including being named as one of the ten best companies to work for in
America in the book titled The 100 Best Companies to Work for In
America, by Milton Moskowitz and Robert Levering, and ranked 29th in
FORTUNE magazine's inaugural listing of the 100 Best Companies to Work
for in America, which debuted in January 1998. The company is also well
known for its technological innovations, and was selected as part of
CIO magazine's CIO-100 list of companies positioned for success in the
21st century.
As a public speaker, Mr. Rosenbluth is widely respected and in high
demand. Highlights of his previous speaking engagements on management
and technology include CIO Magazine, CFO Magazine and Business Week
forums; conferences by Saturn and The American Bankers Association; and
American Chambers of Commerce in Tokyo and Taipei functions.
Mr. Rosenbluth sits on the advisory boards of Snider Capital L.P.,
a private equity firm investing in the sports, recreation and leisure
industries; and PlanetFeedback, an online company that helps consumers
send their feedback to companies via the Internet.
Mr. Rosenbluth is an avid cattle rancher with a ranch located in
Linton, North Dakota. He also is a member of the Beaver Valley Horse
Club.
EXHIBIT A: A FARE PLAN FOR AIRLINE RECOVERY
A great deal has been written about the very much maligned airline
industry, most of it negative, and a good deal of it deserved. It is a
fascinating subject in which most everyone has an opinion regarding it,
but very few have offered up any ideas on how to better it. Although
most love to hate them, to many Americans the US airlines represent a
symbol of strength and a testament to commerce. While children gaze up
into the skies and are fascinated by a plane's ability to stay in the
air, many an adult wonders as to why so many are currently grounded in
the desert.
Airplanes are an ingenious invention. As we peer through airport
windows, we marvel at the strength a fuselage imparts on us. Yet when
we think about the airline industry we ponder how the cumulative effect
of so much strength has amounted to so much corporate weakness. As an
intermediary, or for that matter, an infomediary, we have the advantage
of a 360 degree perspective. We see far more than any particular
stakeholder or constituency involved in the airline conundrum. We
communicate at the highest of levels with airlines executives, service
many of the world's most prestigious corporations, and communicate with
customers over 100,000 times a day. It is from that position that we
posit one company's formula for creating a vibrant, healthy airline
industry that is good for the public, airlines, corporations and the
country, alike.
Recently, many carriers have gone to great lengths to remove cost.
Some are making headway, and some remain stuck in a quagmire. One way
or another, the airlines must get their costs in line or they will
simply perish. What is apparent, however, is that the airlines with
great leadership also seem to those with the best labor relations and
ultimately, the greatest opportunity for sustained success. The good
news is that we finally have in place the best airline leadership seen
in years. Virtually every CEO of an airline, whether major or low cost,
recognizes the importance of its people and their collective customers.
This is a great place to start.
Most of what is written these days deals with the cost side of the
airline equation. I'm going to take a different track and focus on the
OTHER two critical, yet misunderstood issues, REVENUE and DISTRIBUTION.
At first glance, what is outlined below may seem counterintuitive.
However, corporations with sophisticated, realistic travel programs and
legitimate airline discounts programs support the need for reform, and
our approach to it. After all, where would corporations be without
airlines and vice-a-versa? Companies and individuals want a fair price.
They don't want to feel disenfranchised by the seemingly intractable or
worse yet, illusionary pricing that exists today. Fare construction is
esoteric and needs explanation in order for us to move to the airfare
reform. It's too late to continue to work the fringes. There are too
many livelihoods at stake and the public needs a profitable airline
system.
The sad news is that nary a day goes by when tens of millions of
dollars flow down the drain because the airline fare and distribution
structure is broken. It used to be that what the airlines would admit
to us privately, they now do so publicly. Recently there have been some
pricing initiatives by airlines that address the so-called ``edges.''
Fees for paper tickets, extra bags, and even non-refundable tickets are
now becoming non-refundable.
When these recent fare announcements were made, we informed the 60
or so client corporations who subscribe to our DACODA Client Yield
Management System that these new fees and restrictions will cost them
$36M a year in the form of higher fares. If you play this out to the
whole market, we calculate that the carriers plan to take back is
approximately $800M worth of ``edges'' on an annual basis. While panned
by most consumer advocates, this activity is necessary and will
positively affect their combined revenue deficit, but like a long dry
summer, one heavy storm does not a garden grow. Real structural fare
reform is necessary, one that works for corporations, consumers, and
the airlines alike. Reform that will increase ridership, improve
average yields, reward corporations for loyalty and support, and close
the gap between leisure and business fares.
I'd like to suggest that the airlines take a close look at the real
cause of the slippage. Examine indiscriminate corporate discounting and
the resultant effect of raising walk up fares to offset them, thus
creating the disparity between high business fares (which less than 10
percent of the public actually buy, a number far below what it was when
this fare level was far lower and far more realistic) and leisure
fares.
The issue at hand is significant but not complicated. To increase
revenue, the airlines have been raising fares in an inelastic
environment. To maintain market share, they have offered significant
corporate discount programs. Sounds simple, right? In fact, the
airlines have been raising published business fares in what had become
the world's longest running game of Cat and Mouse. Just when a
corporation thought that they had structured a deal to really lower
their business travel expenses, the carriers would raise the BASE of
those fares, effectively eliminating the discount. This practice gnaws
at the very people these discounts are aimed to reward.
One unintended result of this ubiquitous discounting scheme has
been that base fares have gotten so high that it has negatively
impacted the travel spend (and corresponding revenue earned) from the
small to mid size customers who don't get the large corporate
discounts. The other resultant effect with this practice is that
corporations with properly constructed programs, and who comply with
the terms of the agreements, have been artificially subsidizing those
who haven't. Companies not achieving the required market share and/or
volume hurdles continue to receive front ended discounts as airlines
feel pressured to look the other way, rather than enforce the penalties
for non compliance. Where else can someone get the same volume discount
whether they buy in bulk, or not? This has infuriated corporations that
have lived up to their side of the bargain, and frankly, I don't blame
them.
If we don't fix this now, a possible result of continuing to ignore
this discontinuity is that during this era of financial pressure, the
airlines might irrationally respond by eradicating corporate discounts
all together, in an attempt to raise yields. This would not be good for
corporate America, the airlines, or commerce as we know it today.
In a word, the corporate pricing structure of the airlines is
broken. Airlines won't publicly state that they are in a mess they
can't get out of, yet privately, they are quick to agree that lemming
pricing has ruled the day for the past two years. Yet, in fear of
losing market share, carriers have continued to match discount deals on
some programs that are mathematically impossible for corporations to
deliver--an irrational business behavior.
There is a better way, a way that works for everyone. For
simplicity, let's call it ``The Fair Fare Plan''. Here's how it works:
For the Carriers:
Step 1: Reduce walk-up fares from which all corporate discount
programs are benchmarked by 30 percent
This will bring back the small business travelers that are
price sensitive and cannot afford the current walk-up fares and
are not privy to corporate discount programs reserved for
larger corporations. If carriers believe in fare elasticity,
this should increase demand.
Step 2: Reduce all corporate discount programs by 30 percent
This step will cancel out the impact of the walk-up fare
reduction for airlines, while keeping corporations whole.
Step 3: Evaluate every corporate incentive program
If the deal cannot be justified in reasonable ROI terms, send a
notice of cancellation. Rationalize the deals, but do not
penalize those who earn and perform. In fact, since
corporations that are currently performing are artificially
subsidizing those that do not, they should be rewarded for
doing so by receiving deeper discounts for enhanced
performance. Those corporations should not have to shoulder the
load for those that don't perform. After all, that is one of
the major reasons that airlines constantly find themselves
having to raise walk-up fares in order to try and recoup lost
revenue.
Step 4: Be forthcoming with corporations
If upcoming schedule changes will make it mathematically
impossible for them to perform on negotiated performance
hurdles, deal with it upfront.
Step 5: Re-evaluate Web Airfares
Web fares drive corporate travel buyers, travel agents and
travelers crazy. Is it better to save $30 in distribution costs
and lose $300 in revenue? Take a hard look at the web-only
discounts and ask the following question: Are business
travelers able to buy airfares for less than they would via the
company-preferred program? If the answer is yes, then remove
that inventory from the web because either by design, or
default, this only de-leverages corporations' ability to
perform on the discount programs that have been negotiated. In
the end this is a lose-win situation. Airlines win when
companies come close to hurdles but don't hit them. Companies
lose since fifty dollars saved ``here or there'' over the web
only serves to cannibalize their discount programs and risk
hundreds of thousands of dollars in discounted savings.
Don't get me wrong, web fares have their place, they are a good
thing. The problem lies in the reality that many airlines
maintain multiple pricing departments; one for published fares
available through multiple channels, one for web fares on
airline owned sites, one for web fares on non-owned sites, one
for web fares on partially owned sites, one for corporate
discount fares, and so on. The other problem is that in some
airlines these departments don't roll up into a common
organization, and thus making fare rationalization almost
impossible.
For Corporations:
Step 1: Negotiate in good faith
Have responsible data, don't commit to what you can't deliver,
and make certain you have the technological capabilities to
move share and deliver volume.
Step 2: Monitor your performance.
Watch your deal so you can make periodic adjustments in order
to guarantee achievements of commitments made. Ensure that you
have the point of sale technology in place to quickly adjust
share and deliver volume. Utilize a sophisticated travel
management company that can apply the software necessary to
communicate to you shifts in airline available seat miles,
schedule changes, etc.--all that can affect your ability to
perform.
Step 3: Don't accept short-term handouts
However great the temptation, never forget the tale of the
goose that laid the golden egg.
For Travel Management Companies:
Step 1: Create value for your customers
Share your knowledge and expertise on negotiating fair and
reasonable airline deals with or on behalf of your corporate
clientele.
Step 2: Bury the hatchet between yourselves and airlines
Don't think that pushing carriers to raise their discounts out
of revenge for lowering commission, or other perceived bad
deeds of the past, will ultimately be of benefit.
Corporations and agencies need to work with airlines to help foster
an environment that is win-win-win. Short term thinking equals short-
term gain and in a short time there will be a shorter list of carriers
available to fly. That is a long-term bad thing for buyers.
Our proposed solution promotes a greater degree of shared risk and
is composed of variability in share and discount. Utilizing available
technology, a discount rate would be agreed upon between an airline and
a corporation in return for a projected share of a company's business
for ninety days. At the end of that period, the deal would be measured
to test assumptions and review ROI for both the buyer and supplier. The
discount and share is then adjusted for the next ninety days and
continues as long as both parties continue to see value. The days of
evergreen discounting without sufficient post due diligence are coming
to an end.
Technology exists today that is available to corporations, travel
management companies and airlines that will pinpoint the exact discount
level that will reward corporations for moving share and hitting volume
hurdles, while creating incremental revenue for carriers, therefore
making the discounts meaningful and long-lasting.
If we change course now, we can build a healthier industry with
vibrant competition that will result in reasonable incentives offered
to reasonable buyers in return for reasonable support. Or, we can stay
the course and continue with Junk Bond Airline Valuations, a future of
fewer carriers with less reason to discount and more reason to
introduce oligopolistic pricing, unhappy buyers and unhappy travel
agents.
Bottom line. We estimate that our Fare Fare Plan will result in an
additional five billion dollars of annual revenue for the airlines,
more passengers flying at fairer prices, and companies better able to
get their monies worth while having a credible airline system necessary
for them to conduct business.
Another problem in need of fixing is distribution. Whether a
business' distribution is wholly owned, outsourced, or a combination of
both, there exists a GOLDEN RULE: Don't under price your distribution
network; you will obliterate its value. Every industry in the world
understands the rationale of nurturing its channels of distribution
except for one: the airline industry.
While rushing to reduce their distribution costs to win the
approval of the financial community, airlines have let one pertinent
detail slip through the cracks. By virtually eliminating compensation
paid to travel agencies, their out-sourced distribution system for
reservations and ticket distribution, they may have unintentionally
created a situation requiring them to return to the 1950s and re-in-
source their reservations and distribution of tickets. This would come
at a cost far greater than they could have ever imagined.
For years now, airlines have been focusing their efforts around
reducing their own expenses. The challenge is that instead of reducing
the total cost of distribution, they focused on reducing expenses by
the reduction of standard commissions to travel agencies. In essence,
airline expenses would go down but the costs associated with
distributing tickets would not.
By reducing commissions, and thus creating the need for agencies to
charge fees directly to travelers, the airlines have created a
predatory pricing environment. Airlines sell tickets directly to
travelers with no incremental transaction fee. They absorb their cost
of fulfillment by spreading their cost over their entire volume base.
Concurrently, they pushed the travel agency community to charge fees
for fulfillment, creating a significant price advantage for themselves.
If the primary driver for the airlines is to remove the agency
distribution costs from their profit and loss statements, there is a
very simple solution: institute a fulfillment fee for every ticket
distributed directly by an airline. This would level the playing field
by charging fulfillment costs within direct AND indirect channels of
distribution and, as a result, equalize the cost of airline tickets
across all channels. An airline would then be able to lower its direct
distribution costs, increase its revenue stream, and equalize its
channel pricing structure. After all, since the airlines pay no
commissions to travel agencies and travel management companies, their
most expensive form of distribution has become DIRECT. The expense of
having call centers and the technology and communication expense
attributed to it is far greater than the free and ubiquitous agency
distribution system. In all candor, why would any airline want to field
calls directly if it only adds cost to do so?
By charging a transaction fee, airlines would uncouple and create a
transparency for their cost of distribution. They would create a
revenue stream that would offset their internal cost of distribution,
and at the same time further legitimize transaction fees for the agency
community. The same rationale also holds true for hotels and car rental
agencies. Travel providers need to reevaluate their distribution
strategies and business models. Let common sense prevail.
Taking things a step further, and really pushing the edge of the
envelope we offer the following scenario for consideration:
1. You fly, we'll buy--A return to a classic distribution model
Carriers should consider getting out of the pricing business
altogether. The combined efforts have confused and frustrated everyone
involved for years. Sell seats to brokers, businesses, distributors and
market makers who make money on the resale margin. Carriers could
create price floors and ceilings based upon relationships, the size and
length of commitments and market preferences. Carriers should be
content with selling at their cost plus a respectable margin. This
basic commercial instinct has eluded the industry since deregulation.
There can be no more making it up in volume.
The most efficient and productive carriers will win in the long
run. Most industries have learned to prosper with this model. Just
compare the market value of companies like Best Buy, Wal-Mart, Home
Depot, Target, JP Morgan Chase, Citigroup, Bank of America, CVS, Rite-
Aid, and Amazon.com to the whole commercial airline sector. These fine
companies thrive on selling other's people's products. They often take
inventory positions and resell goods and services to the public or to
business. Not an alien concept.
Eliminate direct corporate discounts as carriers have proven their
inability to price responsibly. Allow corporations to purchase seat
blocks via brokers, distributors. A return to a classic distribution
model will result in significant reduction in sales/marketing expense
in lower or elimination of GDS and merchant fees, as the distributor/
reseller will now take responsibility for these costs. Additional
expenses could be removed as carrier direct sales and deal management
resources could be eliminated.
2. Allow Structured and Planned Consolidation
Four strong carriers are more likely to compete against each other,
as substitutability amongst networks will become more likely. The
resulting competition will stimulate price and capacity controls. Non-
stop origination and destination markets should see at least two
network competitors. Other O&D markets should see more viable
connection options.
By allowing 4 larger ``network'' carriers to emerge, economies of
scale and superior purchasing leverage will be created. This should
result in lower costs for aircraft acquisition, fuel purchasing,
maintenance, training, and headquarters functions. Additional savings
will be found in better utilization of airport gates and use of
terminal facilities.
We foresee the following potential ``marriages'':
American Airlines--Having already gobbled up TWA to emerge as the
largest carrier in the world should prosper in the future as one of
four network carriers. With 20 percent overall market-share, a strong
balanced network presence and excellent management, American is poised
to not only survive, but to prosper. AA will focus on NYC, CHI, DFW,
MIA, SJU, STL and SJC.
United Airlines--After filing for bankruptcy protection, should be
allowed to acquire the assets of US Airways and create a larger entity
with approximately 23 percent market-share. We believe that the new,
larger United Airlines can successfully compete as a network provider.
UA would focus their activities in DEN, CHI, PHL, WAS, SFO, CLT and
LAX.
Delta Air Lines--Should be allowed to acquire America West and
combine to control a 19 percent share of the market. The new Delta Air
Lines can fill out gaps in its Southwestern Region with a Phoenix Hub
and truly claim a national presence. America West is simply too small
and too fragile to offer any real competition in its current form. DL
will consolidate its' assets in ATL, NYC, CVG, PHX, SLC and BOS. The
only caveat here is that Texas Pacific's ownership in America West,
plus their option for up to 38 percent of US Airways might place
America West in the United, US Airways group.
Northwest Airlines--Formed from the joining of Continental Airlines
and Alaska Airlines with Northwest will create a new entity claiming 21
percent market-share. The larger and more balanced Northwest Airlines
will prosper from and enhance the many employee friendly policies of
Continental and Alaska. This new powerful force will also count on a
large international network to support its' success. NW will have a
sizable presence in NYC, IAH, MSP, DTW, SEA and MEM.
In order to address the inevitable doomsayers, the imposition of
price ceilings on hub-to-hub monopoly services should be instituted to
discourage price gouging in the following manner.
Example: MSP to DTW--Nonstop
Now: NW Monopoly
Future: NW limited to charging average yield on Hub to Hub as for
average of other similar stage length services. MSP to DTW average
fares must not exceed average prices charged for routes with similar
stage lengths.
I know this all sounds very controversial, but we have been
conditioned by politicians and other so-called consumer advocates to
resist the ideas of consolidation without allowing any serious debate
on the potential merits. Carriers have themselves pointed weapons at
their own feet and pulled the trigger when asked to comment on
potential mergers between their competitors. Look how Continental
fought to keep British Airways and American Airlines apart, but sees no
reason why they should not be allowed to join forces with Delta and
Northwest. What's good for the goose must be good for the gander. We
currently have eight weak carriers, some in or headed to Chapter 11,
asking for loan guarantees, all losing money and patiently waiting for
the economy to brighten their collective horizons. Why not opt for four
stronger providers, all with a chance to make a go of it? How many
network carriers does the U.S. need? Looking at similar sized markets
may lead us to an answer. Japan has two, Europe has three, and China is
moving to consolidate to four. Why does the U.S. need more than four?
3. Foreign ownership/service rules should be lifted
Allow international carriers to invest in U.S. carriers and/or
allow foreign carriers to operate within the USA. There are some very
profitable foreign carriers with money to invest. Qantas, Singapore,
Lufthansa and Air France might all be enticed to make deals. Is it
better to get hand outs from tax payers or investments from other
carriers? We are all familiar with other foreign investments in U.S.
businesses. The global marketplace assumes these kinds of transactions.
U.S. companies own major stakes in of dozens of foreign corporations.
Lest we forget that GM owns Aston-Martin, Opel and Saab, Ford owns
Jaguar, Volvo and Land Rover amongst others and that DaimlerChrysler
owns large stakes in both Mitsubishi and Maserati. We should no longer
need or wish to sustain historical barriers that prevent these
transactions from occurring. The airline industry is not sacred or
immune from the global economy. In fact, the global economy relies on a
vibrant airline industry.
4. Greater differentiation between Business/Leisure Products
Customer Service complaints from the profitable business segment
have as much to do with low and common standard of service to all
customers as it has to do with higher prices. In general, and
regardless of the price paid, passengers enjoy the same seat size and
pitch, meal and beverage service; check in experience, boarding
experience, frequent flyer miles earned, gate waiting experience, and
security lines. Unless you are an Elite, Preferred, and Stratosphere
Warrior and even then that isn't always enough, you can count on the
same customer experience as granny on her annual visit to the
grandkids. You'll pay up to ten times what granny paid in the comfort
that your extra contribution ensures that you can see you own kids on
Friday night. Would this model be accepted in any other industry?
Imagine paying $1000 more per night for an identical hotel room just
because USA Today was left hanging on the door handle and you had
access to email and a mini-bar. I would love to hear the conversation
that suggested that in order to pay $100 a night you would have to stay
until Sunday!!!!
It's true: the airline industry is broken, but it's not that hard
to fix. Just as baseball was at the brink, so remains the plight of the
airlines and the passengers that fly them. Many of the ideas we have
tried to share will undoubtedly face enormous hurdles and obstacles,
but as an industry participant, corporate advocate, supplier partner
and traveler, we think they deserve their day in court. Who knows,
maybe we have the formula to fix the industry . . . what we know for
sure is that right now all we see is a recipe for disaster.
Senator Dorgan. Mr. Rosenbluth, thank you very much.
Next we will hear from Jonathan Tisch, Chairman of the
Travel Business Roundtable. Jonathan, welcome.
STATEMENT OF JONATHAN TISCH, CHAIRMAN, TRAVEL BUSINESS
ROUNDTABLE
Mr. Tisch. Thank you, Mr. Chairman. I am Jonathan Tisch,
Chairman of the Travel Business Roundtable and Chairman and CEO
of Loews Hotels. Before I begin, I would like to thank Chairman
Dorgan and Ranking Member Fitzgerald for holding this important
hearing and inviting the Travel Business Roundtable to testify.
I ask that my written statement be included in the record.
Senator Dorgan. Without objection.
Mr. Tisch. Over the past year, the travel and tourism
industry has faced significant challenges on several fronts.
When people stopped flying after September 11th--or in many
cases stopped traveling altogether--they also stopped staying
in hotels, eating in restaurants, visiting museums or theme
parks, renting cars or shopping. As a result, hundreds of
thousands of industry workers were laid off or workers had
reduced hours and companies faced steep revenue shortfalls, and
State and local governments saw a rapid decline in tax revenues
that were badly needed in this recessionary economy.
Though lower prices and increased security measures have
helped Americans travel again, the ongoing economic uncertainty
in the U.S. and the perceived hassle factor associated with
flying remain strong barriers to the industry's recovery. The
slight recovery we are seeing in some industry sectors and
areas of the country is uneven. A number of examples of the
disparity of the industry's recovery are included in my written
statement, but I would like to cite just a few.
The Travel Business Roundtable conducted a poll in August
on travel patterns one year after September 11th. A summary is
attached to my written statement. It did find that while people
perceive airline travel to be relatively safe, the
aforementioned hassle factor, a lack of confidence in the
sufficiency of airport security, and inconsistencies in the
screening process amongst airports confirm a recent trend to
drive instead of to fly. More than 1 in 10 travelers have
canceled their flights or fly less frequently because of the
hassles, and nearly 1 in 5 frequent business travelers are
traveling less often.
The Federal Reserve's September Beige Book showed that
while leisure travel is up in 6 of the 12 districts, business
travel is off across the country. Even in districts that are
seeing increased visitor traffic, room rates are down and
travelers are spending less on food and entertainment.
As Chairman of NYC & Company, New York City's convention
and visitors bureau and official tourism and marketing arm, I
can report to you that while we are able to maintain roughly
the same number of domestic visitors in 2001 as we had in 2000,
spending was off by nearly $1 billion.
It is important to note that the unevenness in the recovery
is not just affecting employees and owners of travel and
tourism businesses. Cities, counties, and States have also been
affected by the decline in the tourism and sales tax revenues
that visitors bring to these jurisdictions.
Where can we go from here? A collaborative effort will be
the key to recovery. Included in my testimony are a number of
recommendations about how we can work together to achieve a
true recovery for travel and tourism. We offer these
suggestions with the recognition that the Federal Government is
facing fiscal restraints. With that in mind, we are not asking
for things that are unrealistic or unachievable. However, we
hope that you will agree that a small investment now will yield
multiple returns for our Nation's economy in the coming years.
A major part of our effort must include attracting more
international visitors. We are losing market share and with it
job and tax revenues to our foreign competitors who are
spending vast sums of money to promote their countries. Though
travel and tourism generated a balance of trade surplus of
nearly $26 billion in 1996, by 2001 that surplus had plummeted
to only $7.7 billion. Moreover, the U.S. continues to rank as
the third most sought after international destination behind
France and Spain.
In 2000, international visitors spent approximately $106
billion in this country. It is well known that international
travelers spend far more than domestic travelers. For example,
in 2000, though foreign visitors made up only 18 percent of New
York City's total visitors, they were responsible for 42
percent of all visitor spending.
Beyond the financial benefits, the need to better define
America abroad has become all too clear since the events of
last fall. The marketing of the United States overseas would be
an ideal mechanism to help combat misconceptions about us
around the world.
What do we recommend? TBR is discussing with the Commerce
Department the possibility of undertaking partnered research
that would examine successful international marketing efforts
by our largest foreign competitors. We hope that this study
will create a road map for the development of an economically
and politically credible international destination marketing
campaign.
We hope that you will consider the following incremental
measures as small investments that will yield multiple returns
in the coming years.
We ask that you:
Urge the President to establish an advisory council on
travel and tourism;
Create a destination marketing pilot program that would
help a select group of cities and States undertake
international marketing initiatives;
Increase funding for the Commerce Department's Market
Development Cooperator grant program to make it more accessible
to our industry or fund a similar tourism-specific program;
Enact Congressman Foley and Farr's American Travel
Promotion Act and work to pass terrorism insurance before you
adjourn;
Increase and restore the tax incentives that spur business
travel by increasing the business meals and entertainment tax
deduction and restoring the spousal travel deduction;
Continue funding for the Commerce Department's Travel and
Tourism Satellite Accounts;
Ensure that the industry has a consultative role in the
creation of the new Department of Homeland Security;
Work with mayors and Governors around this country to
develop achievable travel and tourism strategies.
My final request requires no congressional action but would
make all the difference to our industry. Above all things, I
urge you and your colleagues to help end the indifference that
Washington has long held toward us. The 1950's industrial
economy has given way to the 21st century service economy.
Travel and tourism now defines that service economy around the
world. We create jobs. We create careers. We fulfill important
social policy goals, and we contribute more than $99 billion in
tax revenues and create an enormous travel trade surplus. We
are in all 50 States. We are in all 435 congressional
districts. In short, we are your core constituencies. Please
respect our contribution by nurturing our business and
employees with policies that will enable us to accomplish even
more.
Again, I thank you for inviting TBR to testify. We look
forward to continuing our work with you as we enact realistic
policy solutions to spur increased travel to and within the
United States. I am happy to answer any questions that you may
have. Thank you.
[The prepared statement of Mr. Tisch follows:]
Prepared Statement of Jonathan Tisch, Chairman, Travel Business
Roundtable
Introduction
I am Jonathan Tisch, Chairman of the Travel Business Roundtable
(TBR) and Chairman and Chief Executive Officer of Loews Hotels. TBR is
a CEO-based organization that represents the broad diversity of the
U.S. travel and tourism industry, with more than 70 member
corporations, associations and labor groups. Loews Hotels,
headquartered in New York City, operates 18 distinctive properties in
the U.S. and Canada, including the Regency Hotel in New York and the
Loews L'Enfant Plaza and Jefferson hotels here in Washington. The
company employs more than 8,000 people across the United States. I am
testifying today on behalf of both organizations about the state of the
U.S. travel and tourism industry in the post-September 11 climate.
Before I begin, I would like to thank Chairman Dorgan and Ranking
Member Fitzgerald for holding this important hearing and inviting TBR
to testify. Senator Dorgan, our industry is particularly appreciative
of your many years of leadership on issues that affect the travel and
tourism industry and the traveling public, as well as your keen
understanding of the importance of our industry to the vitality of the
U.S. economy.
Current State of the Industry
Over the past year, the travel and tourism industry has faced
significant challenges on several fronts. It became apparent very
quickly during the days and weeks following September 11 that the
problems facing our industry were not simply airline-related. When
people stopped flying--or in many cases traveling by any mode of
transportation--they also stopped staying in hotels, eating in
restaurants, visiting museums or theme parks, renting cars or shopping.
As a result, hundreds of thousands of travel and tourism industry
workers were laid off or had their hours reduced, travel and tourism
companies faced steep revenue shortfalls and state and local
governments saw a rapid decline in tax revenue upon which they were
particularly reliant in the recessionary economy.
Though lower prices and increased security measures have helped get
Americans traveling again, the ongoing economic uncertainty in the U.S.
and the perceived ``hassle factor'' associated with flying remain
barriers to the industry's recovery, and the slight recovery we are
seeing in some industry sectors and areas of the country is uneven. As
a result, individuals and businesses continue to cut back on
discretionary spending, including travel. Vacations are being shortened
or canceled altogether, and businesses continue to reduce non-essential
travel. In addition, international arrivals continue to lag behind pre-
September 11 levels.
The numbers speak for themselves:
TBR recently conducted a poll on travel patterns one year
after September 11 (summary attached). While 89 percent of all
travelers think airport security is better now than it was
before last fall, three in 10 (30 percent) believe that the
current level of security measures imposed so far are
``insufficient'' and more can be done--an increase of five
percentage points from last October. In addition, more than one
in 10 travelers (11 percent) have canceled their flights or fly
less frequently because of the hassles of airport security.
While commercial airline travel is perceived to be very safe,
the ``hassle factor'' associated with heightened airport
security, a lack of confidence in the sufficiency of the
airport security measures and inconsistencies in the screening
process from one airport to another confirm a recent trend by
travelers to make trips by car instead of airplane. For
example, 44 percent of business travelers said they now travel
by car more frequently for out-out-town trips.
The September 11, 2002 edition of the Federal Reserve's
Beige Book showed that while leisure travel is up in six of the
12 districts, business travel is off across the country. Even
in districts that were seeing increased visitor traffic, room
rates are down and travelers are spending less on food and
entertainment.
The Business Travel Coalition's 2001 Business Travel Survey
reported that businesses cut their travel by 28 percent after
September 11. In August, the BTC stated that business travel
will continue to be cut an additional 11 percent this year.
The U.S. Department of Commerce's Office of Tourism
Industries reported in August that international arrivals to
the U.S. were down by 12 percent in the first quarter of 2002.
According to the Hotel Employees and Restaurant Employees
International Union, in the days and weeks following the
terrorist attacks, 30 percent of HEREIU workers lost their jobs
due to the decline in tourism. One year later, 15 percent of
the Union's members are still out of work, and many of those
who are employed are working reduced hours.
The National Restaurant Association reports that while sales
at restaurants and bars have been strong in 2002, employment in
these establishments remains down by 180,000 jobs since the
recent peak in July 2001. Moreover, job growth at restaurants
and bars fell well below the overall economy in recent months.
In the 12 months ending August 2002, restaurant and bar
employment declined at a 1.8 percent rate, or double the 0.9
percent decline in the country's total non-farm employment
rate.
New York City's convention and visitors bureau, NYC &
Company, of which I am Chairman, reports that while the City
has seen an upswing in domestic leisure visitors in the past
year, its recovery is partial, as business travel, visitor
spending and lengths of stay are down. Preliminary numbers
indicate that international visitorship is down as well.
According to the Convention Industry Council, more than 100
exhibitions were canceled last year, and trade show attendance
dropped more than 20 percent in the fourth quarter of 2001.
Attendance at tradeshows this year is down 8 to 10 percent, and
the renewal rate on most exhibitions is off by 50 percent or
more. Moreover, international attendance at tradeshows has
fallen by 50 percent since last September.
Economists and travel planners have said that they do not
expect the hotel industry to return to the profit levels
experienced in 1999 and 2000 until mid-2004 at the earliest.
It is extremely important to note that this unevenness in recovery
is not just affecting the employees and owners of travel and tourism
businesses. Cities, counties and states that were already beginning to
see budget shortfalls due to last year's economic downturn have also
been deeply affected by the decline in the tourism and sales tax
revenues that visitors bring to their jurisdictions. Forty-one states
are currently experiencing major budget shortfalls, and Governors often
cite a dramatic decline in travel and tourism tax receipts as a major
cause. As a result of these revenue declines, states and local
governments have been forced to reduce services at exactly the same
time their citizens--who are also feeling the effects of the economic
slump--require more assistance.
Where Do We Go From Here?
The travel and tourism industry, as well as many states and cities,
have undertaken a number of efforts in the past year to encourage
people to start traveling again. TBR took the lead last fall to work
with Senators and Members of Congress to craft viable proposals to
stimulate travel that could be included in an economic stimulus
package. We also commissioned two major surveys--conducted at the
beginning and end of October 2001 by Penn, Schoen, Berland and
Associates and Burson-Marsteller--which we shared with the industry and
the Federal Government, that helped us gain a better perspective of
traveler confidence. On the marketing side, the Travel Industry
Association launched a Travel Industry Recovery Campaign, funded by all
sectors of the U.S. travel and tourism industry, which included a plea
from President Bush for people to start traveling again. On the local
level, states such as Florida and California, and cities such as New
York and Washington, undertook successful public-private advertising
campaigns to attract travelers in the region and within their own
jurisdictions. We can all be proud of how our industry and state and
local governments came together to work toward recovery. And, while we
are seeing promising signs that reaffirm the progress being made, we
clearly have more work to do as we look to work collaboratively with
our elected officials to find solutions that will get more Americans
traveling, and spur more international travelers to visit the U.S.
The collaborative nature of this effort is key. Included in my
testimony are a number of recommendations about how the industry,
states and local governments and the Federal Government can work
together to achieve a true recovery for travel and tourism in the U.S.
However, the most fundamental thing that you, as Senators, can do right
now is listen to us and believe us when we say that the United States
and all of the destinations within it represent a unique product that
we can and must market to the world with as much effort as we market
any other American export product.
Just as we worry about losing market share to our foreign
competitors for products such as automobiles and computers, Americans
need to understand and respond to the fact that we have been losing out
to our foreign competitors in the area of travel and tourism for
several years now. The events of September 11 only served to exacerbate
that decline. The numbers paint a very clear picture. Though travel and
tourism generated a balance of trade surplus of nearly $26 billion for
the United States in 1996, by 2001, that surplus had plummeted to $7.7
billion. Moreover, for several years now, the U.S. has been ranked as
the third most sought-after travel destination behind Spain and France.
What do these countries have that we don't? For one thing, they
spend tens of millions of dollars to promote themselves to foreign
visitors. In 1997--the most recent year for which such figures are
available--the government of Spain spent $71.6 million to promote the
country as a desirable tourist destination. France spent $57.4 million.
Meanwhile, the United States spent nothing.
In 2000, international visitors spent an estimated $106.5 billion
in the U.S. It is well known that international visitors spend more
than domestic travelers when they travel. For example, New York City is
the nation's number-one international visitor destination, and though
international travelers comprise only a small portion of the City's
visitors, they are responsible for a disproportionately high level of
spending. In 2000, though foreign visitors made up only 18 percent of
New York's total visitors, they were responsible for 42 percent of all
visitor spending. It seems like good business sense--and good policy--
to spend some money on promoting what the U.S. can offer to these
visitors in an effort to retain and grow this powerful market share.
Beyond the financial benefits, travel and tourism increases
awareness and understanding among diverse cultures and can help
eradicate prejudices based on ignorance. The need to better define
America abroad has become all too clear since the events of last fall.
The marketing of the United States overseas would be an ideal mechanism
to help combat misconceptions about us around the world.
Recommendations
TBR has a number of recommendations for both short- and long-term
programs and initiatives that Congress can enact to help the U.S.
regain its dominance in the international travel and tourism market, as
well as stimulate the domestic leisure and business travel sectors. We
offer these suggestions with the recognition that the Federal
Government is experiencing the same types of fiscal restraints that
state and local governments and the private sector are also facing. As
has been the case since our inception, it is TBR's goal to offer
politically and economically feasible solutions. We do not want to
overreach or ask for things that are unrealistic or unachievable.
However, we hope that you will share our belief that a small investment
now will yield multiple returns in the coming years.
For several years now, TBR has been calling for the development of
an aggressive brand marketing campaign, funded from both private and
public sources, to promote the U.S. as a desirable travel destination.
The Federal Government must play a role in this effort, as it is the
United States as a whole that will be marketed as a product. TBR has
been in discussions with the Commerce Department and is exploring the
possibility of undertaking partnered research between the Department
and the private sector, to be conducted by an academic institution,
that would examine successful international marketing efforts by our
largest foreign competitors. We hope that the information derived from
this important study will create a roadmap for the development and
funding of an economically and politically credible international
destination marketing program for the United States.
Recognizing that resources are scarce and this year's congressional
timetable is growing shorter, we would like to offer some incremental
measures to start us on the path to this longer-term goal:
Establish a Presidential Advisory Council on Travel and
Tourism: More than a year-and-a-half ago, TBR called for the
creation of this body, which is currently under consideration
within the Bush Administration. Comprised of 35 presidentially
appointed representatives of business, government and non-
profit organizations with expertise in policy matters impacting
tourism development, the Council would be the ideal body to
explore ways that the travel and tourism industry can work for
the benefit of our nation. The Council would advise the
President on national tourism policy and would help ensure that
travel and tourism receives a more sustained and vigorous
policy focus at the federal level. It would also help
coordinate the activities of the Administration and the many
departments and agencies that impact travel and tourism. While
the Council would be created by Executive Order under the
Federal Advisory Committee Act (FACA), TBR requests your
support in urging the President to create this body.
Create a Destination Marketing Pilot Program: A pilot
program should be undertaken immediately to test the efficacy
of international destination marketing initiatives. For
example, Congress could select five states and five cities
across America based upon geographic and population diversity,
and appropriate a fixed dollar pool to underwrite a specific,
new international marketing initiative. The participants would
select their own international targets and could employ
whatever marketing strategies deemed appropriate. Within three
months of the conclusion of the outreach, a written report
would be due to Congress that defined in measurable terms the
tangible success of the program's ability to increase the
targeted international arrival pool.
Increase Funding for the Market Development Cooperator
Program or Fund a Similar Tourism-Specific Program: We
understand that Congress appropriates $2 million annually to
the Department of Commerce to run this matching grant program
to help state offices, trade associations, chambers of commerce
and other non-profit organizations market their non-
agricultural products and services overseas. While this could
be an ideal tool for state tourism offices and convention and
visitors bureaus to leverage to promote their destinations
overseas, a Commerce official has informed us that the fund has
not been tapped for tourism-related purposes--most likely
because no one in the industry has heard about it. Increased
funding for this program, or the establishment of a similar
program that is specifically aimed at travel and tourism
ventures, would help encourage eligible travel and tourism
entities to take advantage of this program. TBR pledges its
assistance in getting the word out to ensure that eligible
travel and tourism entities apply for such funds.
Enact the American Travel Promotion Act (H.R. 3321): Last
November, Congressmen Foley and Farr, the Co-chairs of the
Congressional Travel and Tourism Caucus, introduced this
legislation in an effort to encourage states to boost their
travel promotion efforts. We urge Congress to pass H.R. 3321,
because we believe the $100 million in matching grants to
states that this legislation would provide is a much-needed
stimulus to states, local governments and the U.S. travel and
tourism industry as a whole.
Remove Structural Impediments to Expanded International
Arrivals: Agencies of the Federal Government such as the U.S.
Commercial Service at the Commerce Department, which staffs
commercial officers throughout the world, should be better
educated to become tourism promotion savvy. Congress should
direct federal officials to aggressively look for ways to
promote travel to the U.S.
Increase and Restore the Tax Incentives that Spur Business
Travel: The reduction of the business meal and entertainment
tax deduction from 100 percent to 50 percent and the
elimination of the spousal travel tax deduction negatively
affected the restaurant and entertainment industries and the
business customers they serve even before September 11,
particularly harming small businesses. As I noted earlier, even
the Federal Reserve Board has recognized the affects of the
drop in business travel across the country. TBR encourages
Congress to upwardly revise the business meal and entertainment
tax deduction and restore the spousal travel tax deduction.
Doing so would provide an immediate incentive for small
businesses and corporations alike to authorize their personnel
to start traveling again.
Continue Funding for the Commerce Department's Request for
Travel and Tourism Satellite Accounts (TTSAs): TTSAs serve as a
primary source of data for tourism policymaking by establishing
a consistent, measurable framework for analyzing tourism
expenditures and employment in a systematic manner. The sectors
measured include purchases of airfares, lodging, meals and
beverages, shopping and other travel activities. This research
helps the Department and the industry gain a better
understanding traveler preferences and economic trends across
the varied sectors that make up the travel and tourism
industry. TBR urges Congress to continue funding for this vital
research.
Ensure that the Industry has a Consultative Role in the
Creation of the New Department of Homeland Security: There are
a variety of ways in which the activities of the agencies that
will comprise the new Department of Homeland Security will
immediately affect the vitality of our industry. With that in
mind, TBR created a Homeland Security Task Force this summer
and sent to Congress a series of recommendations about issues
of immediate concern. The goal of creating a central point of
coordination to protect American citizens within our borders is
a worthy one, and our industry supports this important mission.
As Congress considers legislation on the new Department, we
hope you will bear our recommendations in mind, particularly
with an eye toward ensuring that there is a formal,
consultative process that helps the Department achieve its
important mission without compromising the industry's ability
to create economic growth throughout our nation.
Work with Mayors and Governors to Develop Achievable Travel
and Tourism Strategies: America's Mayors and Governors are on
the frontlines and have an intimate understanding of the power
of travel and tourism as a driver for economic development and
job creation in their cities and states. We urge you to work
closely with them to develop strategies that will spur travel
and tourism growth across the nation.
Conclusion
My final request of you requires no congressional action, but would
make all the difference in the world to the businesses and employees
that comprise the U.S. travel and tourism industry. Above all things, I
urge you and your colleagues to help end the indifference that
Washington has long held toward the travel and tourism industry. A
recent independent Gallup poll found that the restaurant industry is
the most highly regarded business sector in the country, closely
followed by the travel industry, which ranked eighth. Clearly there is
a recognition outside the Beltway of our industry's importance. The
United States, much like the rest of the world, is defined by its
service economy. The 1950s industrial economy has given way to the 21st
Century service economy. Travel and tourism defines that service
economy around the world. We create jobs and careers; we fulfill
important social policy goals, such as moving people from welfare to
work; we contribute more than $99 billion in tax revenue for federal,
state and local governments to drive our economy; and we create an
enormous travel trade surplus to offset even the worst national balance
of payments deficit. We are in 50 states and 435 congressional
districts. In short, we are your core constituency. Please respect our
contribution by nurturing our employers and employees with policies
that will enable us to accomplish even more.
Again, I thank you for inviting the Travel Business Roundtable to
present its thoughts and concerns today, and we look forward to
continuing to work with you to enact realistic policy solutions to spur
increased travel to and within the United States. I am happy to answer
any questions you may have.
______
Membership
American Airlines
American Express Company
American Hotel & Lodging Association
American Resort Development Association
American Society of Association Executives
Amtrak
Asian American Hotel Owners Association
Association of Corporate Travel Executives
Budget Group Inc.
Business Travel News
Carey International Limousine
Carlson Hospitality Worldwide
Cendant Corporation
The Coca-Cola Company
Commonwealth of Puerto Rico
Delta Air Lines, Inc.
Detroit Metro Convention and Visitors Bureau
Diners Club International
Distinguished Restaurants of North America
Fairmont Hotels & Resorts
FelCor Lodging Trust
Four Seasons Hotels & Resorts
Greater Boston Convention and Visitors Bureau
Greater Fort Lauderdale Convention & Visitors Bureau
Greater Miami Convention & Visitors Bureau
Gucci Services Ltd.
The Hertz Corporation
Hilton Hotels Corporation
Hotel Employees and Restaurant Employees International Union
HRW Holdings, LLC
Hyatt Hotels Corporation
IBM
Inc. Magazine
International Association of Convention and Visitors Bureaus
International Council of Shopping Centers
Interval International
JetBlue Airways Corporation
Las Vegas Convention and Visitors Bureau
Loews Hotels
Los Angeles Convention and Visitors Bureau
Lufthansa Systems North America
Mandalay Resort Group
Manhattan East Suites Hotels
Marriott International Inc.
MeriStar Hotels and Resorts Inc.
The Mills Corporation
National Basketball Association Entertainment
National Football League
National Hockey League
National Restaurant Association
New York University
Newport County Convention and Visitors Bureau
Northstar Travel Media, LLC
NYC & Company
Omega World Travel
Pegasus Solutions, Inc.
PricewaterhouseCoopers, LLP
The Rappaport Companies
Seattle's Convention and Visitors Bureau
Six Continents Hotels Inc.
Smith Travel Research
Starwood Hotels & Resorts
Strategic Hotel Capital Incorporated
Taubman Centers, Inc.
Tishman Construction Company
United Airlines
Universal Studios
United States Conference of Mayors
USA Today
Vail Resorts, Inc.
Walt Disney Parks and Resorts
Washington DC Convention and Tourism Corporation
Waterford Group, LLC
WH Smith USA Travel Research
World Travel and Tourism Council
Zagat Survey
______
Travel Business Roundtable, August 22, 2002
Survey Shows Traveler Confidence Returning; Concerns Over the
Economy's Health is Primary Reason Consumers are Avoiding Travel
Business travel recovering more slowly than leisure, with
nearly one in five frequent business travelers making fewer
trips
Overwhelming majority of travelers think airport security is
better now than before September 11, but acknowledge a hassle-
factor and room for improvements
Washington, D.C.--Nearly one year after the September 11 terrorist
attacks, price-cutting by the travel industry and enhanced security
measures at airports have stimulated demand and largely restored the
confidence of U.S. travelers. But an industry rebound remains
uncertain, with leisure and business travelers both citing the economy
as the prime reason they are traveling less, according to a new
nationwide survey released today that was commissioned by travel
website Orbitz for the Travel Business Roundtable (TBR) in conjunction
with NYC & Company and the Washington Convention and Tourism
Corporation (WCTC).
The August 14-15 survey results of interviews with 700 respondents
follow two surveys administered by TBR in October 2001 that touched on
many of the same issues. The opinion research was done with a random
sample of Americans identified as travelers who had taken at least one
airline trip or spent one night in a hotel during the previous six
months.
The new data shows that while nearly 90 percent of Americans are
now traveling more or at about the same level as before September 11,
frequent business travelers, who make up the majority of the industry's
revenue because of their tendency to purchase higher-priced airfares or
rooms, continue to make fewer trips.
``Though lower prices and increased security measures have helped
get Americans traveling again, the ongoing economic uncertainty in the
U.S. is a barrier to the industry's recovery,'' said Jonathan Tisch,
chairman of TBR and chairman and CEO of Loews Hotels. ``With consumers
seeing their savings significantly decreased or wiped out by the recent
performance of the stock market or their 401k retirement plans, they
are cutting back on discretionary spending, including travel. Vacations
are being shortened or canceled altogether. Likewise, businesses
continue to cut back on non-essential travel, keeping their travel
costs down as well.''
Nearly one-half of all travelers surveyed cited economic factors as
the reason they would avoid taking a trip. Thirty-two percent of all
travelers surveyed said budget considerations would be the prime reason
keeping them from traveling more than 100 miles from home or that
traveling had become too expensive, and 12 percent said that they are
not traveling due to economic uncertainty.
Not coincidentally, the reluctance of Americans to travel could
hinder the speed of an economic recovery in the U.S. As the nation's
second largest employer, employing more than 18 million people, and the
third largest retail industry, travel and tourism was a $582 billion
industry in 2000, generating nearly $100 billion in federal, state and
local tax revenues.
Forty-six percent of business travelers were either much more or
somewhat more reluctant to travel in the month following the events of
September 11, and today 39 percent of business travelers remain much
more or somewhat more reluctant to travel--an improvement of only seven
percentage points. On the other hand, 27 percent of leisure travelers
today are much more or somewhat more reluctant to travel--an
improvement of 18 percentage points from last October.
According to Jeff Katz, Orbitz president and CEO, luring the
frequent business traveler back to the air and the road is also
critical to the travel and tourism industry's recovery.
``There are very promising signs that indicate Americans are nearly
back to their normal levels of travel,'' said Katz. ``The resiliency
that is being demonstrated by leisure travelers since September 11 is
especially encouraging. Discounts and great travel deals are still
available, and continue to help drive the recovery of the leisure
travel market.''
Katz continued, ``However, there is a clear lag in the resumption
of business travel patterns. Among frequent business travelers, 17
percent say that they are traveling less now--five percent more than
the population at large. Though a small percentage of the traveling
population, these frequent business travelers contribute to nearly half
of the industry's overall revenue.''
The Orbitz-sponsored survey for the TBR also found:
While 89 percent of all travelers think airport security is
better now than it was before September 11, 2001, three in ten
(30 percent) believe that the current level of security
measures imposed so far are ``insufficient'' and more can be
done--an increase of five percentage points from last October.
Business travelers' and leisure travelers' opinions differ
on the new security measures. Among frequent business
travelers, only 60 percent think that the new measures are
sufficient, versus 74 percent of frequent leisure travelers.
Nearly four out of every five (79 percent) frequent business
travelers have received heightened security screening (i.e. a
``pat down'' or removal of shoes).
Just over one in five (21 percent) frequent business
travelers find security screening procedures very consistent
from airport to airport.
More than one in ten travelers (11 percent) have canceled
their flights or fly less frequently because of the hassles of
airport security.
Thirty-one percent of female business travelers who have
reduced their level of flying because of the hassles of
security have done so because of the personal ``intrusion from
security,'' compared to 12 percent overall. By contrast, of
male business travelers who have reduced their level of travel,
only 4 percent cited the intrusion of security as the reason.
According to Tisch, while commercial airline travel is perceived to
be very safe, the ``hassle-factor'' associated with heightened airport
security, a lack of confidence in the sufficiency of the airport
security measures and inconsistencies in the screening process from one
airport to another confirm a recent trend by travelers to make trips by
car instead of airplane. The percentage of those who view automobiles
as the safest place to be has risen from 69 percent last October to 76
percent.
Among the survey's other results:
Of those who say they are traveling more now than a year
ago, 45 percent say they are more inclined to book their travel
online, either through the airline directly or via an
independent travel site such as Orbitz (versus 20 percent who
say they are less inclined).
Of those who purchase travel online, 21 percent use an
independent website versus 17 percent who book directly via the
airline website.
Twenty-nine percent of travelers are less inclined to take
an international trip since the events of September 11. Almost
one in ten (nine percent) have delayed, postponed or canceled
an international trip. The number is even higher among male
business travelers, of whom 16 percent have canceled an
international trip.
Nearly one in four (23 percent) travelers who are less
inclined to take an international trip say they would rather
travel in the U.S. and support the domestic economy.
Travelers are more inclined to visit Washington, DC or New
York City now than they were a year ago. Seventy-six percent of
travelers surveyed said they would not avoid a trip to
Washington, DC and 75 percent said they would not avoid a trip
to New York City, an improvement over last year of seven
percentage points and four percentage points respectively.
Fifty-eight percent of travelers are closely watching the
debate over the future World Trade Center Memorial and 75
percent plan to visit it.
A majority (68 percent) of frequent business travelers say
the travel industry response to the events of September 11 was
``better than expected,'' while nearly one in four say the
industry response was ``worse than expected.'' Comparatively,
74 percent of all travelers said the industry responded
``better than expected.''
``One year later, the tragic events of September 11 continue to
impact the travel and tourism industry,'' said Tisch. ``The industry
has responded, and we are seeing promising signs that reaffirm the
progress being made. Clearly, more needs to be done, and the industry
and government should continue to work collaboratively to find
solutions that will get more Americans traveling, and spur more
international travelers to visit the U.S.''
The survey was commissioned by Orbitz and conducted on behalf of
the Travel Business Roundtable in conjunction with NYC & Company and
the Washington Convention and Tourism Corporation by Penn, Schoen,
Berland and Associates on August 14 and 15. The survey had a sample
size of 700 respondents (margin of error +/- 3.8 percent). The sample
was broken in equivalent groups of business and leisure travelers. This
is the third wave of the survey that seeks to track changing traveler
attitudes in the aftermath of the September 11 terrorist attacks. The
first and second waves were conducted in October 2001.
About TBR:
The Travel Business Roundtable is a CEO-based organization
representing all sectors of the travel and tourism industry, including
major airlines, hotels and lodging, restaurants, retail outlets, travel
management companies, car rental companies, financial services
institutions and others. The roster of members reflects the
interdependence of all sectors of the travel and tourism industry and
demonstrates the need to work collaboratively, especially during these
challenging times.
About Orbitz:
Orbitz is a leading online travel company offering consumers the
largest selection of low airfares, as well as deals on lodging, car
rentals, cruises, vacation packages and other travel. Orbitz' state-of
the-art flight search engine searches more than 455 airlines--up to 2
billion flight and fare options--offering an unbiased and comprehensive
list of airfares and schedules. Founded by the world's leading
airlines--American (AMR), Continental (CAL), Delta (DAL), Northwest
(NWAC) and United (UAL) airlines--Orbitz also offers consumers a large
collection of discounted web-only air fares. For more information,
visit www.orbitz.com.
About WCTC:
The Washington, DC Convention and Tourism Corporation serves as the
lead organization to successfully manage and market Washington, DC as a
premier global convention, tourism and special events destination.
Through successful development and execution of centralized and
cohesive sales and marketing strategies, the WCTC generates economic
benefits to the citizens of the District of Columbia, the convention
and tourism industry, stakeholders and the Washington Convention Center
Authority, with a special emphasis on the arts, cultural and historical
communities.
The private, non-profit corporation has a membership of nearly
1,000 businesses and organizations that support the travel and tourism
industry in our nation's capital. The city's tourism industry generates
more than $10 billion in direct spending each year and sustains 260,000
jobs.
The Washington, DC Convention and Tourism Corporation was
established by business and community leaders in April 2001 by merging
the Washington, DC Convention and Visitors Association and the DC
Committee to Promote Washington.
About NYC & Company:
NYC & Company, the city's official tourism marketing agency, is a
private, non-profit membership organization dedicated to building New
York City's economy and positive image through tourism and convention
development, major events and the marketing of the city on a worldwide
basis.
Check out NYC & Company's new web site at www.nycvisit.com.
Senator Dorgan. Mr. Tisch, thank you very much.
Next we will hear from Mr. Fred Lounsberry, National Chair
of the Travel Industry Association of America. Mr. Lounsberry,
why don't you proceed.
STATEMENT OF FRED LOUNSBERRY, NATIONAL CHAIR, TRAVEL INDUSTRY
ASSOCIATION OF AMERICA
Mr. Lounsberry. Thank you. Mr. Chairman and Members of the
Subcommittee, on behalf of the 2000-plus member organizations
of the Travel Industry of America, I want to thank you for the
opportunity to update this Subcommittee on the state of the
travel and tourism industry.
Last October, our industry shared with you the devastating
impact on our employees of the terrorist attacks of September
11th, 2001. The sudden and dramatic decline in air travel
rippled out to hurt all segments of the industry, including
hotels, restaurants, rental car companies, and my business,
theme parks and resorts.
We are grateful that so many of you cosponsored legislation
embodying our proposed industry relief plan. Unfortunately, for
reasons beyond our collective control, that legislation did not
become law, and many of our former employees are still without
jobs or are working significantly fewer hours.
Today I want to describe the current state of our industry
one year later and suggest how you might help our industry
share American values abroad, generate jobs, increase tax
receipts, and help our Nation compete for international
visitors in the future. We hope you will step forward, as you
did last year, to help us.
One year later, our industry's situation has improved but
recovery is neither full nor complete. Auto travel and travel
by recreational vehicles have been leading positive indicators
as Americans have expressed more interest in family travel and
staying closer to home.
Domestic air travel recovery, however, has stalled. In the
first half of 2002, enplanements were down 10 percent over the
previous year. Business and convention travel was down nearly 9
percent in the first 6 months of 2002.
But the most affected segment by far has been international
travel. In 2001, overseas travel to the U.S. declined 15
percent overall.
Travel industry employment has been affected dramatically.
From September to December of 2001, TIA estimates that more
than 270,000 travel industry employees lost their jobs. From
December 2001 to July 2002, an additional 47,000 jobs were lost
in our industry.
The single biggest obstacle to a full and complete recovery
of our industry is the loss of international travelers to the
United States. In 2001, international travelers spent $72.3
billion here and an additional $17.7 billion on transactions
with U.S. air carriers. These expenditures directly generated 1
million jobs and more than $12 billion in tax revenue for
Federal, State, and local governments, including the income tax
of industry workers who are employed because of international
visitors.
These economic benefits are not limited to any specific
region of the country. In fact, one-third of international
visitors visit two or more States, 28 percent visit small
towns, and 21 percent tour the countryside. One-fifth of all
international visitors spend time at national or State parks.
Bringing international travel levels back to the record-
setting levels of the year 2000 will help replace the 320,000
jobs that have been lost since September 2001 and generate tax
revenue for governments that are struggling with deficit
budgets.
Yet, we should not be satisfied with the return to 2000
levels of inbound international travel. Our country's market
share of world arrivals has decreased 28 percent in the last 10
years. The United States is no longer the world's premier
destination. We are third behind France and Spain. We continue
to lose share in five of the six world's largest tourist
markets and continue to miss opportunities to share American
values abroad.
The United States is the only western industrialized nation
without a unified national tourism campaign that reaches out to
global visitors and encourages them to see America. Our travel
and tourism industry is asking Congress to join with us in
exploring ways to brand, position, and promote the United
States as the premier travel destination in the world. We are
prepared to match Federal dollars on a one-for-one basis.
This idea has been unanimously endorsed by TIA's board of
directors, the National Council of State Tourism Directors, and
the National Council of Destination Organizations.
Additionally, this year the Southern and Western Governors
Associations have called on the Federal Government to fund a
sustained international advertising and marketing program that
encourages travel to the United States.
We encourage the Members of this Subcommittee to support
exploration of a public-private partnership to promote travel
to the United States. Our industry needs to regain the
international visitors that have been lost in the past decade
and reverse the decline of visitors since September 11th, 2001.
Our Nation needs to replace the jobs and tax revenue that have
been lost. Our industry looks forward to working with you on
legislation to achieve this goal.
This concludes my testimony, Mr. Chairman, and I look
forward to answering any questions you may have.
[The prepared statement of Mr. Lounsberry follows:]
Prepared Statement of Fred Lounsberry, National Chair, Travel Industry
Association of America
Mr. Chairman and Members of the Subcommittee:
On behalf of the 2,100 member organizations of the Travel Industry
Association of America, or TIA, I want to thank you for providing me
with this opportunity to update this Subcommittee on the state of the
travel and tourism industry. I am TIA's National Chair as well as
Senior Vice President, Sales, for Universal Parks and Resorts.
Last October, TIA was privileged to present a witness to share with
you our concerns about the devastating impact on our industry and on
our employees of the terrorist attacks of September 11, 2001. As you
will recall, our industry was struggling badly. Business had dropped
off 35 percent in the month following the terrorist attacks, with the
sudden and dramatic decline in air travel rippling out to hurt all
segments of the industry, including hotels, restaurants, rental car
companies and--my business--attractions and amusement parks.
At your last hearing, our industry asked for help. We were grateful
that so many of you cosponsored legislation embodying our proposed
industry relief plan and other measures aimed at helping keep our
employees on the job. For reasons beyond our collective control,
however, the legislation did not become law, and the economy has not
fully recovered. As a result, many of our former employees are still
without jobs or are working significantly fewer hours.
Today, I want to describe the current state of our industry and to
suggest how you might help our industry share American values abroad,
generate jobs, increase tax receipts, and help our nation compete for
international visitors in the future. In short, our industry has
coalesced around the notion of a public-private partnership that would
promote travel to and within the United States for the benefit of every
state in the union. We need your support, and hope you will step
forward as you did last year to help us. Working together, we can
persuade more visitors to visit the United States for the benefit of
the country as a whole.
One Year Later
One year later, our industry's situation has improved, but recovery
is neither full nor complete. Most of our progress has been made in
domestic leisure travel. Auto travel and travel by recreation vehicles
have been leading positive indicators, as Americans have expressed more
interest in family travel and staying closer to home. Lower gas prices
and a shift away from air travel have reinforced these trends.
Domestic air travel recovery, however, has stalled. In the first
half of 2002, enplanements were down 10 percent over the previous
year's numbers, according to the Air Transport Association. Airlines
continue to struggle financially, grappling with enticing customers
back to the skies while managing to reverse the trend of red ink.
Business and convention travel, which was down 3 percent in 2001,
was down nearly 9 percent in the first six months of 2002. Corporations
continue to trim expenses in order to stay profitable in these
precarious economic times, and travel continues to bear the burden of
this trend. Hotel occupancy is improving slightly each month, but
occupancy rates in the first two quarters of 2002 have still been lower
than they were one year ago.
But the most affected segment by far has been international travel.
In 2001, overseas travel to the U.S. declined 15 percent overall,
according to the U.S. Department of Commerce. The United States saw
even more dramatic drops in visitors from key markets such as Japan,
where travel slipped 18.5 percent; Brazil, where inbound U.S. travel
declined 22.7 percent; and Germany, which posted a 24.6 percent drop.
Industry analysts do not predict that international travel to the U.S.
will catch up to 2000 levels until 2004.
This disturbing trend, combined with the struggling domestic air
market and the decline in business travel, has affected travel industry
employment dramatically. From September to December of 2001, travel
employment declined significantly. Based on data from the Bureau of
Labor Statistics, TIA estimates that more than 273,000 employees
working directly for the travel industry lost their jobs during this
time.
Unfortunately, 2002 is shaping up to be even worse overall than
2001. The first eight months of 2001 showed positive job growth, so the
overall trend for the year was flat. However, from December 2001 to
July 2002, an additional 47,000 jobs were lost in our industry. While
travel industry employment levels have stabilized in the past six
months, they are still almost four percent lower than the same months
of the previous year. With no positive growth yet this year and none
indicated for the coming months, 2002 is likely to show a significant
decline.
Reversing These Trends
The single biggest obstacle to a full and complete recovery of our
industry is the loss of international travelers to the United States.
You may wonder why this segment is so important. The numbers speak for
themselves.
The average international traveler spends an average of 15.6 nights
and more than $1,600 in our country. In 2001, international visitors
spent $72.3 billion here and an additional $17.7 billion on
transactions with U.S. air carriers. These expenditures directly
generated 1 million jobs. One out of every eight travel industry
employees is working because of international visitors.
International travel to the United States does more than generate
jobs; it is a revenue source for federal, state and local governments.
According to TIA, international travelers directly generated more than
$12 billion in tax revenue in 2001, including income tax of those
industry workers who are employed because of international visitors.
These economic benefits are not limited to any specific region of
the country. International visitors see all parts of our nation. One-
third of international travelers visit two or more states. Thirty-one
percent visit historical places. Twenty-eight percent visit small
towns, and 21 percent tour the countryside. One-fifth of all
international visitors spend time at national or state parks. The
impact of international travel is felt through the United States.
Bringing international travel levels back to the record-setting
levels of the year 2000 will help replace the 320,000 jobs that have
been lost since September 2001 and generate tax revenue for governments
that are struggling with deficit budgets during these difficult
economic times.
Going Even Further
Yet, we should not be satisfied with a return to 2000 levels of
inbound international travel. In the past decade, our country has been
losing market share of world travelers. While total outbound travel
worldwide has increased 49 percent since 1991, arrivals to the U.S.
have increased by only 7 percent. Our country's market share of world
arrivals has decreased 28 percent in the past ten years.
The United States is no longer the world's premier destination; we
are third, behind France and Spain. We continue to lose share in five
of the world's six largest tourist markets. We are being outpaced by
other countries who are promoting themselves aggressively to the
growing world tourism market.
Increasing our share of international visitors would have tangible
economic benefits. Adding just one percentage point to the 2001 U.S.
market share of world arrivals would result in an additional 7 million
international visitors, an additional $11 billion in expenditures in
our country and the creation of 151,000 more travel industry jobs.
Such growth would benefit U.S. governments as well. Adding one
percentage point to the 2001 U.S. market share of world arrivals would
generate an additional $1.9 billion in tax revenue for federal, state
and local governments, including income tax. It's easy to see why our
industry is so focused on the international market.
Growing Travel to the U.S.
As travel continues to grow worldwide, other countries continue to
increase their market share of worldwide travel. While some of this
shifting is inevitable as former communist bloc countries enter the
travel and tourism business, much of it is attributable to the success
of sophisticated, aggressive marketing campaigns undertaken by
governments that understand the economic value of promoting in-bound
travel.
The United States is the only western, industrialized nation
without a unified national tourism campaign that reaches out to global
visitors and encourages them to see America. The most recent report of
the World Tourism Organization provides information about national
tourism offices worldwide. Here are a few snapshots of the 1997 budgets
of our competitors:
Australia--$87.5 million
France--$58.2 million
New Zealand--$32.8 million
Brazil--$92.3 million
Germany--$26.6 million
Mexico--$103.2 million
Spain--$147.0 million
As you can see, we face stiff competition in the global
marketplace. Other countries have recognized the value of international
travelers, and they are growing their market shares while our share is
declining. In order to increase our share of worldwide travelers, the
United States needs to engage in a tourism promotional campaign.
Successful Models
Our travel and tourism industry is asking the Federal Government to
help our industry market the U.S. internationally. As an industry, we
have long recognized the benefits of leveraging marketing dollars, and
there are several successful models in our own country that could serve
as examples of how to structure a national tourism marketing campaign.
The State of Florida created VISIT FLORIDA, a public-private
promotional effort designed to create a unified brand for the state. I
am the immediate past chair of VISIT FLORIDA's private sector board of
directors, which oversees the work of this non-profit organization. The
state of Florida contributes dollars for marketing initiatives, and
those dollars are matched one-for-one by the private sector. In this
way, the state is able to generate more in advertising value from its
investment of public funds. The state of California has a similar
marketing effort. Indeed, combining public and private sector dollars
for tourism marketing purposes is common throughout the world.
Our industry has already implemented a demonstration campaign,
which was developed and administered by TIA. SeeAmerica is our
industry's brand, and SeeAmerica.org is the website that consumers can
use to make travel plans. The SeeAmerica name and logo are used at all
major international tourism trade shows, such as ITB in Berlin and JATA
in Japan. Travel guide inserts in major UK Sunday newspapers utilized
the SeeAmerica name, as did a subway advertising train campaign in
Japan.
These and other projects and programs have been paid for by 225
separate industry sources, including state and local tourism
organizations and private-sector companies, and they show the
willingness of our industry to put up matching dollars for a broader
federal campaign. They also demonstrate the success of the SeeAmerica
brand, which has been used by individual travel and tourism companies
in their own advertising efforts.
What our Industry is Asking
As we seek to rebuild our industry and to create jobs, our industry
now asks that Congress will help us build on the success of these
programs by joining us in exploring ways to brand, position and promote
the United States as the premier travel destination in the world. Our
industry encourages that, like the Florida model, any organization be
managed by the private sector.
This idea has been unanimously endorsed by TIA's Board of
Directors, which represents all segments of the industry from all
regions of the country. The National Council of State Tourism Directors
and the National Council of Destination Organizations have passed
resolutions supporting this proposal. Additionally, this year, the
Southern and Western Governors Associations have called on the Federal
Government to provide a sustained, federally funded international
advertising and marketing program that encourages travel and tourism to
the United States.
We encourage the Members of this Subcommittee to support
exploration of a public-private partnership for promoting travel to the
United States. This is our industry's best hope of regaining the
international visitors that have been lost in the past decades and
reversing the decline of visitors since September 11, 2001. This is our
nation's best hope for replacing the jobs and tax revenue that have
been lost. And it offers a way for our nation to share our values with
individuals throughout the world. Our industry looks forward to working
with you on legislation to achieve this goal.
Mr. Chairman, I appreciate the opportunity to testify today, and I
look forward to answering any questions you may have.
Thank you.
Senator Dorgan. Mr. Lounsberry, thank you very much.
Finally, we will hear from Ms. Noel Hentschel, the
Chairwoman and CEO of AmericanTours International. Why don't
you proceed.
STATEMENT OF NOEL IRWIN HENTSCHEL, CHAIRMAN AND CEO OF
AmericanTours INTERNATIONAL
Ms. Hentschel. Thank you, Mr. Chairman and Ranking Member
Fitzgerald and Members of the Subcommittee. Thank you for the
opportunity to testify.
And I concur with Senator Fitzgerald that we need to be
more aggressive.
I am Noel Irwin Hentschel, Chairman and CEO of
AmericanTours International, ATI, which I co-founded 25 years
ago with the specific mission of promoting tourism to and
within the United States of America. As the Nation's largest
Visit USA tour operator, bringing more than 500,000 visitors
each year from 70 countries to the United States, ATI is the
only major Visit USA tour operator which is till American
owned. We also promote all 50 States of America as a preferred
partner of the American Automobile Association, AAA, by
providing on-line travel services for their 46 million members
domestically.
The events of September 11th had a profound impact on the
U.S. travel industry, with international tourism and overseas
arrivals down 15 percent in 2001 over 2000. Some markets have
suffered more drastic drops in passenger arrivals than others,
with the United Kingdom down 11 percent, France down 14
percent, Japan down 19 percent, Italy down 21 percent, and
Germany down 25 percent to the United States. According to the
Department of Commerce, the total international receipts for
travel expenditures and passenger fares were down 12 percent,
for a loss of $11.9 billion from 2001 versus 2000, and 2002
will reflect an even greater loss.
While Americans are traveling around America, especially by
car, they are moving dollars from one State to another.
International travelers bring in new money.
The challenges for tourism go beyond the tragedy of
September 11th and it is time for America to take Visit USA
tourism seriously.
Travel and tourism generates more than $550 billion in
total expenditures and 18 million jobs nationwide, which
equates to 1 out of 7 people employed in the private sector.
Visit USA international travel and tourism alone generated $90
billion in expenditures and was responsible for 1 million jobs
nationally. As a service export, international travel and
tourism provided a positive balance of trade in 2001 of $7.7
billion.
But it seems that the Government of the United States does
not take tourism seriously. We have had a severe lapse in
policy on tourism in America, and we are paying the price. We
are paying the price economically but also politically.
America needs to market and promote the United States as a
destination. America spends zero dollars on promotion and yet
Cyprus spends $40 million and Thailand spends more than $100
million annually to promote travel to their countries.
Exactly one year ago, I met with Secretary Don Evans and
other leaders of our industry and recommended that instead of
bailouts, the United States needs to allocate $100 million
immediately to market and promote America as a destination.
This can be done in joint marketing with TIA, States that have
individual tourism budgets, and with tour operators overseas
who could provide matching funds. We need to be proactive and
to create a demand for travel to the United States. Not only
will this contribute positively to our economy and our
employment rate, but it will also have a positive impact on our
balance of trade.
We should ask the Office of Global Communication to work
with CNN, CNBC, and others to provide PSA's in cooperation with
our tourism industry to invite and encourage people to travel
to America by showcasing different attractions from Broadway to
the Grand Canyon to Branson, Missouri, to Waikiki Beach. Many
of you will remember years ago when New York had the ``I Love
New York'' campaign. We need to launch a similar ``I Love
America'' campaign worldwide, and we have the celebrity power
to deliver this message.
Since September 11th, I have traveled extensively to Europe
and to Asia, and I have met with the tour operators. While they
are cautiously optimistic of 2003, they all feel very strongly
that the United States needs to be more proactive in promotion.
They are also concerned about the U.S. dollar versus the euro
and the timing of any potential conflict with Iraq so that it
doesn't impact the main booking season.
Most countries have a ministry of tourism. We need to
create a national tourism office and provide them with a budget
for marketing and promoting America throughout the world. If
Malaysia spends $42 million and Australia spends $87 million,
how can we expect to compete and spend nothing?
Not only will increasing international tourism have a
positive economic impact, but also a positive political impact.
What better way for people from around the world to have a
constructive view of America than to visit the Grand Canyon,
Mount Rushmore, and the Grand Ole Opry? When international
visitors fall in love with the beauty of our country and the
friendliness of our people, they become our greatest
ambassadors and they take their personal stories from their
American experience. Tourism generates literally millions of
goodwill ambassadors spreading a positive image of our country
abroad.
In addition to spending money to promote tourism, we need
to protect the U.S. tourism industry. We need to level the
playing field with the foreign companies doing business in
America. Tour operators from Europe or Asia need to operate
legally, and our laws need to be enforced. American companies
that pay taxes and operate within the law should not be
penalized or driven out of business because of unfair and
illegal business practices by foreign-owned companies.
Unfortunately, we are too often viewed internationally as a
society where our laws are not enforced. The U.S. travel
industry needs enforcement to stem the tide of billions of
dollars that are flowing overseas each month. Thousands of U.S.
workers are being unemployed every day because the INS, the
Department of Labor, and the IRS are not enforcing our laws
with foreign corporations doing business in America. Often
viewed on the surface as bringing visitors into the United
States and therefore presumed to benefit the economy, some
foreign tour operators instead host an underground economy that
undermines a myriad of U.S. laws while unfairly competing with
all law-abiding companies.
We must level the playing field and protect our U.S.
companies. We need to hold foreign corporations and foreign
CEO's doing business in America to the same standards that we
hold American corporations and American CEO's. Foreign entities
should not be able to hide profits off shore through non-U.S.
subsidiaries, transfer pricing, or predatory pricing. A recent
article that I have attached from Touristic Report in Germany
exposes an example of this activity.
Second, foreign tour operators need to be forced to abide
by U.S. labor laws. Tour guides performing labor in the United
States should be required to be authorized to work in the
United States. Tour guides without authority to work in the
U.S. should be promptly deported.
Third, foreign entities should not receive windfall tax
breaks or special treatment for tax evasion because collection
efforts may be viewed as harder. Companies illegally evading
taxes or who have received substantial compromises should be
required to pay income tax on the amounts discharged.
And finally, companies who charge consumer taxes on travel
transactions, but never remit these amounts to the respective
taxing authorities, should be charged with fraud and prosecuted
to the full extent allowed by law. As an example, foreign-owned
operators in New York City have been claiming for the past 5
years that they are permanent residents of the hotels they
contract. They do this in order to evade the payment of hotel
occupancy taxes, which they fraudulently collect from the
consumer. The wrongful retention of taxes has been a multi-
million dollar windfall to these foreign operators who are
billion dollar foreign corporations. This unfair competition
has driven American law-abiding companies out of the market and
into bankruptcy.
Stem the tide of foreign tour operators illegally operating
tours in the United States and you will add billions to the
U.S. treasury and thousands of jobs. Enforcement action will
not decrease visitors but will increase revenues to both
Federal and State governments as overseas operators are forced
to legally record their transactions, and American companies
will, once again, be able to compete.
In the materials I have submitted, I have provided 10 ways
to help the industry by enforcing laws of this great land. * We
hope you will help motivate the Department of Justice, the INS,
and the State and local governments to take action now before
there are no more American owned visit USA tour operators.
---------------------------------------------------------------------------
* The information referred to has been retained in Committee files.
---------------------------------------------------------------------------
There is a significant cost to be paid if we do not protect
our U.S. tourism industry and aggressively promote the United
States of America as the greatest and most diverse travel
destination in the world. On the other hand, there is
significant political and economic benefit to be gained if we
can begin to take tourism seriously in America and provide the
funds needed to compete as an international travel destination.
Mr. Chairman, tourism is an enormous source of revenue and
an enormous opportunity of political influence. Our
Government's policies of not supporting this critical industry
will potentially cost billions of dollars and scores of
thousands of jobs. It will also deny foreigners a chance to see
the real America and to go home and confront growing anti-
Americanism. On tourism, the train is leaving the station very
quickly. I urge your Committee to act aggressively and to put
tourism on the front burner of commercial policy.
Thank you very much.
[The prepared statement of Ms. Hentschel follows:]
Prepared Statement of Noel Irwin Hentschel, Chairman and CEO,
AmericanTours International
Mr. Chairman and Members of the Subcommittee, thank you for the
opportunity to testify.
I am Noel Irwin Hentschel, Chairman and CEO of AmericanTours
International (ATI), which I co-founded 25 years ago with the specific
mission of promoting tourism to and within the United States. As the
nation's largest visit USA tour operator, bringing more than 500,000
visitors to the United States annually from 70 countries, All is the
only major Visit USA tour operator, which is still American owned. We
also promote all 50 states of America as a preferred partner of the
American Automobile Association (AAA) by providing online travel
services for their 46 million members domestically.
The events of September 11 had a profound impact on the U.S. travel
industry with international tourism and overseas arrivals down 15
percent in 2001 over 2000. Some markets have suffered more drastic
drops in passenger arrivals than others with the United Kingdom down 11
percent, France down 14 percent, Japan down 19 percent, Italy down 21
percent and Germany down 25 percent. According to the Department of
Commerce, the total international receipts for travel expenditures and
passenger fares were down 12 percent for a loss of 11.9 billion dollars
from 2001 versus 2000 and 2002 will reflect an even greater loss. But
the challenges for tourism go beyond the tragedy of September 11 and it
is time for America to take tourism seriously.
Travel and tourism generates $545 billion in total expenditures and
18 million jobs nationwide, which equates to one out of seven people
employed in the private sector. Visit USA international travel and
tourism alone generated $90 billion in expenditures and was responsible
for over one million jobs nationally. As a service export,
international travel and tourism provided a positive balance of trade
in 2001 of 7.7 billion dollars.
But it seems that the government of the United States does not take
tourism seriously. We have had a severe lapse in policy on tourism in
America and we are paying the price. We are paying the price
economically but also politically.
America needs to market and promote the United States as a
destination. America spends zero dollars on promotion and yet Cyprus
spends over $40 million and Thailand spends over $100 million annually
to promote travel to their countries.
Exactly one year ago today, I met with Secretary Don Evans and
other leaders of our industry and recommended that instead of bailouts,
the U.S. needs to allocate $100 million immediately to market and
promote America as a destination. This can be done in joint marketing
with TIA, States that have individual tourism budgets and with the tour
operators overseas who could provide matching funds. We need to be
proactive and to create a demand for travel to the USA. Not only will
this contribute positively to our economy and employment rate, but it
will also have a positive impact on the balance of trade. We should ask
the office of Global Communication to work with CNN, CNBC and others to
provide PSA's in cooperation with our tourism industry to invite and
encourage people to travel to America by showcasing different
attractions from Broadway to the Grand Canyon to Waikiki Beach. Many of
you will remember that years ago New York launched an ``I Love New
York'' campaign. We need to launch a worldwide ``I Love America''
campaign and we have the celebrity power to deliver this message.
Since September 11, I have traveled extensively to Europe and Asia
to meet with tour operators. While they are cautiously optimistic for
2003, they all feel strongly that the U.S. needs to be more proactive
in promotion. They are also concerned about the U.S. dollar versus the
Euro and the timing of any potential conflict with Iraq so that it
doesn't impact the main booking season.
Most countries have a Minister of Tourism. We need to create a
National Tourism Office and provide them with a budget for marketing
and promoting America throughout the world. If Malaysia spends $42
million and Australia spends $87 million, how can we expect to compete
as an international destination and spend nothing?
Not only will increasing international tourism have a positive
economic impact but also a positive political impact. What better way
for people around the world to have a constructive view of America than
to visit the Grand Canyon, Mount Rushmore or the Grand Ole Opry? When
international visitors fall in love with the beauty of our country and
the friendliness of our people, they become our greatest ambassadors
with personal stories about their American experience. Tourism
generates literally millions of goodwill ambassadors spreading a
positive image of our country abroad.
In addition to spending money to promote tourism, we also need to
protect the U.S. Tourism Industry.
We need to level the playing field with the foreign companies doing
business in America. Tour operators from Europe or Asia need to operate
legally and our laws need to be enforced. American companies, that pay
taxes and operate within the law, should not be penalized or driven out
of business because of unfair and illegal business practices by foreign
owned companies.
Unfortunately, we are too often viewed internationally as a society
where our laws are not enforced. The U.S. Travel Industry needs
enforcement to stem the tide of losses of billions of dollars that are
flowing overseas each month. Thousands of U.S. workers are being
unemployed every day because the INS, Department of Labor and the IRS
are not enforcing our laws with foreign corporations doing business in
America. Often viewed on the surface as bringing visitors into the
United States and therefore presumed to benefit the economy, some
foreign tour operators instead host an underground economy that
undermines a myriad of U.S. laws while unfairly competing with all law
abiding companies.
We must level the playing field and protect our U.S. companies. We
need to hold foreign corporations and foreign CEO's doing business in
America to the same standards that we hold American corporations and
American CEO's. Foreign entities should not be able to hide profits
offshore through non-U.S. subsidiaries, transfer pricing or predatory
pricing. A recent article that I have attached from Touristic Report in
Germany exposes an example of this activity.
Second, foreign tour operators need to be forced to abide by U.S.
labor laws. Tour guides performing labor in the U.S. should be required
to be authorized to work in the U.S. Tour guides without authority to
work in the U.S. should be promptly deported.
Third, foreign entities should not receive windfall tax breaks or
special treatment for tax evasion because collection efforts may be
viewed as harder. Companies illegally evading taxes or who have
received substantial compromises should be required to pay income tax
on the amounts discharged.
Finally, companies who charge consumer taxes on travel transactions
but never remit these amounts to the respective taxing authorities
should be charged with fraud and prosecuted to the full extent allowed
by law. As an example, foreign owned operators in New York City have
been claiming for the past five years that they are ``permanent
residents'' of the hotels which they contract. They do this in order to
evade the payment of hotel occupancy taxes, which they fraudulently
collect from the consumer. The wrongful retention of taxes has been a
multi-million dollar windfall to these foreign operators who are
billion dollar foreign corporations. This unfair competition has driven
American law-abiding companies out of the market and into bankruptcy.
Stem the tide of foreign tour operators illegally operating tours
in the United States and you will add billions to the U.S. treasury and
thousands of jobs. Enforcement action will not decrease visitors but
will increase revenues to both federal and states governments as
overseas operators are forced to legally record transactions, hire U.S.
and documented workers and pay taxes in the U.S.. American companies
will once again be able to compete with foreign operators who have
unabashedly operated unhampered by U.S. laws and regulations.
In the materials I have submitted I have provided ten ways to help
the industry now by enforcing the laws of this great land. * We hope
you will help motivate the Department of Justice, INS and State and
local governments to take action now before there are no more American
owned Visit USA Tour Operators.
---------------------------------------------------------------------------
* The information referred to has been retained in Committee files.
---------------------------------------------------------------------------
There is a significant cost to be paid if we do not protect our
U.S. tourism industry and aggressively promote the United States of
America as the greatest and most diverse travel destination in the
world. On the other hand, there are significant political and economic
benefits to be gained if we can begin to take tourism seriously in
America and provide the funds needed to compete as an international
travel destination.
Mr. Chairman, tourism is an enormous source of revenue and an
enormous opportunity of political influence. Our government's policies
of not supporting this critical industry will potentially cost billions
of dollars and scores of thousands of jobs. It will also deny
foreigners a chance to see the real America, and to go home and
confront growing anti-Americanism. On tourism, the train is leaving the
station very quickly. I urge your Committee to act aggressively to put
tourism on the front-burner of commercial policy.
Thank you, Mr. Chairman.
Senator Dorgan. Thank you very much Ms. Hentschel.
Senator Fitzgerald?
Senator Fitzgerald. I would be interested in the thoughts
of others on the panel regarding Ms. Hentschel's suggestion
that we spend $100 million--I think that was your figure--to
promote tourism. Is it correct that the Federal Government does
not spend any money advertising for tourism abroad?
Ms. Hentschel. Zero.
Senator Fitzgerald. Private interests would spend money on
advertising, Correct?
Mr. Lounsberry. That is correct. Currently the Federal
Government does not support any type of a national tourism
message. You have individual companies, airlines, theme parks,
hotel chains promoting, but there is not a consistent USA----
Senator Fitzgerald. And States promote come visit our
State.
Mr. Lounsberry. Correct, but there is not a national
campaign on behalf of the United States.
Senator Fitzgerald. Has anybody ever proposed one before?
Has this come up before in Congress? Has it been voted on or
defeated? Does anybody know the history of that?
Mr. Tisch. Senator, right after the White House Conference
on Travel and Tourism in 1995, which was the first opportunity
for our industry to speak with a unified voice and which was
very successful and allowed us to create organizations like the
Travel Business Roundtable, there was congressional movement
towards creating a national tourism organization. It was in
place for about 2 years, and unfortunately, we were not able to
find a correct funding mechanism for the public side of the
public-private partnership.
At the Travel Business Roundtable, we understand that there
is a need to develop this partnership and come up with some
dollars for international destination marketing. But we also
know that anything we do has to be politically and economically
feasible. So, the $100 million number in a perfect world would
be a great place to start, but I am not sure that in today's
world it is a realistic place to start.
We are calling for some easy steps, some beginner steps
working with the Commerce Department, and I do want to
recognize Secretary of Commerce Evans and Linda Conlin on his
team who have really focused on the needs of the travel and
tourism industry working with the administration, working with
Capitol Hill.
But, for instance, there is a $2 million program called the
Market Development Cooperator program, and a nonprofit
organization can go and ask for loans up to $400,000. We want
to do more of that kind of mining for business through the
nonprofits and maybe take some of those dollars and really
focus them on travel and tourism or do a pilot grant program in
certain cities in certain States. Take five cities. Take
Chicago. Take Fargo, North Dakota and come up with certain
amounts of dollars and see what works. See what the best
practices are. See where the successes are. But start small.
Let us see how we can grow the industry. Let us see how we can
work with Government and then look down the road to a $100
million number.
Senator Fitzgerald. One of the problems in promoting a
Visit America program in other countries is we would have to
decide which part of America we would advertise, unless we
advertised such a broad cross section of America that nobody
would get mad.
Ms. Hentschel. A rising tide will lift all boats. So, the
main thing is we need people to come to America first because
right now they're choosing to go to South Africa, to Australia,
to other parts of the world, even to Turkey. Turkey is sold out
this year.
Senator Fitzgerald. Do you think $100 million would do more
overall for the tourism industry in America than the bailout
that the airlines are asking for?
Ms. Hentschel. Absolutely.
Senator Fitzgerald. Does anybody disagree with that?
Mr. Tisch. Well, the airlines are such an important factor
in getting people from point A to point B.
Senator Fitzgerald. Will the airlines no longer get people
from point A to point B if they have to file bankruptcy and
operate under Chapter 11?
Mr. Tisch. That remains to be seen. If the airlines go out
of business and fares go up----
Senator Fitzgerald. Do you think the airlines will go out
of business? You do not think they will just file for
bankruptcy and eliminate their debts? Do you think they will go
out of business?
Mr. Tisch. Some may, but the Travel Business Roundtable
supports a strong airline industry. Clearly we are in favor of
this main mode of transportation. What we are seeing now is
that people are finding ways around airlines. They are driving
more.
Senator Fitzgerald. But when an airline files bankruptcy,
do their creditors not take the hit? U.S. Airways filed for
bankruptcy. They are still fine. Are they not?
Mr. Tisch. Yes, they are.
Senator Fitzgerald. I mean, are we not really bailing out
their shareholders?
Ms. Hentschel. And from overseas, you cannot drive here.
So, the key is we have to be able to promote, and if we do
promotion and marketing, the people will come and that will
mean that the flights will be full and then the airlines will
not need the bailouts.
Senator Fitzgerald. Mr. Rosenbluth, you were here last year
after September 11th, were you not--after the airline bailout?
I may have asked you this at that time, but I know your
industry has been suffering greatly in the last couple of
years, particularly the last year. Do you think that you have
been losing a lot of your travel agents because they can no
longer compete with Orbitz, which is owned by the airlines and
is an indirect beneficiary of the taxpayer dollars?
Mr. Rosenbluth. I do not think it is Orbitz or any other
on-line agency, although there has been some market share shift
to on-line travel sites.
The problem with the travel agency industry per se is
twofold.
One is that there are just fewer people traveling now,
partly economic, partly as a result of, I think, some
uncertainty for the future.
The other part is that the airlines, for the most part have
systematically tried to remove certain segments of the travel
agency industry in order to be able to deal directly with the
public. One of the unintended results of their actions,
however, is that now, having removed commissions from agencies,
dealing directly with the public is the airline's most
expensive form of distribution.
I believe we need a very strong airline industry, but I
believe that the airline industry can help themselves in a lot
of ways. Now, I listened to some of the testimony yesterday
over in the House where there was discussion about war risk
insurance and things like that, and it will probably work its
way over here and cockpit doors. I think those things are
important.
However, the airlines, it has been stated, will lose
approximately $7 billion this year. I believe that a good $5
billion is their own doing and that if the airlines were to
reform the way they price, both on-line and off-line, then in
fact----
Senator Fitzgerald. You mentioned reform of their pricing.
Do you think their pricing structure is just too complex with
too many different fares? Do you think that hurts them?
Mr. Rosenbluth. No. I think it is completely broken. It is
not in the complexity. I think you can get airline reform
without simplification.
The problem with the airlines is self-inflicted. What they
have been doing over the past number of years is indiscriminate
discounting for major corporations. The way it works is very
simple. They set a benchmark walk-up fare, which are the high-
yield fares that everybody talks about which the airlines say
they are not getting those passengers anymore. They then
discount the corporations off of that benchmark fare, 30, 40,
50 percent. But in return for that, they are requesting or
requiring corporations to move 40 percent, 60 percent, 70
percent share to the airlines.
What has happened because airlines have not had the
backbone to go to corporations who are not fulfilling their end
of the bargain is that tens of millions, if not hundreds of
millions, of dollars a day are just going down the drain
because major corporations that are doing their part, that are
in fact moving the share and getting the discounts
appropriately, are subsidizing other corporations that are not
hitting their share numbers, and the airlines are not holding
them to it.
So, it is just as if you were to go out and order 30,000
books and get a discount for that but only buy 3, you would get
the same discount without every buying the other 29,997 books.
So that is what is broken. That is where the money is going.
Senator Fitzgerald. That is only some airlines, though. It
is really the big six airlines. For Southwest and Jet Blue--
their traffic is up. Southwest's business I think, is up 100
percent in the last year. Is that not correct?
Mr. Rosenbluth. They have very different models, but those
other airlines are not Jet Blue. They are not Southwest. But
they are there. And, yes, the marketplace is taking care of
some of the situations, as you mentioned, some of the
bankruptcies, and there may be more, et cetera. But the
shareholders do not have to lose if, in fact, you can have a
profitable airline system. And the way to a profitable airline
system is to change the airfare structure so that you don't
have this disparity that is between the last minute walk up
fare, of which many do not even fly anymore because the fares
are too high, those that are good corporations subsidizing bad
ones and the leisure traveler who is getting fares from a
number of places, which is just confusing the entire
marketplace.
So, I think major airfare structure reform is necessary,
and the airlines can see billions of dollars flow to their
bottom line. Commerce would be better for it. Everyone at this
table would be better for it. I do not believe it requires that
the Government do any bailouts. I do think there is definite
room to help with some of the security measures that have been
imposed on the carriers, but there is some self-help that can
be done here that will be beneficial to all.
Senator Fitzgerald. Mr. Tisch, does the hotel industry
support continued taxpayer money for the airlines?
Mr. Tisch. I cannot speak on behalf of the hotel industry
to answer your question, Senator. I can speak on behalf of the
Travel Business Roundtable and that we support a strong
airline----
Senator Fitzgerald. Are the airlines members of that?
Mr. Tisch. We have about 6 airlines that are members of the
Travel Business Roundtable. We are not the ones causing any red
ink paying their dues to us. I guarantee you.
We call for a strong airline industry. It is an integral
part of the travel and tourism industry. It is a major employer
in this country. The issues are very complicated. We just want
to see a strong, profitable system that will get our travelers
from point A to point B.
It is important to keep in mind that business travel is way
down. That is one of the significant anchors on the travel and
tourism industry right now, and that is why we are calling for
other ways to stimulate travel. Let us increase the amount of
business meals deduction to 100 percent. Let us reinstitute a
spousal travel deduction so that two people are going on a
trip, two people are staying in a hotel room, two people are
eating at a restaurant, two people are visiting theme parks,
and two people are shopping. It is those kinds of ideas that I
think we can work together with Congress to explore how we get
more people traveling.
And when we call for the creation of a presidential
advisory council on travel and tourism, we need a body where we
can discuss these kinds of ideas and the whole notion of
creating these public-private partnerships. It is working with
the public sector that is going to get these ideas into action
and get more people traveling.
Senator Fitzgerald. I know Senator Dorgan wants to ask some
questions.
The business of hotels in major cities such as New York,
Chicago, L.A., Washington, and the big hotels, is probably down
substantially. But, I would imagine the smaller hotels, such as
the Hampton Inn, the Courtyard by Marriott, and hotels along
the interstate highways are probably doing pretty well right
now because travel has shifted from airplane to automobile. Is
that not correct?
Mr. Tisch. Yes, Senator. What we are seeing is that across
the board, market by market, it may vary. You look at New York
City, you look at some of the bigger markets--San Francisco is
unfortunately suffering quite a lot. Occupancies have remained
about the same as last year. Our average rates are down
anywhere from 10 to 15 to 20 percent depending on the
particular market. We used price as a tool last year to get
people out of their homes. Then the economy continued to
soften, so we are unable to raise the prices in certain key
markets. Because people are driving, certain roadside hotels,
lower priced facilities are doing quite well.
What we have been pleasantly surprised about is that the
number of hotel/motel foreclosures is not as significant as we
thought it might be. That is because in the last few years, to
build a new property, to buy a hotel, the amount of equity
needed was far in excess of what it was 10 years ago when the
industry was in a similar bind. So, we are pleased that the
basic economies of the hotel industry continue to remain
strong. We have become much more productive. The breakeven
point on a hotel is lower than it has ever been because we have
gotten a little bit smarter about how to do things, but the big
cities are hurting because business travel is off and meetings
and conventions are off.
Senator Fitzgerald. What is the room occupancy in New York
right now?
Mr. Tisch. We will end the year, Senator, at about 76
percent, but our rate will be down about 15 percent over last
year.
Senator Fitzgerald. And over 2000?
Mr. Tisch. In 2000, we were at about 84 percent with a much
higher average rate.
Senator Fitzgerald. Well, do you all agree on the
importance of promoting the United States to the international
travelers? One of your cited statistics suggests that
international tourists are 19 percent of our tourists, but
constitute 42 percent of tourist spending in the U.S.?
Mr. Tisch. That was a New York City statistic.
Senator Fitzgerald. That was a New York City statistic. So,
if we could just have a slight increase in international
tourists, that would really work wonders.
Mr. Lounsberry. Yes. The international segment has been the
most devastated this past year, and as we have talked about,
our competition that has been taking market share away from the
United States for the past 10 years has just been exacerbated.
When you talk about tour operators internationally not seeing
the U.S. market itself, they turn to the countries and
destinations that are. It is up to the destination to create
the awareness and the interest in traveling to that
destination.
Senator Fitzgerald. And this has happened even though our
dollar has weakened vis-a-vis other major currencies in the
last year. We had more foreign tourists when our dollar was
stronger. Is that not correct, Ms. Hentschel?
Ms. Hentschel. Well, yes and no, because tourism was
starting to decline from Europe prior to September 11 because
of the dollar becoming stronger. The programs are costed about
a year or 18 months in advance for many of the European tour
operators, so you do not really get the effect immediately. So,
now with the dollar becoming on par with the euro, that will
help for next year. And that is why there are cautiously
optimistic, but it depends on other elements.
Promotion is a key area. Actually we are viewed as almost
embarrassing that the United States of America--like we do not
care about visitors coming from overseas. As Fred just stated,
other destinations are very aggressive. South Africa took over
many of the taxicabs in London and painted their flag on it,
telling everybody to come to South Africa. This kind of really
helps, and that is what we need to do.
Senator Dorgan. Let me ask a few questions. We had invited
several people involved with destination resort attractions to
be here, but did not have a witness from them. Mr. Tisch, what
has been the experience, to the extent you know. You have a
hotel near Universal in Florida. What has been the experience
of Disney World, Disney Land, Universal, and so on?
Mr. Tisch. Well, Senator, I can handle the hotel portion of
that question because, as it turns out, we are partners with
Universal in three hotels on the grounds of Universal Studios,
the third one, a 1,000 rooms, having opened just 3 months ago.
Our hotel experience is that we had a very good summer, and
it is interesting to note because in our 1,000-room hotel,
which was designed as about 75 percent group business, this
summer we ran out of parking spaces. If you went in the parking
lot, you would see cars from Florida, Alabama, Georgia, because
people were driving to the destination. So, with the great
marketing that our partners at Universal are able to
accomplish, we had a very good summer.
It is not necessarily the case in the whole destination--
and once again, I just focus on the hotel aspect, and Fred can
probably answer the theme park portion of your question,
Senator.
Mr. Lounsberry. Yes. My real job is Senior VP of Sales for
Universal Parks and Resorts, to Jonathan's comment.
I think it really comes back to the international segment.
Orlando, as a whole, had a pretty good summer, but it was
really driven by local, state, close-drive market. All of the
down turn, pretty much across the board, you would hear in
central Florida and even south Florida, which is also dependent
on international, has been the international segment.
Senator Dorgan. Let me ask about the international issue.
Prior to September 11, we had pretty robust tourism from
international sources. We did that, I assume, without massive
advertising. We did not have an organized effort. We certainly
had no publicly funded effort with respect to that.
But since September 11, you indicate that international
travel is down. I was interested in the discussions where you
described New York, Mr. Tisch. The international traveler
apparently spends almost twice as much as the domestic traveler
in New York. Tell me the cause of the drop in international
travel. I believe I understand some of it, but tell me your
perspective. What has caused it?
Mr. Tisch. Senator, I think there are three reasons.
One, there is still the lagging effect of September 11th.
There are societal issues in many of the countries that send us
visitors where they feel it is still not proper to visit
specifically New York City, but the United States of America.
You also have to keep in mind that many of the economies
that send us our visitors are suffering themselves. If you look
at Florida, we have a motel on Miami Beach, which did not have
a particularly good summer, you have to fly into Miami Beach,
and most of those people are coming from international
destinations. Their economies are not very strong.
And the third reason is one that we have all talked about,
that countries we are competing with get travel and tourism.
They are spending hundreds of millions of dollars to get
visitors to come to them and not come to us. When you look at
all the new travelers that might come out of Asia and when you
look at all the new travelers that are coming out of Europe,
now that the EU markets themselves as one particular
destination, the competition is stiff. They get it and we do
not.
Senator Dorgan. I will come back to that in a moment.
Let me ask a question about airlines. I believe some of you
have referred to surveys that have been taken. Business travel
is down. That is a significant part of the success of airlines,
to have robust business travel.
But it seems to me there are two other issues. One is the
hassle. There is an increased hassle to fly with respect to all
the security issues and so on. But the second is I assume there
is some component of the flying public--at least constituents
have told me this--who just do not want to fly. They are a
little concerned.
What percentage of the difficulty with respect to air
travel comes from the downturn in business travel? What
percentage do you think from surveys comes from just the
hassle? And what percentage is represented by a group of people
who decide just based on safety issues, watching an airplane
run into a building, I do not want to fly anymore? Have any of
you done any surveys that describe those issues?
Mr. Tisch. Senator, the Travel Business Roundtable
concluded a survey the second week in August to judge flyers
and traveler sentiments a year after, and we found that safety
and security has become sort of a minimal issue. People are
resuming their normal traffic patterns and their normal travel
patterns. Only 1 in 10 were very obsessed with safety and
security. They feel that the airlines and the Government have
done a pretty good job of dealing with the safety and security
issues.
What we did find is that the economy is the major deterrent
to people traveling. When you combine that with, as we said,
the hassle factor, it is creating enormous problems. It is not
the fear of the airplane anymore. It is the fear of the
airport. And people just do not want to deal with the problems
that they may encounter or may not encounter. They just do not
know. When you combine that with economic reasons not to
travel, they are deciding to stay home. That is an enormous
challenge for us to overcome as an industry.
Senator Dorgan. Mr. Tisch, have you been selected for an
enhanced inspection at some moment at an airport?
Mr. Tisch. I have on the shuttle about 2 months ago.
Senator Dorgan. Senator Fitzgerald, have you?
Senator Fitzgerald. Yes.
Senator Dorgan. They seem to be looking for me as I arrive.
[Laughter.]
Senator Dorgan. I get the double enhanced inspection I
guess.
Ms. McDowell and Mr. Durst, both of you I think described
the fact that your resort areas and your State--the success of
tourism there is more a function of people driving than flying,
and you described a circumstance where those who have chosen
not to fly and perhaps because of the economy are driving and
taking vacations that are fewer miles away. It means that you
have not seen the same downturn or the same difficulties that
some other parts of the industry have experienced.
As you project ahead now, we have a kind of a troubled
economy, some say a weak economy. Some are worried about a
double dip recession. We have got the intersection of a war on
terrorism, the September 11 of last year, a stock market that
has largely pancaked because of the deflation of the tech
bubble, corporate scandals. We have a whole series of things
that create uncertainty in the mind of the American consumer.
In our economy, and especially it seems to me the tourism
sector of our economy, is all about people's confidence. If
they express confidence in the future, they do things that
manifest the confidence: they buy a house, buy a car, take a
trip, and so on. That becomes expansion. If they feel not very
confident, not good about the future, then they do it exactly
the opposite. They defer the purchase of the car, the trip, the
vacation, and so on.
As you look at the future, and plan for the future in
Branson, for example, or through your tourism efforts in your
State, what are you expecting? And let us assume nothing
happens here in public policy. You all have given us some ideas
and thoughts. But let us assume nothing happens here with
respect to public policy. What do you expect to happen in
Branson and also in the State of South Carolina with respect to
the next couple of years?
Ms. McDowell. All of the issues that you described are of
grave concern to Branson, Missouri. Even though we do not
depend on international travel and we do not depend on business
travel, we depend heavily on senior citizens and adult couples
who may have a limited income. In addition to travel being
influenced by confidence, it is greatly influenced by
disposable income. It is not something that anyone has to do.
Therefore, when returns in the stock market and other
investments are on the decline, 50 percent of our visitor base
is at significant risk for not coming to Branson. Even though
we are perceived as a value destination, we are still a luxury
in terms of what are the necessities of life and what are not.
Therefore, all of that can have tremendous impact on us and
especially our senior visitors.
Senator Dorgan. The notion that the average retirement
account has diminished by perhaps a third or close to a third,
that gives people the feeling that maybe we ought to defer this
travel. That would especially affect your type of resort, would
it not?
Ms. McDowell. Yes, it definitely would and we have seen
that in the past with economic downturns of that sort.
Senator Dorgan. Mr. Durst?
Mr. Durst. Thank you, Mr. Chairman. In the aftermath of
September 11, one of the first things that we did was to put
together a consortium of some of our sister States in the south
to do some pretty extensive ongoing research to try and find
out exactly what the travelers' attitudes were and then from
that to tailor our marketing program. You absolutely are right
on the mark with regard to what those surveys were pointing
out, as was Mr. Tisch.
The thing that we see, sir, down the road is that--no pun
intended--States such as ours, which are a drive destination,
are going to be holding their own so long as they are
strategically using their marketing dollars to try to bring the
folks in that are within, like in our case, a two tanks-full of
gas or so drive away.
Plus, of course, you need to have the tourism product that
you are putting forth to the folks and making sure that you are
connecting with them. Family values was mentioned, and that is
one major component of our advertising message, talking about
our beaches, talking about our golf, talking about the family
type experience.
But I think, respectfully, that areas such as ours are
going to be holding their own. We have not begun any kind of
campaign saying, if you come to South Carolina on the way down
to Florida and stop and stay there instead of going to Florida,
that you will save two days' worth of vacation by going on our
beaches as opposed to going to Universal. We would not want to
dare do anything like that.
[Laughter.]
Mr. Durst. But we do know, sir, with respect to our sister
States in the south that we feel cautiously optimistic that we
will be able to hold our own by going toward that drive market.
But going back to an earlier question that you had posed,
the folks that come into South Carolina by car have gone up 10
percent in the aftermath of September 11, which is no surprise.
But therefore, we are playing to our strength in going after
that market.
Senator Dorgan. Let me just ask one additional question.
Mr. Rosenbluth, I have taken a look at the white paper, you
were kind enough to send to me. I think it is a fascinating
description of some of the issues the airlines need to be
concerned about. We did not have an airline representative on
this panel because they have been to Capitol Hill in the last
couple of weeks and have testified with respect to their
segment. But I agree with all of you that it is a very, very
important segment of the travel and tourism industry because we
just must have a healthy, vibrant commercial air travel system
in this country. Those are the companies that haul passengers
to your hotels and resorts and destinations.
But I guess I would ask the question, Mr. Rosenbluth, have
you shared your white paper with the airlines and what is their
reaction?
Mr. Rosenbluth. I have had a discussion or two with the
airline executives. For the most part, I am not sure they
understand it. I also believe at the same time that they are
about to capitulate and do something radical because they need
to. Airlines are risk-averse, and yet something radical needs
to change. I am not certain that the most senior officers of
airlines have heard from those that are at lower levels exactly
what the problem is because there has been such a fight for
share out there that they have gone after share and, as a
result, have lost billions of dollars. This goes back far
before September 11th. It has been going on for a number of
years now, but it is going to stop.
What I am afraid of is that the airlines will do something
arbitrary in nature and just stop corporate discounting
completely as opposed to doing it in a rational way where, like
any other business, you get a discount in return for giving
something back or for buying something in bulk or for getting
market share. But by allowing people to just get these prices,
then not getting anything back in return, the airlines have
severely shot themselves in the foot.
Senator Dorgan. Mr. Rosenbluth, thank you very much. This
testimony has been very helpful and instructive and Senator
Fitzgerald and I will, along with our colleagues, evaluate it
and try and develop some suggestions, working with you, Mr.
Tisch, with the Travel Business Roundtable, and Mr. Lounsberry,
with the Travel Industry Association. We would invite you,
because this Subcommittee has some jurisdiction here, as we
move along, periodically to send us information. Do not wait
for a hearing. If there are things you think that we should
know that is happening in your industry, we want you send it to
us and have the advantage of that.
We know that you have come from some distance here today to
testify and we very much appreciate your testimony.
Senator Fitzgerald. If I could just say I really encourage
all of you to get involved as the airlines come forward with
another bailout package for themselves. They are looking out
for themselves. They are not necessarily looking out for the
rest of you. They are very accustomed to getting benefits from
the government. As a regulated industry, their CEO's are out in
Washington regularly. I see CEO's from the airlines more than I
see most CEO's from Chicago. They are out here all the time.
They are getting very used to surviving by virtue of special
laws put into effect for them, such as in the case of last
year--a bailout.
The bailout bill is probably going to move quickly. The
bill bailing them out moved more quickly than any bill that I
have seen in the 4 years I have served in the United States
Senate. The airlines have awesome power on Capitol Hill. I
think that is unfortunate because I do not think we have
necessarily helped the general public by helping them.
But I encourage you to be very active and aggressive in
getting your voices heard so that you are just not left out of
whatever the airlines are on the verge of getting. That would
just be my words of advice to you. I will try to be there,
speaking for all the others, but you need to come here
yourselves too. I am glad you all were able to appear today.
Senator Dorgan. Let me just say that I personally think
that we should consider some initiatives and some incentives.
It was not too long ago that we had actually a significant part
of the Commerce Department with an assistant secretary who was
working full time and concerned about these issues, and that
was abolished.
I think there are a number of suggestions you make today.
Some are incremental suggestions to begin from one direction.
The others come from the other direction, but they aim at the
same spot, and that is try to increase the interest that people
around the world have in this country as a destination for
travel and tourism. I do think that it is a big, big,
significant industry in our country. And I do not think all of
this happens by accident. If you watch the way other countries
in the world promote themselves and try to promote and
aggressively achieve the currency that is spent for travel and
tourism, they do that because it works. In our country it would
be well advised to understand that sitting back and doing
nothing in competition means that you lose the competition.
So you have offered a good number of ideas today and we
will certainly consider them. We think they are very useful.
Now, Mr. Fitzgerald used to be Chairman of this
Subcommittee, and he has taken the gavel.
Senator Fitzgerald. I hope to be again some day.
[Laughter.]
Senator Dorgan. If he will provide the gavel, we will
adjourn the Subcommittee before he is Chairman once again.
[Laughter.]
Senator Dorgan. Before we get into a long discussion of
that, we will be adjourned.
[Whereupon, at 3:59 p.m., the Subcommittee was adjourned.]
A P P E N D I X
Prepared Statement of Samuel H. Wright, Senior Vice President,
Government Relations, Cendant Corporation
Cendant Corporation (``Cendant'') appreciates the opportunity to
submit this statement to the Committee and respectfully requests that
this statement be included in the official record of the hearing.
Cendant Corporation is a diversified global provider of business
and consumer services within the hospitality, real estate, vehicle,
financial and travel sectors. Cendant's hospitality division is the
world's leading franchisor of hotels through ownership of brand names
that include Ramada, Days Inn, Howard Johnson, Travelodge, Knights Inn,
Super 8 Motel, Wingate Inn, Villager Lodge/Premier and AmeriHost, a
leading operator of branded time share resorts (Fairfield) and the
world's leading time share exchange service (RCI).
Cendant provides global ticket distribution services to the travel
industry through its Galileo and Wizcom operations as well as its on-
line (Trip.com and Cheaptickets.com) and off-line (Cendant and Cheap
Tickets) travel agencies.
As indicated during the hearing, the travel and tourism industry is
a huge segment of the domestic economy that generates more than $582
billion in revenue each year and employs directly and indirectly more
than 18 million people. There is no doubt that the events of September
11th continue to have a negative impact on our industry. One year later
we continue to struggle to overcome the external challenges facing our
industry.
I would like to clarify two points raised during the hearing: the
financial recovery of moderately priced hotels and the impact that
Orbitz has on travel agents. It was suggested that moderately priced
hotels/motels although adversely affected have bounced back
financially. This is a misconception. The entire lodging industry is
being hit harder than expected. Business travel has not recovered as
expected, so the industry has been more dependent on leisure travelers
staying at moderately priced hotels/motels. Leisure customers are
reserving trips with shorter leads times, forcing hotels/motels to
continue discounting room rates. As a result, consumers continue to
postpone reservations, knowing that rates are low and the discounting
ultimately ceases to have an incremental effect. Consider the following
statistics released by PricewaterhouseCoopers Lodging Practice,
entitled U.S. Lodging Industry Forecast:
Revenue per available room, a standard measure of hotel-room
prices and occupancies, is now expected to decline 2.3 percent
this year, down from a previous estimate of 0.7 percent.
For 2003, revenue per available room is expected to rise
only 3.5 percent, instead of a previously forecast 5 percent.
Not until 2004 is such revenue expected to increase at a more
robust 5.6 percent pace.
This year's occupancy levels of 59.5 percent are the lowest,
except for six years during other recessions, in the past 75
years. Consecutive decreases in room rates last year and this
year are the first since the Great Depression, when rates
declined from 1930 to 1933.
PricewaterhouseCoopers estimates that the average daily
hotel-room prices will decline 1.4 percent this year, compared
with previous estimates of a 0.3 percent decrease. Occupancy is
expected to faIl 0.5 percent to 59.5 percent, instead of 0.3
percent, as previously projected.
The second point of clarification, is in response to a question at
the hearing from Senator Fitzgerald concerning the impact that Orbitz
has on travel agents. Orbitz is the online travel services joint
venture owned by the nation's five largest airlines (American,
Continental, Delta, Northwest and United). Orbitz is structured by its
airline owners to provide Orbitz with exclusive access to the lowest
priced fares offered by the airlines (so called ``web fares''). This
structure eliminates competition among other online and bricks and
mortar travel agents for webfares, which, in turn, harms the traveling
public. Please consider the following:
The owners of Orbitz operate nearly 80 percent of all
domestic air travel.
Orbitz is one of the highest cost distribution systems
available for selling passenger tickets.
Orbitz' owners have eliminated commissions to all
independent travel agents, while the owners continue to pay
guaranteed transaction fees to Orbitz. Meanwhile, Orbitz, on
behalf of its owners, has assessed service fees to consumers,
which will likely increase as Orbitz forces other independent
distributors to exit the market.
By restricting access to critical fares and inventory, the
Orbitz exclusivity provisions threaten all independent travel
distributors as well as the millions of consumers they serve.
The Subcommittee needs to address the current plight of all hotels/
motels and the negative impact of Orbitz on travel agents as it
considers measures to assist the nation's travel and tourism industry.
Respectfully submitted,
Samuel H. Wright