When it comes to the economy, it may be true that a rising tide lifts all boats, but businesses should keep one caveat in mind: When times are really tough, it will take a pretty strong tide to produce results.
The New Orleans economy has long relied on tourism and hospitality businesses for a large portion of local jobs and tax revenue. When that sector weakens the impact ripples through the broader economy. Right now the visitor business is languishing and, judging by some important indicators, high tide is still some distance away.
Close to 70,000 people hold jobs in local “leisure and hospitality” businesses, according to the state Labor Department. With thousands more working in service jobs related to hospitality, upward of 15 percent of metropolitan area employment arises from this sector.
In the first few years after Hurricane Katrina, the tourism industry struggled to recover and repair its image among potential visitors worldwide. For a while the hard work appeared to be paying off. But just as it seemed to be regaining strength, local tourism took another hit.
The national economic downturn put the kibbutz on travel for many consumers and, even worse, for corporations. New Orleans for years has ranked among the top corporate meeting destinations in the country. The convention business is the most lucrative segment of the visitor industry because big meetings create big demand for hotel rooms, and hotels generate revenue that seeps into many parts of the local economy.
Industry analysts say that recession will continue to crimp corporate travel budgets for a while. By one estimate, business travel in 2009 will show a decline of about 6 percent compared with ’08, while leisure travel is on its way to a nearly 3 percent drop.
The effects are clear in hotel businesses nationwide. Through the first half of 2009, hotel room demand was off by 8 percent, according to Tennessee-based Smith Travel Research. Revenue per available room, an important measure of industry strength, was down almost 18 percent during that period, reflecting heavy price-cutting by many hotels.
Given the severity of the national downturn, New Orleans seems to be holding its own, at least on the surface. At the end of May, the local convention bureau reported that total hotel room nights associated with conventions booked for the final four months of 2009 were up substantially compared with figures from a year earlier.
However, convention officials say the devil in the convention details is attrition. Most meetings have been drawing far fewer attendees than initially projected. Local convention attendance is coming in as much as 20 percent to 30 percent below original estimates, says Jeffrey Anding, convention marketing director at New Orleans Metropolitan Convention and Visitors Bureau. While the bureau expects to add meetings to the roster through the end of the year, the heavy falloff in attendance indicates that businesses are continuing to slash travel budgets.
Officials at New Orleans’ Ernest N. Morial Convention Center responded to the downturn recently by cutting their own budget by about 9 percent. The center could end the year more than $10 million in the red; it’s not alone.
The Georgia World Congress Center in Atlanta recently cut its budget and projected an operating loss for the 2010 fiscal year, which the center’s chief executive predicted will be the worst year in its history.
In Chicago, percentage declines in conventions and trade shows at McCormick Place have been in the double digits. A recent National Restaurant Association meeting there, for instance, drew a reported 54,000 people, but that was smaller by almost one-fourth than the same event in 2008. The Illinois Department of Employment Security reports that 18,000 hospitality-related jobs have vanished in the past year.
How much worse will it get? A host of variables will determine the answer. As of May 31 local convention bookings for 2010 were running about 6 percent behind those for ’09, but if attendance continues to fall off, the drop could be steeper. Then again, if corporate confidence begins to strengthen in the coming months, the picture could improve.
Longer range, New Orleans is looking forward to some major sporting events. The city will host its 10th Super Bowl in 2013, the NCAA Men’s Final Four basketball tournament in ’12, the Women’s Final Four in ’13, and the BCS National Championship football matchup in ’12. The Allstate Sugar Bowl and the R+L Carriers New Orleans Bowl have extended their contracts with the city, and attendance at the annual New Orleans Jazz & Heritage Festival and Mardi Gras has held up well. Tourism officials point out that such high-profile events go a long way in assuring that New Orleans remains top-of-mind with big-event planners.
Still, industry observers say tourism businesses may have to grin and bear it for a while longer. Adam Sacks, managing director of a Pennsylvania firm called Tourism Economics, has developed a forecasting tool that monitors dozens of monthly travel industry indicators around the world. He says his latest analysis shows that the rate of decline in travel is slowing. “That’s an improvement,” he says. But he adds that the indicators suggest “the next several months will continue to be fairly bleak.”
What about next year? “With the combined effects of a loss of wealth and the labor market being still in a contraction mode into early part of next year, we don’t expect travel to rebound really until 2011,” Sacks says. For ’10, he says, tourism businesses can expect “very modest growth” at best.