End of the Tourism Boom?

U.S. cities become expensive for international tourists as dollar strengthens.

November 19, 2008, 3:15 PM

Nov. 20, 2008— -- U.S. cities enjoyed a tourism boom in recent years, thanks to the plunging value of the dollar. But as U.S. currency regains its strength and economies around the world falter, will U.S. cities remain a bargain destination?

New York City, the most popular tourist destination, received a record 8.76 million international visitors in 2007, the highest number ever. Los Angeles had 4.8 million international visitors and Miami counted a total of 5.5 million international tourists -- record highs for both cities.

There has been a large influx of foreign leisure travelers in the past few years because they could pay for a plane ticket, go shopping and do them relatively cheap. But in recent months, major currencies, specifically the euro and pound sterling, have started to deteriorate. This month, the pound hit a six-year low against the dollar.

"The mood is definitely less than positive for the fourth quarter," said Adam Weissenberg, vice chairman and U.S. tourism, hospitality and leisure leader at the accounting firm Deloitte & Touche.

As an example, hotels in Miami alone expect a 3 to 6 percent decline in budget revenues, compared to the same period in 2007. With pressures to attract more customers, the hospitality industry is bound to offer more deals and reduce its rates.

"The U.S. hotel industry is virtually frozen by the uncertain state of the global economy," Weissenberg said.

Research and trends firm Smith Travel Research said in an October report, "As the credit crisis continues to dominate headlines and water-cooler conversations, reality has set in within the hotel industry in the form of an unknown and impossible-to-predict, short-term future."

The retail industry is also expected to be impacted significantly. Not only are Americans planning to cut back on holiday spending this year, tourists will likely be shopping less, too. Visitors' bureaus are tweaking their marketing message to appeal to more budget conscious travelers, and shopping is not on that list.

Still, demand in New York City is expected to stay strong through the fourth quarter and next year, according to Chris Heywood, vice president of tourism at NYC & Co., the city's tourism marketing organization.

Miami and Los Angeles will also likely see stronger numbers for 2008, attributable to summer tourism, but there is concern that numbers will drop in the winter holiday season and next year.

"The economic challenges that international markets are feeling are having an impact on our destination and others and for 2009, there is some anxiety." said Rolando Aedo, senior vice president of marketing and tourism at the Greater Miami Convention & Visitors Bureau.

"There will be some softening, we are seeing it in all sectors, but we are holding our own better than others."

One of the reasons for the higher numbers overall could be that these trips were already arranged.

"It was a different story in September," Weissenberg said. "The perception at the time was that it is a U.S. problem, then what happened in October is that the crisis immediately spread to the rest of the world. It's clearly become a global problem very quickly."

But the financial climate does not mean that all is doom and gloom for the tourism industry.

Cities are hoping to create a new marketing message that appeals to two kinds of travelers -- high-end tourists and the budget-conscious.

NYC & Co. is launching new marketing initiatives that provide tourists savings tips and point them to the free things they can do. Other cities, like Miami, are touting sports and building new airline terminals to attract more flights.

"The good news is, nowadays, people need to travel," said Mike Weingart, a travel specialist with Travel Leaders Agency in Houston. "It's a need, not a want, so they will make their trips. What we are seeing is that people who might've made two trips before might make one but make it longer."

Weingart added that there is room for U.S. tourism bureaus to market themselves to foreigners more. That could involve everything from television advertising to opening up offices around the world, which some of the major cities have done.

Another upside is that the U.S. government admitted six Eastern European countries and South Korea in its Visa Waiver Program. The program allows tourists from those countries to visit the U.S. for 90 days without obtaining a travel permit.

Those additions are the federal government's first in more than 10 years. It could help cities like Los Angeles, which is relatively accessible for Asian travelers.

But feelings are mixed about whether it will really help.

According to Weissenberg, the new rules, which went into effect Monday, will be helpful. Visa issues deterred many tourists because other competitors, like Mexico, Canada and European countries, were more friendly, especially to Asian travelers.

"I think, from the travel industry point of view, that's a positive. ... But the problem is the current economic malaise has spread outside the U.S. and you are probably not going to see as many people traveling to the U.S. as you would have last year had they changed the visa rules [last year]," he added.

While it opens doors to the United States, some experts think expanding the Visa Waiver Program will not help at all because tight security regulations put many off from coming to the United States.

"The TSA and American travel has a bad reputation everywhere I have seen," said Mike Leco, founder of USATourist.com, a travel-guide Web site. "Coming into the U.S. is much more difficult and less convenient than almost any other in the country in the world."

While tourism in the upcoming holiday season is something to be concerned about, Leco added that the real impact of the higher-valued dollar and the economic crunch will be visible in early 2009, the time when most people plan out their trips for the year.

Experts say that, like all other markets, tourism will have to hit bottom before moving up. The question that remains to be answered is when.

"We look for things to get tougher before they get better," Randy Smith, chief executive of Smith Travel Research said in the firm's most recent report. "We've had an entire year in which we've had a cheap dollar fueling more international visitors, and New York to date has had another good year. We expect those two things to level, so two of the things that have been good for the U.S. lodging industry aren't going to be there in the foreseeable future."

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