What the Economy is Telling Us about Travel Prospects Christopher Pike Director, Impact Studies| Tourism Economics cpike@tourismeconomics.com April 2017

What the Economy is Telling Us About Travel Agenda What the Economy is Telling Us About Travel Historical perspective on a great run Prospects over the next year Risks that could derail the outlook Why the travel industry remains a smart play

The past seven years have been unusual Lodging demand growth exceeded GDP growth during each of the last seven years.

Favorable tailwind of rising travel propensity

Travel industry is driving jobs gains

…and personal income

Gasoline prices on the rebound Global&US.ppt Link to UShistorical charts ‘Employ & Unemploy (2)’

And then fell, spurring travel growth

Gas prices have had larger impact on tourism prices

$108.8 billion in out-of-state visitor spending Note: This study reports the visitor spending and associated economic impacts for out-of-state visitors to Florida. All spending and impacts stated in this report occur within the state.

What the Economy is Telling Us About Travel Agenda What the Economy is Telling Us About Travel Historical perspective on a great run Prospects over the next year Risks that could derail the outlook Why the travel industry remains a smart play

Household net wealth at new high Home prices and financial markets have boosted household wealth Wealth effects typically support consumption with a lag

Household balance sheets are much improved

As we near full employment, wage growth is firming

…but inflation is rising more rapidly

Income growth solid but slowing after oil ‘sugar rush’ Rising inflation Trump tax cuts

Inflation drivers are starting to turn positive & significant

Strong US dollar weighs on US exports… Dollar has appreciated 19% since 2014 relative to trading partners, putting it 8.6% above its historical average.

US economy expected to accelerate 2.6% 2.6% 2.4% 2.1% 1.6% Global&US.ppt Linked to: D:\NewChart\US\Historical\USHistoricalCharts.xls Tab: Starts&permits

Economic activity to drive modest demand gains Demand growth to improve moderately this year and next But will trail GDP growth

Supply growth remains moderate 145k rooms under construction to open this year points to supply growth of: 2017: 2.0% 2018: 2.2%

Disproportionate growth in certain markets Ten major markets with +5% new supply under construction

Late-cycle occupancy declines weigh on RevPAR

What the Economy is Telling Us About Travel Agenda What the Economy is Telling Us About Travel Historical perspective on a great run Prospects over the next year Risks that could derail the outlook Why the travel industry remains a smart play

Private sector confidence reaching new highs…

…as businesses still ‘uncertain’ after elections…

Large risks remain around the baseline In terms of near-term downside risks: - 3 increased noticeably on the quarter: The rise of populism in the EU The possibility that President Trump triggers a trade war The adverse impact of US rate hikes on Emerging Markets Concerns about China did ease on the quarter, but this remains the second biggest downside risk according to the survey respondents [Z:\Staff\JamieThompson\Global Risk Survey\2017 Q1\DI_Global Risk Survey (Q1 2017)_20170215_combined.xls] 27

Three major risks to the travel outlook Trump on the economy Trump on the travel industry Defunding of destination marketing

Markets see a tension of opportunity and risk

Three outcomes depending on which levers are pulled

Three major risks to the travel outlook Trump on the economy Trump on the travel industry

Sentiment toward the US is turning negative “America first” rhetoric US-Mexico relations strained Protectionism re. TPP; “renegotiating” NAFTA “Travel Ban”; “Extreme vetting” Immigration stance and tighter visa procedures Discussion of requiring international visitors to provide social media access / re-examining visa waiver Electronics ban

Toronto Star OpEd may be indicative “It’s not a terrible sacrifice. Wait four years. We can hope the Trump presidency will then be over. The Grand Canyon will still be there. The Golden Gate Bridge. Mount Rushmore. Disney World. They’ll all be there.”

We’ve seen this before We anticipate a setback in overseas visits: 2017: -1% 2018: +3% The sluggish outlook for global trade is in line with the continued weakness in manufacturing output in the largest emerging markets. Among the BRICs the bright spot is India where manufacturing output continues to expand at a relatively fast pace. And in March we saw a stabilisation in China’s official PMI having stayed in contractionary territory for the past 7 months. But the PMI for Russia suggests that manufacturing output continues to contract there. And Brazil is experiencing it’s worst recession in a century. Note: 2008-2016 overseas visits data are adjusted downward based on APIS results. This produces a 4.7% CACG compared with 6.0% with unadjusted I-94 data.

Sentiment matters Those markets with a more favorable view of the US performed better in terms of inbound travel to the US. Conversely, those markets with the least favorable view of the US tended to underperform other markets. The sluggish outlook for global trade is in line with the continued weakness in manufacturing output in the largest emerging markets. Among the BRICs the bright spot is India where manufacturing output continues to expand at a relatively fast pace. And in March we saw a stabilisation in China’s official PMI having stayed in contractionary territory for the past 7 months. But the PMI for Russia suggests that manufacturing output continues to contract there. And Brazil is experiencing it’s worst recession in a century.

2 million fewer visitors expected this year -2% -1% The sluggish outlook for global trade is in line with the continued weakness in manufacturing output in the largest emerging markets. Among the BRICs the bright spot is India where manufacturing output continues to expand at a relatively fast pace. And in March we saw a stabilisation in China’s official PMI having stayed in contractionary territory for the past 7 months. But the PMI for Russia suggests that manufacturing output continues to contract there. And Brazil is experiencing it’s worst recession in a century. -7%

Which US cities stand to lose the most? The sluggish outlook for global trade is in line with the continued weakness in manufacturing output in the largest emerging markets. Among the BRICs the bright spot is India where manufacturing output continues to expand at a relatively fast pace. And in March we saw a stabilisation in China’s official PMI having stayed in contractionary territory for the past 7 months. But the PMI for Russia suggests that manufacturing output continues to contract there. And Brazil is experiencing it’s worst recession in a century. Source: Tourism Economics, Global City Travel Questions to: events@oxfordeconomics.com

European exposure Source: Tourism Economics, Global City Travel The sluggish outlook for global trade is in line with the continued weakness in manufacturing output in the largest emerging markets. Among the BRICs the bright spot is India where manufacturing output continues to expand at a relatively fast pace. And in March we saw a stabilisation in China’s official PMI having stayed in contractionary territory for the past 7 months. But the PMI for Russia suggests that manufacturing output continues to contract there. And Brazil is experiencing it’s worst recession in a century. Source: Tourism Economics, Global City Travel

Three major risks to the travel outlook Trump on the economy Trump on the travel industry Defunding of destination marketing

The need for destination promotion Challenge Solution: Destination Promotion 1 The primary motivator of a trip is usually the experience of a destination, beyond the offerings of one business Articulates the brand message that is consistent with consumer motivations 2 Effective marketing requires scale to reach potential visitors Pools sustained resources to provide the economies of scale and marketing infrastructure required to generate impact Global&US.PPT Linked: D:\DATA\PMI\PMI_Data_Charts ‘Manufacturing US, EZ,JAP,UK’

Illinois State budget impasse limited state and city destination marketing for most of the past fiscal year Dropped to third from first most visited mid-west state. Illinois ranked 9th among all 50 states and is now ranked 11th as both Michigan and Ohio gained share. Inquiries about travel to Illinois were down over 70% in FY16.

TMD funds held in limbo during much of 2013 San Diego TMD funds held in limbo during much of 2013 Immediate and significant slowdown in demand and a loss of pricing power

Pennsylvania Marketing cuts resulted in share losses

8.2 million fewer out-of-state visitors California 22.8 million fewer visitor nights, including 10.4 million fewer hotel room nights Elimination of $207 million of TID funding results in: $3.3 billion reduction in visitor spending

California losses in context Lost tax revenues that would cover starting salaries of 11,000 teachers Lost income equivalent $160 per CA household Lost jobs equivalent to an increase in CA unemployment rate to 6.5%, up from 6.2%

How destination marketing drives the economy

Tourism as economic development Destination promotion strongly supports economic development through brand development, raising awareness, and building familiarity 13% of executives with site selection responsibilities state that their perceptions of an area’s business climate were influenced by leisure travel and 37% reported influence by business travel (Development Counsellors International, 2014) “Every tourist that comes through here is a potential business lead.” Jeff Malehorn, President & CEO, World Business Chicago “If we do it right, the ideal brand will transcend the visitor market and support all economic development.” Hank Marshall, Economic Development Executive Officer, City of Phoenix Community and Economic Development Department

Quality of life impacts economic development Boeing’s decision to relocate its headquarters to Chicago was heavily influenced by the cultural assets and vibrancy of the city. Asheville’s recent win of a $125 million investment from GE Aviation was heavily influenced by its quality of life scores related to both outdoor activities and a vibrant downtown. The development of leisure attractions in lower downtown Denver has been instrumental in the relocation of 20,000 residents to the area. “Traveler attractions are the same reason that CEOs choose a place.” Jeff Malehorn, President & CEO, World Business Chicago  

Impact of Michigan’s National Tourism Campaign on State’s Economic Development Image Base: National Out-of-State Residents Source: Longwoods International

What the Economy is Telling Us About Travel Agenda What the Economy is Telling Us About Travel Historical perspective on a great run Prospects over the next year Risks that could derail the outlook Why the travel industry remains a smart play

Target opportunity: 658 mn unused vacation days Global&US.PPT Linked: D:\DATA\PMI\PMI_Data_Charts ‘Manufacturing US, EZ,JAP,UK’

Plenty of reasons why… Global&US.PPT Linked: D:\DATA\PMI\PMI_Data_Charts ‘Manufacturing US, EZ,JAP,UK’

Travel continues to take a larger share

Why does it matter.. Value of 1 million visitors – less than 1% of the 109 million visitors Florida saw in 2015. Traveller spending of about $1,035 per person – a total of over $1 billion in visitor spending. This spending supports 13,300 jobs earning nearly $500 million. Would result in a difference of $107 million in state and local tax revenue for the state.

For Pinellas County: Why does it matter.. Out-of-state travellers spent $4.1 billion in the county in 2015. This supported 56,000 jobs – 1 in 7 jobs in the county is supported by out-of-state visitor spending. Provides $345 million in tax revenue to the state and local governments. The 1 million visitor change for the State of Florida means about $3.3 million in state and local tax revenue for Pinellas County.

Finally, Happy Mother’s Day