How Are We Doing? / Does What We Invest in Promotion Matter?
By Don Holecek, Director of the MSU Tourism Resource Center

Recently, three publications, which are produced by the Research Department of the Travel Industry Association of America (TIA), arrived at the Center.  Before adding them to the library, as is my custom, I read them for clues as to how Michigan’s tourism industry is performing in comparison to the rest of the nation and to other states.  The three publications reviewed include:

·         “Domestic Travel Market Report 2004 Edition”
·         “Impact of Travel on State Economies 2004 Edition”
·         “2003-2004 Survey of U.S. State and Territory Tourism Office Budgets”

The mission of TIA is: “to represent the whole of the U.S. Travel Industry to promote and facilitate increased travel to and within the United States.”  Its Research Department seeks to meet the research needs of TIA members and the travel industry by: 1) gathering, conducting, analyzing, publishing, and disseminating economic, marketing, and international research that articulates the economic significance of the travel and tourism industry at national, state and local levels; 2) defining the size, characteristics and growth of existing and emerging travel markets; and 3) providing qualitative trend analysis and quantitative forecasts of future travel activity and impact.

Since there are only a handful of TIA members from Michigan and even fewer libraries that receive TIA’s publications, most Michigan Tourism Business readers will not be familiar with TIA or its research activities and publications.  Because: 1) research is expensive, 2) the subscriber base for these publications is small, and 3) TIA’s research program is self-supported, the combined purchase price of these three publications is high (in excess of $1,000).  It is understandable, but nonetheless unfortunate, that TIA’s research publications are not more readily accessible and widely read across Michigan’s tourism industry.  As a result, it is difficult for many associated with Michigan’s tourism industry to assemble a scientifically sound basis for assessing how our industry is faring in the broader scheme of things.  For an industry competing with 49 other states as well as most other countries open to international travelers, only limited awareness of what is occurring beyond Michigan’s borders robs us of insights that would be useful in framing public policy to better support our industry and in making more informed business decisions.

There is a wealth of information contained in these three publications.  Some statistics that caught my attention are provided below.

Update on the Domestic Travel Market

Last year was a so-so year for the U.S travel industry, with domestic travel in person-trips increasing by 1.2%.  Leisure travel was up by about 2.0%.  Business travel was down for the fifth year in a row in 2003, but only by about 2.0%, indicating that it may have finally bottomed out.  Since 1994, leisure travel has increased by 16.1% (~2% per year) while business travel declined by 15.1%, resulting in a net 9.8% increase in overall person-trips.  Auto travel was up by over 10.0% during this period, but air travel was down by nearly 5.0% over the past nine years.  Although the volume of travel activity managed to grow somewhat during the past nine years, it is safe to assume that this modest increase in volume was far too little to fuel increased industry profits.  The struggle of major U.S. airlines to stay afloat is an obvious example of how rising costs and declining sales per capita are disseminating travel businesses’ bottom lines.  It would appear from this collection of benchmark statistics that the U.S. travel industry is beginning to gain some traction after navigating through a protracted “soft spot in the road,” but it is far from recovering the profits that were lost along the way.

Update on the Impact of Travel on State Economies

Comparative benchmark statistics for individual states are provided in TIA’s “Impact of Travel on State Economies.”  The 2004 edition provides data for 2002, a year in which overall domestic travel expenditures declined for the second year in a row despite a slight increase in person-trip volume.  In 2003, TIA estimated that domestic travelers spent $11.61 billion in Michigan, and international visitors to the state spent $0.56 billion.  Total expenditures by domestic and international travelers in Michigan declined by about 2.0%, comparable to a 1.9% decline nationally.  Travel industry employment in Michigan declined by about 3.6% to about 155,000 employees, slightly more that the 3.0% decline nationally.  Michigan’s rank among the 50 states in terms of domestic travelers’ expenditures captured, improved from #14 to #13.  Overall, Michigan’s travel industry decline between 2001 and 2003 is in line with what has been happening nationally and in comparison to other states.

Update on U.S. State and Territory Tourism Office Budgets

Once a leader among the 50 states in public sector funds allocated to its tourism office (i.e., Travel Michigan), Michigan ranked only #25 on this metric as reported in TIA’s “2003-2004 Survey of U.S. State and Territory Tourism Office Budgets.”  With a total budget of just over $8 million, Michigan lagged far behind neighbors Illinois ($46 million) and Wisconsin ($13 million), with Minnesota ($8 million), but ahead of Ohio ($6 million) and Indiana ($5 million).  The average tourism office budget in FY (fiscal year) 2003-2004 was about $12 million—about 50% more than Travel Michigan’s state appropriation.  The good news in this TIA report is that Michigan’s budget was not reduced in FY 2003-2004 from the previous year; whereas, travel office budgets for all of Michigan’s neighboring states, with the exception of Ohio, declined, as did the national average although the latter declined less that one-half percent.

The overall picture painted by these travel budget statistics is mixed.  Last year’s flat total Travel Michigan budget was a net positive outcome relative to the slight decline in tourism office budgets nationally and the more substantive cuts absorbed by most other neighboring states.  Longer term, however, Michigan has lost considerable ground to competing states with a total investment in promotion that is now 50% below the national average.  In FY 1984-85, the Michigan travel office budget was slightly over $9 million, ranking it #6 among the 50 states.  As recently as FY 1999-2000, our travel budget was $15.5 million, and our comparative ranking was #11.  The industry’s concern with the state’s level of investment in tourism promotion is clearly well founded and strongly supported by these statistics.  The long run picture is even bleaker were one to account for the ravages of inflation on what a dollar invested in promotion buys today in comparison to what it could buy 20 years ago.

Does What We Invest in Promotion Matter?

I will conclude this discussion with a question that arises from looking back to about 1985 when this Center was established and when reasonably useful industry tracking were developed.  Over this nearly two-decade period, tourism volume has increased by an annual average of about 3.5%, while tourists’ expenditures have increased by about 5.0% per year.  Yet, in non-inflation adjusted terms, the state government’s investment in its tourism office has waxed and waned, ending at about the level that was allocated to it in FY 1984-85.  The question then is:  Does the level of the state government’s investment in tourism promotion matter to how well the industry performs?  This is a complex question to answer, but I’ll venture some arguments to support my conclusion that the level of investment in promotion does matter.

·         Investment in tourism promotion impacts destination decisions for many years after the investment is made.  Many years after Michigan dropped “Say Yes to Michigan/Yes, Michigan,” these brand identifiers still surface in our surveys.  Tourists recruited in earlier advertising campaigns return for many years thereafter.  Our problem now is that we aren’t able to invest in recruiting new first time visitors from generation “X” and “Y” who would have been Michigan’s core of repeat visitors into the future.

·         The slide in our state government’s investment in tourism promotion has been offset to some degree by increased investments by other DMOs (destination marketing organizations) and by private businesses.  Two sources of these new investments come to mind.  The first is CVBs (convention and visitor bureaus), which have grown in number and in financial clout.  Their revenue base is in a sense indexed to inflation and growth in demand.  Rising room rates and growth in volume of rooms rented have added millions of dollars to what CVBs are investing in promotion.  The second source of new promotion investments is the casinos that have been established in Michigan. Their promotion investments are fueling growth in tourism volume to the venues where they are located.  We are indeed fortunate that these new sources of promotion investment have emerged, but on a dollar for dollar basis these investments do not have the same impact as those invested by Travel Michigan.  Few of these promotion organizations have the financial means to target distant markets or to mount serious research efforts to optimize return on their tourism promotion investments.  While the total dollars spent by all entities promoting Michigan tourism destinations has increased substantially over the past twenty years, more and more of these dollars are being targeted at the same markets, primarily those in Michigan itself and those closest to its borders.  Michigan travel promotion has become invisible across most of the nation and world.  Unfortunately, Michigan travel promotion dollars are increasingly being concentrated in markets exhibiting slow growth relative to most other U.S. domestic markets.

·         Growth in tourism demand has offset the impact of the state government’s investment in promotion.  Growth in tourism demand is well documented in the U.S. and across the globe.  Without effective promotion, Michigan cannot expect to capture its fair share of these expanding markets.  Michigan’s travel trade deficit, which I’ve previously estimated to be about $3 billion, will only mount if the state cannot effectively counter the promotion investments of its competitors.

·         Adoption of productivity enhancements and more effective target marketing driven by research has allowed Travel Michigan to boost its rate of return on the fewer dollars it has to invest in promotion.  In the TIA report discussed earlier, the amount each state invests in research is reported.  In FY 2002-03, Travel Michigan invested $530,000 in research, ranking it #3 behind Florida ($855,000) and California ($560,000).  One can assume that its more research-driven promotion programs allow it to make smarter decisions than its research-shy competitors.  Travel Michigan has also been an early adopter of web technologies as a promotion mainstay.  This has given it an edge over many competitors.  The danger is that most everyone now recognizes the power of the Web, so further innovation by Travel Michigan in this arena is unlikely to continue to offset its smaller promotion budget vis-à-vis its competitors.

Feel free to write to dholecek@msu.edu or call me at 517-353-0793 to share your thoughts about these topics.