EDITORIAL:  Confronting Reality
By Donald F. Holecek, Editor-in-Chief of Michigan Tourism Business

The economic news across the media that I monitor is always mixed.  My conclusion from all that I have read recently is that the national economy, although hampered by high oil prices, continues to grow at a healthy pace.  But, the Michigan economy continues to lag far behind and remains depressed. 

The picture is much the same for the travel and tourism industry.  Nationally, our industry has fully recovered from 9/11 and the recent recession; occupancy rates in the lodging sector are high, which is fueling room rate increases after years of deep discounting; and record numbers of passengers are filling seats on the nation’s airlines, although airline profits remain illusive. 

Unfortunately, Michigan’s travel and tourism industry continues to struggle.  The occupancy rates of Michigan’s lodging sector are among the lowest of the fifty states, according to Smith Travel Research, and are well below the rates needed to make these businesses profitable.  Business travel in Michigan remains sluggish, in line with challenges faced by Michigan’s auto industry.  On the other hand, leisure travel, while reeling from high gasoline prices and an anemic regional economy, is growing, but at a rate far below its long term trend.  Even this good news is dampened by leisure travelers’ reluctance to spend as freely on their trips as they have in the past. 

It is amply evident that all is not well with Michigan’s travel and tourism industry.  In the past, when this industry has encountered downturns in business, we could assume that business conditions would improve in a year or two, and all that we needed to do was to “ride out the storm.”  This time things may be different.  The implications of the problem confronting General Motors (GM) are among the leading economic threats this state faces.  What are the consequences of the reduction of 25,000 jobs that GM has recently announced?  How many of these will be Michigan jobs? How many additional jobs might be lost as GM’s workforce reduction cascades across the state’s economy? And, what if the surviving GM employees’ and retirees’ earnings and benefits are reduced in order for the corporation to survive in the highly competitive global economy?  Even if GM is able to regain forward momentum, which I believe it will, it won’t be the engine for economic growth in Michigan that it has been in the past.  The more fundamental question I keep asking is:  If the Michigan economy and its travel and tourism industry are so weak now with our nation’s economy relatively strong, how bad will things become when the next recession arrives on the scene?

By now, it is common knowledge that the Michigan economy and the state’s travel and tourism industry are in trouble.  The search for remedies is advancing on multiple fronts.  However, it strikes me that many of the remedies being advanced are well designed to address the past rather than future challenges and opportunities.  The remedies proposed also often appear far too similar to those being pursued almost everywhere else in the developed world, so they will surely face strong competition.  To date, none of these remedies has focused on the economic development potential of Michigan’s travel and tourism industry.  This industry’s omission from consideration as an engine for economic growth seems inappropriate given that it is:  1) one of the world’s leading industries and employers, 2) has been growing steadily for decades, and 3) is projected to continue healthy growth for the foreseeable future. 

The travel and tourism industry’s future market potential was put into perspective for me by recent news about developments in China.  U.S. News & World Report (June 20, 2005) recently noted, “In China there are an estimated 2 MILLION people whose net worth is at least $40 MILLION.”  As their freedom to travel beyond the mainland increases, it isn’t difficult to imagine the potential this emerging traveler market portends for destinations that the Chinese will want to visit.  High on their list of places to visit are destinations outside of Asia, such as the United States.  While it is probably a decade or so too early for the Chinese tourist market to blossom, national and international trends clearly demonstrate that the global travel market is already in a growth mode. 

The Travel Industry Association of America noted the following in its report, Emerging International Tourism Markets:  Trends and Insights, 2004 Edition. 

-- “In terms of purchasing power parity, the Chinese economy is the second largest in the world, behind the U.S. and ahead of Japan.”

-- “With 1.3 billion people, China is the most populous country in the world.  Various sources believe that up to 19 percent of the total population of China (approximately 247 million people) can be classified as middle class and have the means for outbound travel.  Some experts believe that the size of this group will nearly double by 2010.”

-- “China was among the highest spending of the top 25 tourism generating countries to the U.S. in 2002.  On average, Chinese visitors to the U.S. spent $2,413 per party per trip.”

Obviously, we aren’t benefiting as we might from overall travel market growth.  Just how challenged Michigan’s travel and tourism industry may be is becoming increasingly evident.  A couple of years ago, I pooled data from multiple sources (from about 1995) to develop an estimate of Michigan’s travel trade deficit (i.e., how much more our residents spend on out-of-state travel than we capture from non-resident visitors to Michigan).  Michigan’s deficit in domestic travel was $1.56 billion, and its deficit in international travel was $1.26 billion.  Given negative industry trends since the mid-1990s, it’s probable that Michigan’s combined domestic and international travel trade deficit has grown and is now likely in the $3 billion range.  A more current indicator of how challenged this industry has become, is the report by Smith Travel Research that indicates occupancy rates in our lodging establishments have declined to where Michigan ranks 49^th among the fifty states.

What is being done to address the increasingly obvious challenges and opportunities that the Michigan travel and tourism industry is confronting?  The answer is, not much.  In fact, the most obvious tool the state has to employ, its tourism promotion budget, is moving in the wrong direction.  Twenty years ago, Michigan’s tourism promotion budget was the sixth highest in the nation.  In fiscal year 2004-2005, its promotion budget was the 16^th highest in the nation, and its overall tourism office budget ranking had slipped to 31st among the fifty states.

Who’s to blame for the lack of support this industry has received for combating its challenges and exploiting its opportunities?  While “finger pointing” is generally a non-productive and disruptive exercise, it can be useful to identify potential sources of more productive strategies.  In this, case I believe the blame for the industry’s problem falls substantially on the industry’s shoulders.  I also believe that it must assume the lead role in developing a viable strategy to solve its problems.  The industry’s recent effort to bring attention to issues like the state’s promotion budget and school calendars are necessary but not sufficient steps toward solutions to its problems.  I believe this industry needs to develop and advance its collective vision for sustainable growth into the future.  Only then, with its “game plan” in hand, will the industry be positioned to combat its problems, to exploit its opportunities, and to attract resources from other sources that will be necessary to fully implement its vision and “game plan.”        

Your thoughts on these issues are welcome at dholecek@msu.edu.