Developing a Plan for Michigan’s Tourism Industry: Progress Report #1
By Don Holecek, Director of the Travel, Tourism & Recreation Resource Center at Michigan State University

During last month’s semester break, we here on campus received the gift of time.  Time to catch up on stored email messages; time to make our desks operational workspace again; time to read good books that are not on required reading lists; time to reconnect with family and friends; and, most importantly, time to reflect on the year just passed and the new year that lies ahead.

From what I read during the holidays, it seems that I am not alone in sensing that finding some time to think, beyond searching for solutions to the pressing problems presented in one’s daily routine, is increasingly challenging in our wired world of cell phones, voicemail, email, etc., etc.  The ability to find time to think is often said to be a key to success.  For example, Charlie Munger, Warren Buffett’s partner for over four decades, is quoted in a recent issue of Kiplinger’s personal financial magazine as attributing the success of their enterprise to: “We hate to have too many things on our schedules. And we both insist on having a lot of time available to just sit and think.”  

Some people take extreme steps to create precious time to think.  Bill Gates, for example, has been reported to isolate himself at an undisclosed retreat location each year for several days to review corporate strategy “white papers” prepared by Microsoft staff.  Our nation’s president finds his time to think by retreating to his ranch in Crawford, Texas.  Most of us, however, must retreat to more accessible venues to think, such as our boats, campers, deer stands, or our quiet offices during the semester break.

So, what have I been thinking about that might matter to readers of Michigan Tourism Business?  After several years of below trend performances, I thought that 2005 would be a good year, but not a robust year, for Michigan’s tourism industry. But, based on trends in most indicators that we track, industry performance in 2005 will fall short of even our modest growth expectations. Why has Michigan’s tourism industry been so slow to recover?  Since the U.S. domestic tourism industry has returned to solid growth, the problem facing our industry must be primarily local in nature.

Let’s consider the set of local variables that could be responsible.

Weather Conditions – Our research has shown that weather conditions have a significant influence on tourism, but we haven’t experienced consistently unfavorable weather conditions every year since 2000.  The weather patterns in 2005 were generally more favorable than in 2004, yet we saw little if any improvement in the industry’s performance over last year.  Conclusion: Our multiple year slump isn’t weather related.

Higher Gasoline Prices – While high gas prices are fodder for media coverage and consumer complaints, the minimal decline in consumption recorded when prices topped $3/gallon post-Katrina indicate that the demand for gasoline is inelastic, at least in the short term over the historical range in prices that we have experienced.  The telling reason for eliminating gasoline price increases as the culprit behind Michigan’s tourism industry’s prolonged slump is that they have occurred nationally but have not stymied tourism growth in most of the rest of the U.S.  Conclusion: The problem isn’t higher gasoline prices.

The State’s Promotion Investment – Assessing the role of the state’s investment in tourism promotion is difficult.  There is reliable evidence that the state has received a large positive return (in the form of state tax revenue collections) on its investments in tourism promotion in recent years.  And, it is evident that the state’s tourism promotion investment has declined in nominal terms, more so in purchasing power and vis-à-vis most of its competitors.  When I compare the multi-billion dollar scale of this industry to the several million dollar purchasing power decline in the state’s investment in promotion, I conclude that reduced investment in promotion is part of the problem but cannot be the dominant force behind the slump the industry has been experiencing.  As anecdotal evidence, the promotion budget was held stable in 2004 and 2005, yet industry performance last year appears to have continued to slide.  Conclusion: Slipping investment in promotion exacerbated but didn’t create the problem.

The Region’s Economy – Over the course of last year, we received a steady stream of increasingly bad news about the economies of both Michigan and the larger region, especially the region’s dominant auto industry.  The Michigan tourism industry draws the majority of its customers from in-state, neighboring states, and Ontario, Canada.  When the economy in its primary market is in decline as it has been for several years, Michigan’s tourism industry is obviously negatively impacted.  In the past, the negative impact of auto industry troubles on Michigan’s tourism industry have been mitigated by an array of “safety net” provisions across the auto industry (such as unemployment benefits) and by people’s tendency to travel locally when faced with a temporary decline in their incomes.  It is becoming obvious that the current decline in the auto industry is not the result of a normal nationwide slowing of the economy or recession.  The last recession which began in 2000 is long past, and interest rates are near historical lows.  At this stage in the economic cycle, had nothing changed, the region’s auto industry should be experiencing “boom times.”  This is clearly not happening, so the cause must be structural rather than cyclical.  Having discounted the other likely suspects, I conclude that the dominate reason for the tourism industry’s anemic performance is the persistently weak economies in Michigan and the region which results from mounting troubles in the dominant auto industry.  Conclusion: The weak economy across Michigan’s primary tourism market is the primary cause of the problem, and it isn’t going away soon.

Reflecting back to 2000 when Michigan’s tourism industry began its multiple year slide, our annual projections for the industry’s performance were largely built on an assumed cyclical auto industry dominant economic model with “safety net” provisions.  It is now evident that we have been experiencing structural change which has yet to run its course, and the depth and duration of this process has largely exhausted the “rainy day” provisions across the system.  This time around Michigan’s tourism industry can not expect a “hunker down until the auto industry rebounds” coping strategy will be as effective as in the past. Indeed, it is truly frightening to consider how much further tourism business may fall when the currently strong U.S. economy begins to weaken.

Is Michigan tourism doomed to take a beating until the region’s economy eventually returns to a growth mode?  I don’t think so.  In fact, I believe that Michigan’s tourism industry has the potential to lead the Michigan economy back to health.  But, this potential to help itself, along with the Michigan economy, will require the coordinated efforts of ALL associated with the industry. We need a plan to focus our efforts. 

As reported in the last issue of this newsletter, a team of MSU and Travel Michigan personnel has been formed to facilitate development of a coordinated development plan BY Michigan’s tourism industry FOR the Michigan Tourism industry. MSU has agreed to participate by playing a coordinating role in this industry planning effort, in recognition of its mission as this state’s public land grant university and its long history of supporting the tourism industry through its extension, research, and teaching programs.  Travel Michigan is a logical partner in this effort given its mission and depth of knowledge about the industry.  Readers interested in more information about this project are encouraged to go to the project website, www.tourismcenter.msu.edu/Plan, where materials presented during meetings with industry leaders and responses to their suggestions and questions are posted.

At this time, we are engaged in two primary planning project-related activities. First, we are refining and embellishing the draft proposal, in essence moving from the concept stage towards a detailed operating plan for the project.  Second, we are assembling funds needed to support the project, the majority of which must be contributed by the industry.  The industry response to this fund raising effort has been encouraging. To date, we have received pledges for $79,950 toward the $200,000 of operating funds needed for the project. A link to the most current listing of contributors is provided elsewhere in this issue of Michigan Tourism Business.  We have been notified to expect contributions from several other organizations where final approval is pending and also informed that MACVB (the Michigan Association of Convention and Visitor Bureaus) is recommending that its members pledge a targeted 1% of their revenue to the plan development project.