Overview

State of the Industry

By Holly Dolezalek, forward by Joel Schettler

The marketplace for meetings and events in Minnesota and surrounding regions remains healthy. As one local hotelier put it recently, the industry has “finally climbed out of its hole.” Yet, the road that planners and vendors will travel the coming year may be rockier than it has been during recent years of steady growth. With economic clouds again gathering on the horizon, many planners and vendors alike approach today’s hospitality industry with guarded optimism.

Following two years of declining tourism spending in the wake of recession and 9-11, the hospitality industry began to grow again in 2003. While the industry has enjoyed years of sustained economic recovery, today that spending growth is beginning to level, according to data from the Travel Industry Association (TIA) and the U.S. Department of Commerce, Office of Travel & Tourism Industries. In 2005, growth in tourism spending peaked at 8.4 percent from the prior year. By 2006, it had shrunk to 7 percent, and when final data is tallied, spending growth is expected shrink to 5.7 percent in 2007; by 2009, projections put the year-to-year spending increase at just 4.5 percent.

Over the past four years, the State of the Industry Survey has measured a hospitality industry that struggled to regain its footing following the events of 9-11 and subsequent recession. In its wake meeting planners and vendors alike learned to adapt by rethinking their value propositions and leveraging new technologies to strengthen ties to their customers. Adapting to market conditions, vendors worked to gain local business from clients who planned their meetings closer to home. Last year, 58 percent of respondents said the Twin Cities client market showed the most growth over the past five years. As hospitality business began to recover, industry professionals have seen growth come from farther afield—this year’s survey data reveals that only 48 percent have seen the most growth come from Twin Cities-based clients.

In 2006, the U.S. travel industry received $700 billion from domestic and international travelers, generating $109 billion in tax revenue and employing more than 7.5 million people, according to TIA data. Once tallied, 2007 direct travel spending will reach $740 billion, which would be a 5.7 percent increase over 2006. TIA predicts 2008 travel spending will increase another 5.2 percent to $778 billion.

An outgrowth of the recent housing and mortgage industries, the economy is expected to experience slower business growth in 2008, according to predictions made by the Federal Reserve. Gross domestic product grew at an annual rate of 4.8 percent in the third quarter of 2007. While the economy has continued to expand in the ensuing months, it has done so at a reduced pace, according to data from the Fed’s beige book, a summary of economic conditions released in late November. Fed predictions place GDP growth between 1.6 percent and 2.6 percent for the coming year.

Yet even in the midst of such predictions, the Fed found some light, particularly in hospitality. “Activity in the travel and tourism sector was at a high level and increased further in some cases,” says the Fed report. In the Minneapolis district, tourism bookings grew or were above normal season expectation. According to the Ninth District Fed report, fall tourism was up and officials were optimistic for the winter season. The report also highlighted increased convention business in Duluth during October, with inventory, occupancy and rates all up for the year.

One sign of hospitality industry health is increasing demand. But with increasing demand, with limited growth in the supply, price increases soon follow—most of them unwelcome. “I am wondering if the portent of a recession will finally turn around the avarice of hotel pricing, which, I feel, has gotten way out of control,” says survey respondent Jo Angela Maniaci, CMP, a meeting planner with Special Events Planning in St. Paul.

In August 2007, the month with the largest proportion of the year’s travel spending, room demand was up almost 4 percent, with occupancy increasing a little more than 2 percent, according to TIA statistics. Nonetheless, room revenues grew more than 10 percent from the previous year. Once tallied, the Travel Price Index, a TIA measure of costs based on price data collected from the U.S. Department of Labor, is expected to increase by 4.7 percent in 2007. It marks a period of lowering increases in travel prices.

Business travel will remain stable in 2008, increasing a moderate 0.4 percent following a 1.7 percent decrease in business travel in 2007 compared to a year ago, according to a TIA study released in late October. And the convention business continues to exhibit health. Following the third quarter, year-to-date convention revenue rose 9.7 percent when compared to the same time period in 2006, according to data gathered by the Center for Exhibition Industry Research (CEIR). During this same period, attendance grew nearly 12 percent.

While business travel may plateau, it will still be enough to drive up the cost of doing business. The National Business Travel Association predicts overall travels costs will increase between 6 percent and 8 percent in 2008. In a similar report released within a day of the TIA study, American Express states that demand for business services will outweigh supply in 2008, “driving continued increases in rates across air, hotel, car rental and corporate meetings and events.”

“Travel managers and procurement professionals can expect another capacity-restricted, challenging year,” says Mike Streit, vice president and global leader for American Express Business Travel Advisory Services. “Heading into 2008, successful management strategies will focus not just on controlling travel expenses but identifying additional areas to control costs and save, such as entertainment and related services including corporate meetings and events.”

Among the changes American Express predicts will occur in its report, titled the Global Business Travel Forecast, include an increase use in preferred suppliers, “especially hotels where compliance has historically hovered around 50 percent.” Airfares will continue to climb, and hotel rates in demand-heavy markets across Europe, Asia and the United States could see high double-digit increases, the report predicts, including in Beijing as a result of the summer Olympics.

As the eyes of the world will soon be on St. Paul, it’s the hope of many hospitality professionals that the Twin Cities will take its place among those demand-heavy destinations.

“I think there will be tremendous opportunities for our venues, planners and cities to showcase themselves to the nation with the Republican National Convention coming to the state in 2008,” says survey respondent Ruth Wikoff-Jones, with Blue Marble Events in Minneapolis. “By providing a successful, coordinated effort through sharing of information even between so-called competitors, we can impact the future of events in Minnesota for years to come.”  —J.S.

Thanks for your support

Meetings: Minnesota’s Hospitality Journal would like to thank everyone who took time from their busy schedules to participate in this year’s survey. Your continued support has enabled us to offer a unique look at the region’s hospitality industry. Once again, we partnered with the University of Minnesota Tourism Center to develop new questions and streamline the survey process. This year, thanks to prize sponsor Lancer Catering, a $5,000 Meetings Planner’s Event Package has been awarded to one lucky winner randomly drawn from the names of the planner respondents. One respondent to the vendor/supplier version of the survey also came away with an advertisement in Meetings: Minnesota’s Hospitality Journal. We would also like to thank SuperShuttle for offering an incentive prize for each survey participant. This survey’s growth and continued excellence is achieved in no small part to the support of all of our sponsors, partners, and, most of all, our readers.

Grand Prizewinner: Sarah Nickolay Gray, Meeting and Event Planner, National Marrow Donor Program.
The Prize: $5,000 Meetings Planner’s Event Package courtesy of Lancer Catering.
Vendor Prizewinner: Chris Lawson, Owner, Out of the Box Productions.
The Prize: An advertisement package in Meetings: Minnesota’s Hospitality Journal

[Photo] From left: Dean Dutko, general manager, Edinburgh USA; Vendor survey prizewinner Chris Lawson, owner, Out of the Box Productions; Grand prizewinner Sarah Nickolay Gray, meeting planner, National Marrow Donor Program; and Joel Schettler, editor, Meetings: Minnesota’s Hospitality Journal.