Location:
ECONOMY; TOURISM;

OLR Research Report


January 22, 2010

 

2010-R-0011

Revised

IMPACT OF FINANCIAL CRISIS ON STATE'S TRAVEL AND TOURISM INDUSTRY

 

By: Rute Pinho, Research Analyst II

You asked how the financial crisis will impact Connecticut's travel and tourism industry in the short- and long-term.

SUMMARY

Travel and tourism indicators and revenue data show a downward trend in the state's travel and tourism industry in 2008 and 2009, but there are some indications of a recovery for 2011. We examined statistics for traveler welcome center and major attraction visitors, air passengers, slot machine revenue, hotel occupancy, traffic, and leisure and hospitality employment. The Office of Fiscal Analysis (OFA) also provided tourism-related tax collections for FY 07 through FY 09 and projected levels for FYs 10 and 11. While we were unable to locate any empirical research measuring how the crisis in the financial industry has affected travel and tourism spending, the financial crisis has contributed to the weakened economic conditions that appear to be driving the downturn.

Nationally, the travel and tourism industry continues to be challenged by economic conditions, including high unemployment and lower consumer confidence. The U.S. Travel Association reports that industry analysts do not expect any significant change in the demand for leisure travel services in the next six months. Analysts also expect the demand for business travel to remain flat in the near- to mid-term. But as with the state-level indicators, there are signs of a recovery for 2011.

CONNECTICUT'S TRAVEL AND TOURISM INDUSTRY

Travel and Tourism Indicators

The Connecticut Economic Digest, a joint publication of the Labor and Economic and Community Development departments, publishes monthly tourism and travel statistics for traveler welcome center and major attraction visitors, air passenger counts, and Indian gaming slots. Table 1 shows the latest available figures for October 2009, including year to date results, compared to 2008 levels, and 2008 figures compared to 2007.

Table 1: Tourism and Travel Indicators: October 2009

 

Oct. 2009 Level

Oct. 2009/Oct 2008

% Change

Year to Date

(Oct. 2009)

% Change

2008 Compared

to 2007

% Change

Jan. – Oct. 2009

Jan. – Oct. 2008

Jan. – Dec. 2008

Jan. – Dec. 2007

Info Center Visitors

33,788

-17.1%

326,393

359,154

-9.1

400,804

400,163

0.2

Major Attraction Visitors

96,989

-13.6%

1,502,868

1,488,456

1.0

1,676,017

1,716,452

-2.4

Air Passenger Count

457,919

-8.8%

4,697,767

5,214,992

-9.9

6,112,979

6,519,181

-6.2

Indian Gaming Slots (millions)

1,403

-5.3%

14,594

15,892

-8.2

18,621

19,710

-5.5

Source: The Connecticut Economic Digest, December 2009 and December 2008

UConn also publishes travel and tourism indicators in The Connecticut Economy. Its quarterly travel and tourism index consists of four indicators measuring the percentage change in room occupancy, slot machine revenue, attendance, and traffic, compared with the same quarter the year before. Table 2 lists the individual indicators and the overall travel and tourism industry index since the third quarter of 2007.

Table 2: Connecticut Travel and Tourism Index

 

2007

Q3

2007

Q4

2008

Q1

2008

Q2

2008

Q3

2008

Q4

2009

Q1

2009

Q2

2009

Q3

Room Occupancy

3.0%

-0.9%

5.2%

6.7%

-1.7%

-17.9%

-13.2%

-14.5%

-15.4%

Slot Machine Revenue

0.7%

-9.6%

-5.1%

-4.3%

-9.0%

-8.5%

-6.7%

-8.3%

-10.3%

Attendance

2.2%

-5.4%

4.3%

-2.1%

-3.1%

-6.1%

1.6%

0.1%

3.9%

Traffic

5.2%

1.1%

3.8%

-2.3%

-6.9%

-4.6%

-3.0%

0.8%

5.2%

Overall Index

2.8%

-3.7%

2.0%

-0.5%

-5.2%

-9.3%

-5.3%

-5.5%

-4.2%

Source: The Connecticut Economy, Spring 2008 through Winter 2010

Both tables show a downward trend in the state's travel and tourism industry in 2008 and 2009. The travel and tourism index indicates that the industry has generally declined from the second quarter of 2008 through the third quarter of 2009, with the most significant drop in the fourth quarter of 2008. While the latest figures show slight signs of recovery in traffic and attendance levels in the third quarter of 2009, the small gains are from a much lower base due to the decreases in 2008.

Another measure of the industry's health is the sales and other taxes it generates. Chart 1 shows room occupancy, admissions, and tourism tax collections from FY 07 through FY 09 and projections for FYs 10 and 11, provided by OFA. The room occupancy or hotel tax is a tax on charges by hotels and lodging houses, including motels and bed and breakfast accommodations, for occupying a room for less than 30 consecutive days. The tourism tax is a $1 surcharge on car rentals and applies to a rental or lease for periods of 30 days or less. The admissions tax is levied on the admissions charge to a place of amusement, entertainment, or recreation.

As Chart 1 shows, revenue from all three taxes increased slightly in FY 08, followed by a decline in FY 09. The room occupancy tax had the largest decrease, nearly 14%, in FY 09. OFA projects collections from all three taxes to decrease or remain steady in FY 10, followed by slight increases in FY 11. Collections in FY 11, however, are not projected to recover to FY 08 levels.

Chart 1: Tourism Related Tax Collections, FY 07 – FY 11

Source: Office of Fiscal Analysis

Slot Machine Revenue. Slot machine revenue declined from the fourth quarter of 2007 through the third quarter of 2009. As Table 1 shows, slot machine revenue (Indian gaming slots) was down 5.3% in October 2009 and 8.2% for the year. The largest drop in slot machine revenue occurred during the third quarter of 2009.

Chart 2 shows actual Indian gaming payments from FY 07 through FY 09 and OFA's projections for FYs 10 and 11. Payments have steadily decreased since FY 07 and are not expected to recover through the end of FY 11. The decrease in FY 10 reflects the net effect of a one-time payment of $25 million to the state for a settlement related to promotional slot machine play and a decrease in payments due to the continued decline in the level of slot machine gaming activity. The decrease in FY 11 parallels the decline in gaming activity in FY 10.

Chart 2: Indian Gaming Payments, FY 07 – FY 11


Source: Office of Fiscal Analysis

* Includes one-time $25 million settlement

Room Occupancy. Room occupancy decreased significantly towards the end of 2008 and through the third quarter of 2009. In the fourth quarter of 2008, it dropped 17.9%, contributing to the largest drop in the travel and tourism index over the past two years.

In December 2009, the U.S. Travel Industry reported that the national hotel industry, which posted declines through 2009, is expected to do slightly better in 2010, but not expected to begin recovering until 2011. Demand for room occupancy is forecasted to grow 3.2% during 2011, but is not projected to return to 2007 levels in the foreseeable future. Supply growth (new hotel construction) is expected to be 0.8% in 2011.

OFA's projections for the state's room occupancy tax collections in FYs 10 and 11 (see Chart 1) are consistent with the U.S. Travel Industry's projections for the hotel industry nationwide. While room occupancy tax collections decreased 14% in FY 09, OFA projects that they will decrease at a slower rate in FY 10 and begin recovering in FY 11.

Major Attraction and Information Center Visitors. As shown in Table 1, Info center visitors were down 17.1% in October 2009 compared with October 2008, and down 9.1% over the year-to-date total in 2008. Major attraction visitors were also down 13.6% over October 2008, but up 1% over 2008. As Chart 1 shows, OFA projects admissions tax revenues will remain relatively flat through FY 11. The small increase expected in FY 11 is not expected to bring admissions tax collections back to FY 08 levels.

Air and Auto Travel. The air passenger count, which represents the number of passengers enplaning and deplaning at Bradley International Airport, was down 8.8% over October 2008 (see Table 1). Nationally, the Air Transport Association (ATA) of America reported that nearly 4% fewer passengers traveled on U.S. airlines in October 2009. The ATA reported that passenger revenue fell 15% in October 2009 versus the same month in 2008, marking the 12th consecutive month of declines in passenger revenue, driven primarily by ticket price declines.

According to the U.S. Travel Association, auto travel is the only transportation sector that continues to increase in volume. As Table 2 shows, traffic in Connecticut decreased from the second quarter of 2008 through the first quarter of 2009, but has since had two consecutive quarters of gains. However, OFA projections show tourism tax revenues continuing to decline in FY 10 with a small increase in FY 11.

Chart 3: Connecticut Leisure and Hospitality Employment, January 2007 – October 2009

Source: The Connecticut Economic Digest, December 2009

Leisure and Hospitality Employment. Chart 3 shows the state's leisure and hospitality employment levels from January 2007 through October 2009. The figures, which have been adjusted to reflect seasonal employment changes, include workers employed in arts, entertainment, recreation, accommodation, and food services. It shows leisure and hospitality employment trending upward until January 2009, before retreating back to July 2007 levels. Since April 2009, it has recovered its losses from the first part of 2009.

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