THE TESTIMONY OF

JONATHAN TISCH
CHAIRMAN, TRAVEL BUSINESS ROUNDTABLE

BEFORE THE

SUBCOMMITTEE ON CONSUMER AFFAIRS, FOREIGN COMMERCE AND TOURISM
SENATE COMMERCE, SCIENCE AND TRANSPORTATION COMMITTEE

HEARING ON THE STATE OF THE U.S. TRAVEL AND TOURISM INDUSTRY
WEDNESDAY, SEPTEMBER 25, 2002

INTRODUCTION

I am Jonathan Tisch, Chairman of the Travel Business Roundtable (TBR) and Chairman and Chief Executive Officer of Loews Hotels. TBR is a CEO-based organization that represents the broad diversity of the U.S. travel and tourism industry, with more than 70 member corporations, associations and labor groups. Loews Hotels, headquartered in New York City, operates 18 distinctive properties in the U.S. and Canada, including the Regency Hotel in New York and the Loews L’Enfant Plaza and Jefferson hotels here in Washington. The company employs more than 8,000 people across the United States. I am testifying today on behalf of both organizations about the state of the U.S. travel and tourism industry in the post-September 11 climate.

Before I begin, I would like to thank Chairman Dorgan and Ranking Member Fitzgerald for holding this important hearing and inviting TBR to testify. Senator Dorgan, our industry is particularly appreciative of your many years of leadership on issues that affect the travel and tourism industry and the traveling public, as well as your keen understanding of the importance of our industry to the vitality of the U.S. economy.

CURRENT STATE OF THE INDUSTRY

Over the past year, the travel and tourism industry has faced significant challenges on several fronts. It became apparent very quickly during the days and weeks following September 11 that the problems facing our industry were not simply airline-related. When people stopped flying – or in many cases traveling by any mode of transportation – they also stopped staying in hotels, eating in restaurants, visiting museums or theme parks, renting cars or shopping. As a result, hundreds of thousands of travel and tourism industry workers were laid off or had their hours reduced, travel and tourism companies faced steep revenue shortfalls and state and local governments saw a rapid decline in tax revenue upon which they were particularly reliant in the recessionary economy.

Though lower prices and increased security measures have helped get Americans traveling again, the ongoing economic uncertainty in the U.S. and the perceived “hassle factor” associated with flying remain barriers to the industry’s recovery, and the slight recovery we are seeing in some industry sectors and areas of the country is uneven. As a result, individuals and businesses continue to cut back on discretionary spending, including travel. Vacations are being shortened or canceled altogether, and businesses continue to reduce non-essential travel. In addition, international arrivals continue to lag behind pre-September 11 levels.

The numbers speak for themselves:

	TBR recently conducted a poll on travel patterns one year after September 11 (summary attached). While 89 percent of all travelers think airport security is better now than it was before last fall, three in 10 (30 percent) believe that the current level of security measures imposed so far are “insufficient” and more can be done – an increase of five percentage points from last October. In addition, more than one in 10 travelers (11 percent) have canceled their flights or fly less frequently because of the hassles of airport security. While commercial airline travel is perceived to be very safe, the “hassle factor” associated with heightened airport security, a lack of confidence in the sufficiency of the airport security measures and inconsistencies in the screening process from one airport to another confirm a recent trend by travelers to make trips by car instead of airplane. For example, 44 percent of business travelers said they now travel by car more frequently for out-out-town trips.
	The September 11, 2002 edition of the Federal Reserve’s Beige Book showed that while leisure travel is up in six of the 12 districts, business travel is off across the country. Even in districts that were seeing increased visitor traffic, room rates are down and travelers are spending less on food and entertainment.
	The Business Travel Coalition’s 2001 Business Travel Survey reported that businesses cut their travel by 28 percent after September 11. In August, the BTC stated that business travel will continue to be cut an additional 11 percent this year.
	The U.S. Department of Commerce’s Office of Tourism Industries reported in August that international arrivals to the U.S. were down by 12 percent in the first quarter of 2002.
	According to the Hotel Employees and Restaurant Employees International Union, in the days and weeks following the terrorist attacks, 30 percent of HEREIU workers lost their jobs due to the decline in tourism. One year later, 15 percent of the Union’s members are still out of work, and many of those who are employed are working reduced hours.
	The National Restaurant Association reports that while sales at restaurants and bars have been strong in 2002, employment in these establishments remains down by 180,000 jobs since the recent peak in July 2001. Moreover, job growth at restaurants and bars fell well below the overall economy in recent months. In the 12 months ending August 2002, restaurant and bar employment declined at a 1.8 percent rate, or double the 0.9 percent decline in the country’s total non-farm employment rate.
	New York City’s convention and visitors bureau, NYC & Company, of which I am Chairman, reports that while the City has seen an upswing in domestic leisure visitors in the past year, its recovery is partial, as business travel, visitor spending and lengths of stay are down. Preliminary numbers indicate that international visitorship is down as well.
	According to the Convention Industry Council, more than 100 exhibitions were canceled last year, and trade show attendance dropped more than 20 percent in the fourth quarter of 2001. Attendance at tradeshows this year is down 8 to 10 percent, and the renewal rate on most exhibitions is off by 50 percent or more. Moreover, international attendance at tradeshows has fallen by 50 percent since last September.
	Economists and travel planners have said that they do not expect the hotel industry to return to the profit levels experienced in 1999 and 2000 until mid-2004 at the earliest.

It is extremely important to note that this unevenness in recovery is not just affecting the employees and owners of travel and tourism businesses. Cities, counties and states that were already beginning to see budget shortfalls due to last year’s economic downturn have also been deeply affected by the decline in the tourism and sales tax revenues that visitors bring to their jurisdictions. Forty-one states are currently experiencing major budget shortfalls, and Governors often cite a dramatic decline in travel and tourism tax receipts as a major cause. As a result of these revenue declines, states and local governments have been forced to reduce services at exactly the same time their citizens – who are also feeling the effects of the economic slump – require more assistance.

WHERE DO WE GO FROM HERE?

The travel and tourism industry, as well as many states and cities, have undertaken a number of efforts in the past year to encourage people to start traveling again. TBR took the lead last fall to work with Senators and Members of Congress to craft viable proposals to stimulate travel that could be included in an economic stimulus package. We also commissioned two major surveys – conducted at the beginning and end of October 2001 by Penn, Schoen, Berland and Associates and Burson-Marsteller – which we shared with the industry and the federal government, that helped us gain a better perspective of traveler confidence. On the marketing side, the Travel Industry Association launched a Travel Industry Recovery Campaign, funded by all sectors of the U.S. travel and tourism industry, which included a plea from President Bush for people to start traveling again. On the local level, states such as Florida and California, and cities such as New York and Washington, undertook successful public-private advertising campaigns to attract travelers in the region and within their own jurisdictions. We can all be proud of how our industry and state and local governments came together to work toward recovery. And, while we are seeing promising signs that reaffirm the progress being made, we clearly have more work to do as we look to work collaboratively with our elected officials to find solutions that will get more Americans traveling, and spur more international travelers to visit the U.S.

The collaborative nature of this effort is key. Included in my testimony are a number of recommendations about how the industry, states and local governments and the federal government can work together to achieve a true recovery for travel and tourism in the U.S. However, the most fundamental thing that you, as Senators, can do right now is listen to us and believe us when we say that the United States and all of the destinations within it represent a unique product that we can and must market to the world with as much effort as we market any other American export product.

Just as we worry about losing market share to our foreign competitors for products such as automobiles and computers, Americans need to understand and respond to the fact that we have been losing out to our foreign competitors in the area of travel and tourism for several years now. The events of September 11 only served to exacerbate that decline. The numbers paint a very clear picture. Though travel and tourism generated a balance of trade surplus of nearly $26 billion for the United States in 1996, by 2001, that surplus had plummeted to $7.7 billion. Moreover, for several years now, the U.S. has been ranked as the third most sought-after travel destination behind Spain and France.

What do these countries have that we don’t? For one thing, they spend tens of millions of dollars to promote themselves to foreign visitors. In 1997 – the most recent year for which such figures are available – the government of Spain spent $71.6 million to promote the country as a desirable tourist destination. France spent $57.4 million. Meanwhile, the United States spent nothing.

In 2000, international visitors spent an estimated $106.5 billion in the U.S. It is well known that international visitors spend more than domestic travelers when they travel. For example, New York City is the nation’s number-one international visitor destination, and though international travelers comprise only a small portion of the City’s visitors, they are responsible for a disproportionately high level of spending. In 2000, though foreign visitors made up only 18 percent of New York’s total visitors, they were responsible for 42 percent of all visitor spending. It seems like good business sense – and good policy – to spend some money on promoting what the U.S. can offer to these visitors in an effort to retain and grow this powerful market share.

Beyond the financial benefits, travel and tourism increases awareness and understanding among diverse cultures and can help eradicate prejudices based on ignorance. The need to better define America abroad has become all too clear since the events of last fall. The marketing of the United States overseas would be an ideal mechanism to help combat misconceptions about us around the world.

RECOMMENDATIONS

TBR has a number of recommendations for both short- and long-term programs and initiatives that Congress can enact to help the U.S. regain its dominance in the international travel and tourism market, as well as stimulate the domestic leisure and business travel sectors. We offer these suggestions with the recognition that the federal government is experiencing the same types of fiscal restraints that state and local governments and the private sector are also facing. As has been the case since our inception, it is TBR’s goal to offer politically and economically feasible solutions. We do not want to overreach or ask for things that are unrealistic or unachievable. However, we hope that you will share our belief that a small investment now will yield multiple returns in the coming years.

For several years now, TBR has been calling for the development of an aggressive brand marketing campaign, funded from both private and public sources, to promote the U.S. as a desirable travel destination. The federal government must play a role in this effort, as it is the United States as a whole that will be marketed as a product. TBR has been in discussions with the Commerce Department and is exploring the possibility of undertaking partnered research between the Department and the private sector, to be conducted by an academic institution, that would examine successful international marketing efforts by our largest foreign competitors. We hope that the information derived from this important study will create a roadmap for the development and funding of an economically and politically credible international destination marketing program for the United States.

Recognizing that resources are scarce and this year’s congressional timetable is growing shorter, we would like to offer some incremental measures to start us on the path to this longer-term goal:

	Establish a Presidential Advisory Council on Travel and Tourism: More than a year-and-a-half ago, TBR called for the creation of this body, which is currently under consideration within the Bush Administration. Comprised of 35 presidentially appointed representatives of business, government and non-profit organizations with expertise in policy matters impacting tourism development, the Council would be the ideal body to explore ways that the travel and tourism industry can work for the benefit of our nation. The Council would advise the President on national tourism policy and would help ensure that travel and tourism receives a more sustained and vigorous policy focus at the federal level. It would also help coordinate the activities of the Administration and the many departments and agencies that impact travel and tourism. While the Council would be created by Executive Order under the Federal Advisory Committee Act (FACA), TBR requests your support in urging the President to create this body.
	Create a Destination Marketing Pilot Program: A pilot program should be undertaken immediately to test the efficacy of international destination marketing initiatives. For example, Congress could select five states and five cities across America based upon geographic and population diversity, and appropriate a fixed dollar pool to underwrite a specific, new international marketing initiative. The participants would select their own international targets and could employ whatever marketing strategies deemed appropriate. Within three months of the conclusion of the outreach, a written report would be due to Congress that defined in measurable terms the tangible success of the program’s ability to increase the targeted international arrival pool.
	Increase Funding for the Market Development Cooperator Program or Fund a Similar Tourism-Specific Program: We understand that Congress appropriates $2 million annually to the Department of Commerce to run this matching grant program to help state offices, trade associations, chambers of commerce and other non-profit organizations market their non-agricultural products and services overseas. While this could be an ideal tool for state tourism offices and convention and visitors bureaus to leverage to promote their destinations overseas, a Commerce official has informed us that the fund has not been tapped for tourism-related purposes – most likely because no one in the industry has heard about it. Increased funding for this program, or the establishment of a similar program that is specifically aimed at travel and tourism ventures, would help encourage eligible travel and tourism entities to take advantage of this program. TBR pledges its assistance in getting the word out to ensure that eligible travel and tourism entities apply for such funds.
	Enact the American Travel Promotion Act (H.R. 3321): Last November, Congressmen Foley and Farr, the Co-chairs of the Congressional Travel and Tourism Caucus, introduced this legislation in an effort to encourage states to boost their travel promotion efforts. We urge Congress to pass H.R. 3321, because we believe the $100 million in matching grants to states that this legislation would provide is a much-needed stimulus to states, local governments and the U.S. travel and tourism industry as a whole.
	Pass Terrorism Insurance Legislation: Countless businesses, including hotels, convention centers, professional sports teams and shopping centers, are experiencing profound difficulties in financing and building new properties, as well as renewing insurance on present properties, because of the skyrocketing cost of terrorism insurance in the wake of the September 11 attacks. We urge Congress to pass terrorism insurance legislation now.
	Remove Structural Impediments to Expanded International Arrivals: Agencies of the federal government such as the U.S. Commercial Service at the Commerce Department, which staffs commercial officers throughout the world, should be better educated to become tourism promotion savvy. Congress should direct federal officials to aggressively look for ways to promote travel to the U.S.
	Increase and Restore the Tax Incentives that Spur Business Travel: The reduction of the business meal and entertainment tax deduction from 100 percent to 50 percent and the elimination of the spousal travel tax deduction negatively affected the restaurant and entertainment industries and the business customers they serve even before September 11, particularly harming small businesses. As I noted earlier, even the Federal Reserve Board has recognized the affects of the drop in business travel across the country. TBR encourages Congress to upwardly revise the business meal and entertainment tax deduction and restore the spousal travel tax deduction. Doing so would provide an immediate incentive for small businesses and corporations alike to authorize their personnel to start traveling again.
	Continue Funding for the Commerce Department’s Request for Travel and Tourism Satellite Accounts (TTSAs): TTSAs serve as a primary source of data for tourism policymaking by establishing a consistent, measurable framework for analyzing tourism expenditures and employment in a systematic manner. The sectors measured include purchases of airfares, lodging, meals and beverages, shopping and other travel activities. This research helps the Department and the industry gain a better understanding traveler preferences and economic trends across the varied sectors that make up the travel and tourism industry. TBR urges Congress to continue funding for this vital research.
	Ensure that the Industry has a Consultative Role in the Creation of the New Department of Homeland Security: There are a variety of ways in which the activities of the agencies that will comprise the new Department of Homeland Security will immediately affect the vitality of our industry. With that in mind, TBR created a Homeland Security Task Force this summer and sent to Congress a series of recommendations about issues of immediate concern. The goal of creating a central point of coordination to protect American citizens within our borders is a worthy one, and our industry supports this important mission. As Congress considers legislation on the new Department, we hope you will bear our recommendations in mind, particularly with an eye toward ensuring that there is a formal, consultative process that helps the Department achieve its important mission without compromising the industry’s ability to create economic growth throughout our nation.
	Work with Mayors and Governors to Develop Achievable Travel and Tourism Strategies: America’s Mayors and Governors are on the frontlines and have an intimate understanding of the power of travel and tourism as a driver for economic development and job creation in their cities and states. We urge you to work closely with them to develop strategies that will spur travel and tourism growth across the nation.

CONCLUSION

My final request of you requires no congressional action, but would make all the difference in the world to the businesses and employees that comprise the U.S. travel and tourism industry. Above all things, I urge you and your colleagues to help end the indifference that Washington has long held toward the travel and tourism industry. A recent independent Gallup poll found that the restaurant industry is the most highly regarded business sector in the country, closely followed by the travel industry, which ranked eighth. Clearly there is a recognition outside the Beltway of our industry’s importance. The United States, much like the rest of the world, is defined by its service economy. The 1950s industrial economy has given way to the 21st Century service economy. Travel and tourism defines that service economy around the world. We create jobs and careers; we fulfill important social policy goals, such as moving people from welfare to work; we contribute more than $99 billion in tax revenue for federal, state and local governments to drive our economy; and we create an enormous travel trade surplus to offset even the worst national balance of payments deficit. We are in 50 states and 435 congressional districts. In short, we are your core constituency. Please respect our contribution by nurturing our employers and employees with policies that will enable us to accomplish even more.

Again, I thank you for inviting the Travel Business Roundtable to present its thoughts and concerns today, and we look forward to continuing to work with you to enact realistic policy solutions to spur increased travel to and within the United States. I am happy to answer any questions you may have.

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