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Order Code RL32016
CRS Report for Congress
Received through the CRS Web
The Tourism Industry and
Economic Issues Affecting It
July 29, 2003
M. Angeles Villarreal
Analyst in Industrial Organization and Business
Resources, Science, and Industry Division
Congressional Research Service ~ The Library of Congress
The Tourism Industry and Economic Issues Affecting It
Summary
The measure of a country's international tourism receipts, also referred to as
travel services exports, is the total amount of spending by visitors to that country.
The United States is, by far, the world's leader in tourism receipts, accounting for
approximately 16% of the world's total. The measure of a country's international
tourism expenditures, also referred to as travel service imports, is the amount of
spending by its visitors in foreign countries. The United States also leads the world
in tourism expenditures. Travel services are a significant export in the U.S.
economy, accounting for 32% of all private services exports.
The September 11 attacks, the downturn in the U.S. economy, the U.S. war with
Iraq, and the outbreak of the SARS virus have affected sales and profitability of a
number of industries, but travel and tourism are among the most affected industries.
The airline industry has been struggling since the events of September 11, with nine
of the ten largest U.S. carriers experiencing heavy losses over the past two years.
The hotel industry is reporting its lowest occupancy rate in more than a decade.
Travel agencies have been facing difficulties since the mid-1990s, primarily due to
the increase in competition from online travel sites, but also from the factors
mentioned above.
After September 11, 2001, the number of global travelers decreased for the first
time since the 1980s. As a result, U.S. tourism receipts decreased by nearly 12% in
2001, and U.S. expenditures abroad decreased by 7%. Employment levels in the
United States have fallen by a higher percentage in travel and tourism related
industries than in most other major industries. Since the end of 2000, employment
in travel-related industries declined by nearly 390,000 jobs, representing over 25%
of the nation's non-farm job losses in that time period.
Some analysts believe that travel-related industries will recover from these
events, as they have from past events, such as the 1991 Gulf War. Others believe that
the combination of factors have been very damaging to the industry for the long term.
They believe that recovery could be considerably slower than it has in the past, and
that recovery may be more challenging for travel-related industries than for the
economy as a whole. The travel industry, for example, has voiced concerns that
impending regulations on visa requirements for visitors entering the United States are
being implemented too quickly and could discourage international travel to the
United States.
In the 108th Congress, two measures have been passed and several bills
introduced to provide assistance to the airline industry and to help promote travel and
tourism. The FY2003 omnibus appropriations act (P.L. 108-7, H.J.Res. 2) includes
a one-time appropriation of $50 million for an international marketing campaign to
encourage individuals to travel to the United States. The Emergency Wartime
Supplemental Appropriations Act, 2003 (P.L. 108-011) includes a provision for $2.9
billion in assistance to the airline industry. H.R. 2002 would establish a pilot
program for the promotion of travel and tourism in the United States. This report
will not be updated.
Contents
Background: Importance of the U.S. Travel and Tourism Industry . . . . . . . . . . . . 1
U.S. and World International Arrivals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
U.S. International Trade in Travel Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Employment in Travel and Tourism Industries . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Uncertainties in Travel and Tourism Sectors . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Declining Industry Sales and Profits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SARS Outbreak . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Economic Performance of Major Tourism Destinations in the U.S. . . . . . . . . . . 10
U.S. Travel and Tourism Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Legislation and Legislative Issues
in the 108th Congress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
List of Tables
Table 1. U.S. and World International Arrivals: 1992 - 2002 . . . . . . . . . . . . . . . 3
Table 2. U.S. Exports in Private Services and
Travel Services (Tourism Receipts) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Table 3. U.S. Trade in Travel Services and Passenger Fares . . . . . . . . . . . . . . . . 4
Table 4. Employment in Industries Related
to Travel and Tourism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Table 5. Travel Agency Sales of Air Transportation . . . . . . . . . . . . . . . . . . . . . . 9
The Tourism Industry and
Economic Issues Affecting It
Background: Importance of the U.S. Travel and
Tourism Industry
The United States is by far the world leader in international tourism receipts, or
the amount of spending by international travelers in a host country. The United
States is also the world leader in international tourism expenditures, or the amount
of spending by U.S. travelers abroad.1 The United States accounted for
approximately 16%, or $88 billion, of world international tourism receipts in 2002.
In international arrivals, or the number of visitors from a foreign country, the United
States ranks third in the world, after France and Spain, with a world market share of
6.6%.
The tourism industry has been facing difficulties in recent years because of a
combination of factors. The September 11 attacks, the downturn in the U.S.
economy, the U.S. war with Iraq, and the outbreak of the SARS virus have affected
sales and profitability of a number of industries, but travel and tourism related
industries are among those most severely affected. After September 11, 2001, the
number of international travelers throughout the world decreased for the first time
since the 1980s. Consequently, U.S. international tourism receipts decreased by
nearly 12% in 2001, and U.S. expenditures abroad decreased by 7%. Employment
levels in the United States have fallen by higher amounts in travel and tourism related
industries than in other major industries, with a loss of nearly 400,000 jobs. Data
from the first quarter of 2003 continue to show declining employment levels in
travel-related industries.
In the 108th Congress, two measures have been passed and several bills have
been introduced to provide assistance to tourism related industries. The FY2003
omnibus appropriations act (P.L. 108-7, H.J.Res. 2) includes a one-time
appropriation of $50 million for an international marketing campaign to encourage
individuals to travel to the United States. The Emergency Wartime Supplemental
Appropriations Act, 2003 (P.L. 108-011) includes a provision for $2.9 billion in
assistance to the airline industry. H.R. 2002 would establish a pilot program for the
promotion of travel and tourism in the United States.
1
International tourism receipts and expenditures are measured by the amount of spending
by visitors in a foreign country. The measure of a country's international tourism receipts,
also referred to as travel services exports, is the total amount of spending by visitors to that
country. The measure of a country's international tourism expenditures, also referred to as
travel service imports, is the amount of spending by its visitors to other countries.
CRS-2
U.S. and World International Arrivals
The World Tourism Organization/United Nations Recommendations on
Tourism Statistics2 defines tourism as the activities of persons traveling to and
staying in places outside their usual place of residence for not more than one
consecutive year for leisure, business, and other purposes. This section describes
recent trends in the number of international arrivals to the United States and other
countries.3
The United States is among the top three tourism destinations in the world. In
2001, France had 76.5 million visitors, followed by Spain with 49.3 million visitors,
and the United States with 45.5 million visitors.4 International arrivals to the United
States totaled nearly 42 million in 2002. The highest number of arrivals to the United
States came from Canada (13 million), followed by Mexico (9.8 million), the United
Kingdom (3.8 million), and Japan (3.6 million).
In 2001, international arrivals to the United States decreased by 11% from the
previous year, while international arrivals worldwide decreased by only 0.6% (see
Table 1). This marked the largest decline for a single year in the history of tracking
arrivals to the U.S.5 In 2002, international arrivals to the United States continued to
decline, falling by 7% from the previous year. Visitation levels from Canada, the
United Kingdom, Japan, Germany and France all decreased in 2002. Mexico and
South Korea were the only two countries to register growth in arrivals to the U.S. in
2002, and these increments were only marginal. Total visitation from Mexico
increased 0.5% in 2002, while that from South Korea increased 3.4%.6
2
The World Tourism Organization is an international organization associated with
the United Nations, and serves as a global forum for tourism policy issues. Its
membership includes 139 countries, seven territories and some 350 Affiliate
Members. See World Tourism Organization website, [http://www.world-tourism.org].
3
The unit of measure generally used to quantify the volume of international tourism
for statistical purposes is the number of international tourist arrivals. International
arrival data refer to the number of arrivals and not to the number of persons. One person
who makes several trips to a certain country during a time period will be counted as a new
arrival each time, and a person who travels through several countries on one trip is counted
as a new arrival each time. International visitors include overnight visitors, and same-day
visitors.
4
World Tourism Organization, Tourism Highlights: 2002. See [http://www.world-
tourism.org].
5
U.S. Department of Commerce, International Trade Administration, Office of Travel and
Tourism Industries (OTTI), News Release, Highlights of 2001 Data Release, March 28,
2003.
6
OTTI, "2002 Year End International Arrivals to the United States," April 17, 2003.
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Table 1. U.S. and World International Arrivals: 1992 - 2002
(Millions)
Arrivals 1992 1994 1996 1998 2000 2001 2002a
U.S. 47 45 46 46 51 45 42
Rest of world 454 505 551 583 645 648 673
Total World 501 550 597 629 696 693 715
U.S. Share 9.4% 8.2% 7.7% 7.3% 7.3% 6.5% 5.9%
Sources: U.S. Department of Commerce, International Trade Administration, Office of
Travel & Tourism Industries. World Tourism Organization.
a
Preliminary
U.S. International Trade in Travel Services
U.S. exports in travel services is measured by the amount of spending by foreign
travelers in the United States, also referred to as U.S. travel receipts. The United
States is by far the world leader in international tourism receipts (or travel services
exports), followed by Spain and France. In 2001, the United States accounted for
approximately 16% of world tourism receipts, well ahead of Spain (7.1% of total)
and France (6.4% of total). U.S. imports in travel services is measured by the amount
of spending by U.S. travelers abroad, which is also referred to as U.S. tourism
expenditures. The United States is also the leader in imports in travel services,
followed by Germany and the United Kingdom. In 2001, U.S. travel services imports
totaled $58.9 billion, while Germany's totaled $46.2 billion, and the United
Kingdom's totaled $36.5 billion.7
Travel services exports (tourism receipts in the United States) are a significant
export in the U.S. economy, accounting for 32% of all private services exports in
2002. The share of U.S. travel services exports, as a percentage of all private
services exports, however, has fallen notably since 2000. Although this trend had
been taking place since the mid-1990s, the recent downturn in the tourism industry
caused the share of U.S. exports to fall even further (see Table 2). Total services
exports decreased 4.1% in 2001, and then increased 3.8% in 2002. In comparison,
travel services exports decreased 11.6% in 2001, and continued to decrease by 3.6%
in 2002.
As shown in Table 3, the United States has had a surplus in international trade
in travel services since 1990. The surplus rose from $10.4 billion in 1990 to a peak
of $26.3 billion in 1996. The U.S. surplus in travel services had been declining since
1996. U.S. imports and exports in travel services both increased during the 1990s,
but in the last part of the decade, imports (or U.S. expenditures abroad) increased at
a higher rate than exports (U.S. travel receipts). In 2001 and 2002, both U.S. imports
and exports in travel services fell, but U.S. exports fell by a higher percentage,
7
World Tourism Organization, June 2002.
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causing the surplus to fall further. The surplus in travel services decreased from $26
billion in 1996 to $7.5 billion in 2002, a 72% decrease. In comparison, the surplus
in all private services trade decreased by 32% during the same time period.
Table 2. U.S. Exports in Private Services and
Travel Services (Tourism Receipts)
($ in billions)
1997 1998 1999 2000 2001 2002a
Export Growth Rates
All 7.4% 2.1% 5.2% 8.2% -4.1% 3.8%
Services
Travel 4.5% -3.1% 3.4% 9.0% -11.6% -3.6%
Servicesb
Travel Services Exports as % Total Services Exports
39.5% 37.5% 36.8% 37.1% 34.2% 31.8%
Source: U.S. Department of Commerce, Bureau of Economic Analysis, Online U.S.
International Transactions Accounts Data, 2003.
a
Preliminary
b
Includes Travel and Passenger fares
Table 3. U.S. Trade in Travel Services and Passenger Fares
($ in billions)
Exportsa Importsa Trade Balance
Year $Billions %Change $Billions %Change $Billions %Change
1990 $58.3 24.3% $47.9 14.9% $10.4 100.0%
1991 $64.2 10.1% $45.3 -5.4% $18.9 81.7%
1992 $71.4 11.2% $49.2 8.6% $22.2 17.5%
1993 $74.4 4.2% $52.1 5.9% $22.3 0.5%
1994 $75.4 1.3% $56.8 9.0% $18.6 -16.6%
1995 $82.3 9.2% $59.6 4.9% $22.7 22.0%
1996 $90.2 9.6% $63.9 7.2% $26.3 15.9%
1997 $94.3 4.5% $70.2 9.9% $24.1 -8.4%
1998 $91.4 -3.1% $76.5 9.0% $14.9 -38.2%
1999 $94.5 3.4% $80.5 5.2% $14.0 -6.0%
2000 $103.0 9.0% $89.1 10.7% $13.9 -0.7%
2001 $91.1 -11.6% $82.5 -7.4% $8.6 -38.1%
2002p $87.8 -3.6% $80.3 -2.7% $7.5 -12.8%
Source: U.S. Department of Commerce, Bureau of Economic Analysis, Online U.S.
International Transactions Accounts Data, 2003.
a
Includes Travel and Passenger fares.
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Travel and tourism receipts have fallen in other countries as well. In the United
Kingdom, for example, tourism receipts fell by $3.2 billion, or 16.7% in 2001. A
small number of countries, however, such as Spain and China, had higher tourism
receipts in 2001 than in 2000. China and other Asian destinations, however, have
been heavily affected by the 2003 severe acute respiratory syndrome (SARS)
epidemic, as well as the economic slowdown in the United States (see section below
on employment).
The top five markets in 2001 which generated U.S. exports in travel and
passenger fares, or expenditures in the United States by international travelers, were
the following: United Kingdom ($11.9 billion, down 16% from 2000), Japan ($11.7
billion, down 16%), Canada ($8.2 billion, down 7%), Mexico ($6.3 billion, up 1%),
and Germany ($3.7 billion, down 27%).8 Mexico was the only one of these countries
that increased spending on travel and passenger fares to the United States in 2001.9
Employment in Travel and Tourism Industries
Travel and tourism related industries have been particularly affected by the
security concerns related to the September 11 attacks, the war with Iraq, and also by
the slowdown in the U.S. economy. A significant number of jobs that have been lost
since 2000 are in travel-related industries. Jobs directly related to travel and tourism
include those in the hotel and lodging industry, amusement and recreation services,
air transportation, and travel agencies. Other travel-related sectors include passenger
rail transportation, cruise lines, food service, and rental cars. According to the U.S.
Travel Industry Association of America (TIA), the U.S. travel and tourism industry
employs 7.9 million people, or 6% of total U.S. employment, in direct travel-
generated jobs. Direct travel-generated jobs include transportation, lodging, meals,
entertainment, recreation, and incidental items. In direct and induced travel-
generated jobs, TIA estimates that the travel and tourism industry employs about 18
million people.10
The data presented in this section focus on four industries that are directly
related to travel and tourism, and for which employment figures are readily available.
These include hotels and lodging, amusement and recreation services, air
transportation, and travel agencies. The employment numbers presented in Table 4
are lower than the TIA estimates because they do not include employment in the food
service industry, entertainment, or retail stores. As of March 2003, employment in
hotels and lodging, amusement and recreation, air transportation, and travel agencies
totaled 4.7 million people, or about 3.6% of total U.S. employment. The hotel and
lodging sector had the highest employment level, with 1.8 million jobs, followed by
amusement & recreation services, with 1.6 million jobs; air transportation, with 1.1
million jobs; and travel agencies, with 133 thousand jobs (see Table 4).
8
ITA, Office of Travel & Tourism Industries, Highlights of 2001 Data Release, March 28,
2003.
9
Data for 2002 are not available by individual country.
10
Travel Industry Association of America (TIA), Tourism Talking Points, May 2003.
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Table 4. Employment in Industries Related
to Travel and Tourism
(Thousands)a
1999 2000 2001 2002 1st qrtr 1st qrtr
2002b 2003c
Hotel and Lodging 1,848 1,900 1,870 1,798 1,811 1,779
12-month change 59 52 -30 -72 -100 -32
Amusement & 1,651 1,722 1,722 1,642 1,635 1,627
Recreation Svcs
12-month change 57 71 0 -80 -117 -8
Air Transportation 1,227 1,280 1,266 1,161 1,172 1,144
12-month change 46 53 -14 -105 -123 28
Travel Agencies 173 170 161 139 145 133
12-month change 0 -3 -9 -22 -25 -11
Total Travel and 4,899 5,072 5,019 4,740 4,763 4,683
Tourism Related
12-month change 162 173 -53 -279 -79 -203
Total Nonfarm 128,916 131,720 131,922 130,791 130,701 130,396
12-month change 3,051 2,804 202 -1,131 -1,760 -305
Source: U.S. Department of Labor, Bureau of Labor Statistics.
a
All quarterly data are seasonally adjusted, with the exception of Travel Agencies.
Seasonally adjusted data for Travel Agencies were not available.
b
Net change indicates net change from first quarter 2001.
c
Preliminary
Total U.S. employment has fallen since 2000, but travel-related sectors have
experienced some of the highest job losses in the country. Data from the Bureau of
Labor Statistics (BLS) show that between 2000 and the first quarter of 2003,
employment in travel and tourism related industries declined by 389,000 jobs, or
about 8%. The highest losses were in the air transportation sector, which
experienced a decline of 136,000 jobs, or 11%. In the same time period, the hotel
and lodging sector lost 121,000 jobs (6%), and the amusement and recreation
services sector has lost 95,000 jobs (6%). Travel agencies experienced the highest
percentage decrease, 22%, or 37,000 jobs.11 During the same time period, total U.S.
non-farm employment declined by 1.3 million jobs, or about 1% of total
employment. Employment in the travel and tourism sectors listed in Table 4
represented nearly 30% of total non-farm job losses.
11
Technology changes (i.e., use of internet reservations) may be a major contributing factor
in declining number of travel agencies and related employment.
CRS-7
BLS data for April of 2003 continued to show workforce reductions in travel
and tourism related sectors. In April 2003, employment in amusement and recreation
services declined by 41,000 jobs, while employment in hotel and other lodging places
decreased by 20,000.12 Employment in air transportation also continued to decline,
with a loss of 18,000 jobs. If all tourism-related industries are taken into account,
including jobs in food service and retail, total job losses would be even higher.
Morgan Stanley estimated that tourism-related industries have suffered a
disproportionate number of job losses in 2003, accounting for nearly half the job
losses in the nation over the first few months of 2003, even though they account for
only one in ten private-sector jobs.13
In China and other Asian countries, the SARS virus has caused even further job
losses in the travel industry. The Financial Times recently reported that nearly one
million travel-related jobs (direct and indirect) were lost in early 2003 in China's
Guangdong Province alone due to SARS and the war with Iraq. The article is based
on an International Labor Organization (ILO) report that estimates that the SARS
outbreak could cause a total job loss of five million, or 6% of total travel-related jobs,
in the worldwide travel and tourism industry.14 The ILO estimates that countries
directly affected by the virus will lose more than 30% of travel-related jobs. Other
countries in the Asia-Pacific region could lose 15% of travel-related jobs, and
countries in the rest of the world could lose 5%. Recovery from the SARS-related
downturn is underway, but the net long-term effects are still unknown.
Uncertainties in Travel and Tourism Sectors
The effect of recent political and economic uncertainties on U.S. trade in travel
services and on travel-related employment highlight the vulnerability of the travel
and tourism industry to external factors. These factors have taken a toll on many
business activities, but travel and tourism have been particularly affected, indicating
that, in times of uncertainty, spending on travel and tourism is one of the areas most
affected. Some analysts believe that travel-related industries will recover from these
events, as they have past events, such as the 1991 Gulf War. Others believe that the
combination of factors have been very damaging to the industry. They believe that
recovery could be considerably longer for travel-related industries than it has in the
past, and that recovery may be more challenging for travel-related industries than for
the economy as a whole.
Declining Industry Sales and Profits
The airline industry has been struggling since the events of September 11. Nine
of the ten largest major U.S. airline carriers have had heavy losses over the past two
years, with one of those carriers now operating in bankruptcy. The profitability of
12
United States Bureau of Labor Statistics, News, "Employment Situation Summary," April
2003.
13
The Economist, "Another Bush, Another Jobless Recovery," May 10, 2003, p. 25.
14
Financial Times, "Tourist Trade Fears 5 Million Job Losses," May 15, 2003.
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airline companies has been affected by the combination of factors, including lower
numbers of passengers and higher fuel costs. Many air carriers have had to cut
flights and reduce prices, and, consequently, reduce their earnings forecasts. In
March 2003, Standard & Poor's estimated that, even without the potential effects of
the war with Iraq, the top ten carriers in the United States may lose about $6.5 billion
in 2003. Domestic airline capacity declined 4.4% in 2002, and 3.0% in 2001.15
There are indications that, because of the challenges the airline industry is facing, the
airline industry is potentially experiencing a period of major structural change.
The hotel industry is also facing challenges because of the decline in travel.
Business travel has fallen more than 10% since 2000.16 In 2002, preliminary data
indicate that the hotel occupancy rate was expected to decline for the second
consecutive year to 59.5%, the lowest level seen in more than a decade. Another key
industry measure, revenue per available room, has also declined. After the
September 11 attacks, the revenue per available room fell by 21.9% in September,
16% in October, and 14.7% in November 2001. For the entire year of 2001, the ratio
declined by 6.9%. In 2002, the ratio declined for the second consecutive year, with
a decline of 2.6%.
The American Society of Travel Agents (ASTA) recently stated that the drop
in travel due to security concerns, the weak economy, and the SARS outbreak have
been overwhelming for travel agents in the United States. Although the dollar
volume of air sales by travel agencies still accounts for a majority of sales, it is
declining considerably. Travel agency sales of air travel declined from $76 billion
in 2000 to $57 billion in 2002, a 25% drop (see Table 5).17 The SARS virus outbreak
in Asia may cause sales to fall even further in 2003. Travel agency industry
representatives expect a recovery in the industry, but also expect the recovery period
to be considerably longer than the 18 month recovery time after the Gulf War.
The decline in travel agent sales caused by recent events comes in addition to
the other challenges faced by travel agencies in recent years. Travel agencies have
been facing increasing competition from online travel sites since the mid-1990s. As
an example of this trend, a recent poll shows that the number of visitors who used a
travel agent to plan their trip to Las Vegas declined for the fifth consecutive year in
2002. The percent of travelers using travel agent assistance for booking travel to Las
Vegas decreased 15 percentage points between 1998 and 2002.18 Another factor
facing the industry is decreasing commissions. Airlines have decreased or stopped
paying commissions on most tickets, which has also affected travel agency revenues.
As a result of these challenges, travel agencies have taken measures such as merging
to cut costs, moving from storefronts to home-based businesses, and trimming
15
Standard & Poor's Industry Surveys (S&P), Airlines, March 27, 2003.
16
Barron's Online, "Time to Check in?," by Dimitra DeFotis, April 28, 2003.
17
U.S. House of Representatives Subcommittee on Commerce, Trade, and Consumer
Protection; Testimony by The American Society of Travel Agents (ASTA), "Travel and
Tourism in America Today," April 30, 2003.
18
Travel Weekly, "Visitor Poll Shows Web Influence Growing,", June 2, 2003, p. 44.
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payrolls. Many travel agencies have closed altogether. The number of agencies in
the United States fell 10.5% in 2002 from the previous year.19
Table 5. Travel Agency Sales of Air Transportation
($ in billions)
Type of Sale 2000 2001 2002 2000-2002
% Change
Domestic Air Fares 51 42 35 -31%
International Air 25 22 22 -12%
Fares
Total Air Fares 76 64 57 -25%
Source: American Society of Travel Agents, April 2003.
One area in which demand for travel agencies remains high is in the booking of
cruises. Travel agents book approximately 90% of cruises. Although bookings for
cruises dropped in the first quarter of 2003, the cruise industry may be the one travel-
related industries in which losses have not been as significant, at least in the short
term. According to the ASTA, the cruise industry reports steadily increasing
embarkations from North America, but at significantly diminished yields.20 Cruise
lines responded rapidly to the September 11 attacks by repositioning vessels from
other parts of the world to North and South American locations. Many U.S. cruise
ships are no longer traveling to Asia, the Eastern Mediterranean or Africa because of
the security concerns.21 Cruise lines also have been offering steep discounts on
passenger cruises to lure travelers back on board. Bookings fell during the first part
of 2003, but have increased since May. The lower prices, however, have resulted in
lower net income for the industry.
SARS Outbreak
The SARS outbreak has significantly affected the regional economy in Asia,
which subsequently could affect other regions as well, especially in the tourist and
retail trade sectors. International visitor arrivals to China could continue to fall, as
could intra-regional visitor arrivals to China, Hong Kong, Singapore, or Taiwan.
Global Insight, an economic and financial forecasting company in the United States,
analyzed the possible impact of SARS and estimated that the tourism sector in Asia
was more likely to be affected than others.22 In the long term, the outbreak will likely
have effects on other sectors of the economy, but the full effect may not be known
19
Rocky Mountain News, "Tripped Up; Travel Agencies Join Forces, Trim Costs, or Check
Out as Tourism Woes Take a Heavy Toll," April 2003.
20
ASTA, pp. 2-3.
21
Intellicruise, "Cruising Outlook for 2003," December 2002. See [http://www2.i-
cruise.com].
22
Global Insight website, SARS Epidemic's Economic Impact on Asia, undated. See
[http://www.globalinsight.com/Perspective].
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for some time. The tourism industry is one of the areas that has often been
mentioned by Chinese officials as having been hit hard by the outbreak. A
government official recently quoted government estimates that the SARS outbreak
will cost China up to $3.6 billion in tax revenues for 2003 and slow down the
country's economic growth by at least 0.3%. The official acknowledged that the
outbreak already had an "obvious negative impact" on the tourism, catering, and
transportation sectors, and that the worst was yet to come.23 Over time, the epidemic
may take a toll on other business activities and may even affect investor confidence,
resulting in weaker investment and a decline in foreign capital inflows.
The previously-mentioned International Labor Organization study on threats to
employment in the travel and tourism industry analyzes some of the impacts of recent
world events on travel-related employment. The report specifically addresses the
potential impact of SARS on world travel, suggesting that, if the SARS virus is not
contained, it has the potential to profoundly change the lifestyles of large populations,
particularly in areas such as public transportation and retail, which are related to
tourism. The report estimates that the travel and tourism business lost at least one-
third of its activities in locations directly affected by SARS.24 The threat of SARS
appears to have diminished, according to newspaper accounts, but the ILO report
brings attention to the vulnerability of the tourism industry if another SARS outbreak,
or something similar, were to occur. Some newspapers have reported that there is a
possibility of SARS reappearing next winter, which indicates that the full effects of
the outbreak are yet unknown.
Economic Performance of Major Tourism
Destinations in the U.S.
The ten most visited tourism destinations in the United States are: New York,
New York; Los Angeles, California; Miami, Florida; Orlando, Florida; San
Francisco, California; Las Vegas, Nevada; Honolulu, Hawaii; Washington, D.C.;
Chicago, Illinois; and Boston, Massachusetts. Some of these metropolitan areas,
such as Orlando and Honolulu, have economies that rely more heavily on tourism
because it is the major source of employment and earnings. Other metropolitan
areas, such as Chicago and Washington, D.C., have more diversified economies and
depend less on tourism. Nearly all of these cities experienced a decline in
employment since late 2001, with recovery coming at a slower rate for some regions
than others. The following paragraphs describe the recent economic performance in
these metropolitan areas. The economic analysis presented below is primarily drawn
from the regional economic analysis for the ten metropolitan areas reported by Global
Insight, an economic and financial forecasting company in the United States.25
23
Daily Report for Executives, "China's SARS Outbreak Projected to Cost up to $3.6
Billion in Tax Revenues for 2003,", May 20, 2003.
24
International Labour Organization, "New Threats to Employment in the Travel and
Tourism Industry - 2003," May 13, 2003.
25
Global Insight, U.S. Regional Online Analysis, [http://www.globalinsight.com], 2003.
CRS-11
! New York, New York: The major industries in the New York City
metro area are finance, insurance, real estate, and business services.
As a popular tourist destination, travel and tourism play an important
role in the local economy. Since 2000, the metro area has
experienced economic difficulties, and, consequently, decreasing
employment levels. Employment in service-providing sectors,
which include tourism and travel related sectors, represented a
significant portion of the decline over this time period, with a loss
of 37,300 jobs. Employment in the metro area is expected to
improve gradually through 2005, with much of the rebound expected
in service industries.
! Los Angeles, California: Los Angeles has a broad-based economy
and ranks among the nation's top three metro areas for employment
in the service industry, of which travel and tourism related sectors
are a part. Other major industries in the area include aerospace,
business services, and manufacturing. Entertainment services
industries, such as Walt Disney and Universal Studios, are among
Los Angeles' major employers. Employment in the Los Angeles
metro area decreased 1% in 2002. While most service sectors have
been showing a slow recovery in 2003, leisure and other services
have been the source of most recent job gains in the area. In 2004,
the economy is expected to grow to a more stable position.
! Miami, Florida: Major industries in the Miami metro area include
health-care services, transportation services (airline and cruise ship
companies), and biomedical manufacturing. Three of the ten largest
employers in the Miami metro area - American Airlines, Royal
Caribbean, and Carnival Cruise Lines - are in travel and tourism
related sectors. Miami's employment levels decreased 0.7% in
2002, but have been improving in 2003. Much of the growth is due
to service-producing sectors, including leisure and hospitality
services. Although employment levels are expected to increase
through 2004, the Miami metro area's unemployment level remains
high at 7.3%.
! Orlando, Florida: The economy of Orlando, Florida is highly
concentrated in the tourism industry. The Disney theme parks,
Universal Studios, and Sea World and other attractions bring in
nearly 40 million tourists a year. Travelers to the area are
responsible for more than $15 billion in direct spending in the local
economy every year. Tourism has contributed to a strong service
sector as well. About 43% of employment in the area is in service-
related jobs, including hotels and lodging, and amusement and
recreation services. After a number of years of economic growth,
the Orlando economy experienced a downturn in 2001 and 2002.
The economy is expected to recover in 2003, with stronger growth
projected for 2004. The strongest growth is expected to come from
the service sector, which is expected to average 2.6% in employment
growth for the period of 2003 to 2007. U.S. residents are expected
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to start traveling again, especially within the United States, which
would benefit Orlando's economy.
! San Francisco, California: The primary industries in the San
Francisco metro area are in multimedia, biotechnology, and financial
services. The area also has a strong tourist industry. One of the ten
major employers in the area is in retail trade, a tourism-related
sector. The area has plans for a major terminal for cruise ships,
which will include berths designed to accommodate two cruise ships
simultaneously, and retail and entertainment space. In addition, the
area has plans for expanding professional sporting events which is
expected to increase visitors to the area. The San Francisco
economy has not performed well in the last few years, mostly
because of the slowdown in the high-tech industry, and not because
of issues related to tourism. In the first quarter of 2003, the leisure
service sector was one of the few sectors that showed signs of
stability. Projections indicate that employment growth rates in the
region will not return to positive numbers until 2004. Service
industries are expected to be a source of economic growth in coming
years.
! Las Vegas, Nevada: Gaming and tourism are the dominant
industries in the Last Vegas economy. Over 25% of the work force
is directly involved in the hotel and gaming industry. Seven of the
largest employers in Las Vegas are hotels and casinos. The
September 11 events resulted in a considerable decline in visitor
volume. After a growth rate of 10.5% in 1999 and 6.0% in 2000,
visitor volume decreased 2.3% in 2001. Recovery has been slow.
In April 2003, visitor volume was 1.5% below the April 2002 levels,
but up slightly since the beginning of 2003. Hotel occupancy rates
in April 2003 were 86%, 1.5 percentage points below a year earlier.
Despite the slowdown, expansion plans for hotel and casino
operations in Las Vegas continue. In 2003, existing hotels plan to
add 3,800 rooms, while several other hotel expansion projects are
planned for coming years. The Las Vegas metropolitan area
experienced above-average economic growth for several years, with
the average annual rate for the years 1997 to 2002 registering 4.5%.
Employment growth rates began to improve in the last part of 2002.
In the leisure and hospitality sector, employment registered some
growth in 2002, which has continued into 2003. Employment
growth is expected to continue to increase in 2004. Visitor volume
also is expected to increase as the economy recovers, which will
increase employment in the service-providing sectors.
! Honolulu, Hawaii: The Honolulu metropolitan area encompasses
the entire island of Oahu, and accounts for over 75% of Hawaii's
non-farm jobs. Tourism is the major industry in the metro area's
economy, with three of Honolulu's nine largest employers in
tourism-related sectors. Two employers, Outrigger Hotels & Resorts
and Kyo-ya Co., are in hotel services and retail sectors. The other,
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Hawaiian Airlines, is an airline company. Other industries in the
metro area include food processing and commercial real estate.
After 2001, Honolulu's economy experienced a slowdown, with the
tourism related sectors among the most affected. Tourism sectors
experienced a decline in employment after the September 11 terrorist
attacks, but, since October 2002, employment growth has been
recovering. In March 2003, employment levels in the service-
providing sectors have increased to levels near those in late 2000
and early 2001. The unemployment rate in Honolulu was 3.2% in
March, 2003, well below the national rate of 5.8%.
! Washington, D.C.: Washington, D.C. is a major destination for
tourists and business travelers. The concentration of convention and
conference locations in the metro area draws a considerable amount
of activity. Washington recently completed a large convention
center and opened 12 new hotels in 2002. The completion of the
new Washington Convention Center is expected to provide the local
economy with $1.4 billion in annual earnings. As the nation's
capital, the economy in the Washington, D.C. metro area has a high
number of government jobs. In addition to the government sector,
service-related sectors account for a substantial portion of economic
activity in the area. Service-related industries, along with the strong
government sector, account for more than 75% of the metro area's
non-farm employment. The September 11 terrorist attacks caused
a slowdown in the Washington, D.C. metro area's economic activity
immediately following the attacks, but there were some signs of
recovery in the first half of 2002. The leisure and hospitality sector
is one of the best performing sectors in the local economy.
Employment in this sector increased 2.1% for the 12-month period
ending in April 2003.
! Chicago, Illinois: Major industries in the Chicago metropolitan
area include business and professional services, commercial real
estate, finance and insurance services, and manufacturing. As a top
tourist destination, the retail and transportation sectors are also
major contributors to the economy. Two of the ten largest
employers in the Chicago area, United Airlines and American
Airlines, are in the air transportation industry. Economic growth in
Chicago was slow in 2002 and has not shown any improvement in
the first months of 2003. The recent problems facing the airline
industry have contributed to the drop in employment in the Chicago
area. However, because Chicago has a diversified economy, the
region is not very vulnerable to a slowdown in one particular
industry or industry cluster. The recent problems in travel and
tourism sectors have likely had only mild effects on the city's
economy.
! Boston, Massachusetts: Boston is a major tourist destination in the
United States, and the service sector has been a major source of
economic activity for the area. However, the area's tourism industry
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did not perform well in 2002, and employment in the service sector
contracted by 1.6% in 2002. Other major industries in the Boston
metro area include high-technology industries, educational services,
financial services, health-care services, construction, and
transportation services. In 2002, Boston experienced the worst
economic decline in over a decade. The first quarter of 2003
continued to show contraction in employment, but at a lower rate
than the last quarter of 2002. The service sector, usually a major
contributor to economic activity, also experienced job losses. While
the metro area's overall economy is not expected to experience
employment growth in 2003, the service sector is expected to
experience some job growth. In 2004, employment is expected to
grow modestly.
U.S. Travel and Tourism Outlook
The Secretary-General of the World Tourism Organization believes that, in the
long run, the international tourism industry will recover from the recent downturn.
He issued a statement earlier this year citing research that has shown that the tourism
industry has adjusted to previous times of uncertainty. In the statement, he mentions
that international tourism was resilient enough to recuperate quickly, especially in the
case of a short and contained war with Iraq. He believes that the crises have led to
accelerating changes in consumer habits and the growth of new low-cost airlines.26
A research study by the World Travel and Tourism Council states that travel and
tourism in the United States is expected to achieve real growth of 3.8% per annum
between 2004 and 2013. The study also estimates that capital investment in travel
and tourism in the United States will fall in 2003, but will increase over the next ten
years. The study estimates the world tourism market to grow slightly faster than the
U.S. market between 2003 and 2013.27
The September 11 attacks will have a long term impact on the airline industry.
Airlines have faced financial difficulties in the past, but none have been as serious
as the those caused by the terrorist attacks. A number of U.S. airlines are facing
serious liquidity problems and may have difficulties surviving another downturn in
the economy. One of the possible outcomes is a major change in how the industry
operates. Airlines are under pressure to change cost structures and operational
strategies. They may make significant changes in order to survive and compete with
profitable low-cost carriers. At least one major carrier has launched a "low-cost"
airline subsidiary to lower operational costs, while others are seriously considering
this strategy. Some industry experts have called for reregulation of the U.S. airline
industry because of the current crisis. Although the government has not taken any
action in that direction, a few analysts believe that, in the future, federal regulators
26
World Tourism Organization, News Release, "War in Iraq may Postpone Tourism Growth
but will not Cause Collapse," March 21, 2003.
27
World Travel & Tourism Council, United States: Travel & Tourism: A World of
Opportunity, Executive Summary, 2003.
CRS-15
may become more active in overseeing airlines.28 Such activity, however, would
require congressional action. To date, no legislation has been introduced for airline
reregulation.
In the hotel industry, analysts believe that the occupancy rates and revenues per
available room may improve in 2003, but are not likely to reach the peak levels of
2000 in the short term. In the long term, some analysts predict that demographic
trends in the United States will have a favorable impact on the hotel and lodging
industry as some baby boomers reach their peak earning years and spend more money
on vacations. Also, the number of retirees will increase in coming years and they are
expected to travel more.29 According to a recent poll by Price Waterhouse-Coopers,
occupancy rates in U.S. hotels are expected to go up this summer, surpassing the
2002 levels but still below the occupancy rate for the same period in 2001. The
anticipated increase is based on an increase in drive travel, the end of hostilities with
Iraq, and an improved economic outlook.30
Legislation and Legislative Issues
in the 108th Congress
The FY2003 omnibus appropriations act (P.L. 108-7, H.J.Res. 2) includes a one-
time appropriation of $50 million for an international marketing campaign to
encourage individuals to travel to the United States. The appropriations act calls for
the creation of the United States Travel and Tourism Promotion Advisory Board,
which will be appointed by the U.S. Secretary of Commerce. The act requires the
Secretary of Commerce to consult with the private sector to award grants and make
direct lump sum payments in support of an international advertising and promotional
campaign consisting of radio, television, and print advertising and marketing
programs.
The Emergency Wartime Supplemental Appropriations Act, 2003 (P.L. 108-
011) includes a provision for $2.9 billion in assistance to the airline industry. The
Act provides grants for airline companies to reimburse them for increasing security
costs; extends the War Risk Insurance Program; and provides funding for
unemployed airline industry-related workers.
Bills have been introduced in the 108th Congress to provide assistance to the
airline industry and also to help promote travel and tourism in the United States. One
bill (H.R. 2002) would establish a pilot program for the promotion of travel and
tourism in the United States through U.S. international broadcasting.
Regulatory issues regarding the travel industry that may be of interest to
Congress are related to the pending rules and regulations of the State Department and
the new Department of Homeland Security (DHS). Travel industry associations are
28
S&P, Airlines, p. 9.
29
S&P Industry Surveys, Lodging and Gaming, February 6, 2003.
30
Travel Weekly, "Poll: Summer Looks Better for Hotels," June 2 2003, p. 21
CRS-16
concerned that the Administration's new rules and regulations regarding visas and
passports may have an effect on travel. The American Society of Travel Agents
recently issued a statement that while travel industry organizations support the new
security considerations, they would like to see the creation of an office within DHS
to provide review and comment on the potential for serious travel disruptions that
may arise from pending DHS rules and regulations.
In January 2004, DHS plans to implement the U.S. Visitor and Immigrant Status
Indication Technology system (U.S. VISIT). According to DHS, the plan is designed
to make entering the U.S. easier for legitimate tourists, students and business
travelers, while making it more difficult to enter the U.S. illegally due to the
implementation of biometrically authenticated documents. Travel industry
associations have voiced concern that the program may cause delays in the movement
of legitimate travelers into the United States.
Another issue that the travel industry has voiced concerns about is related to the
State Department's Visa Waiver Program (VWP) which permits international
travelers from 27 countries to visit the United States for up to 90 days without the
need for a U.S. visa. The VWP originally required that all Visa Waiver travelers
possess a machine-readable passport by October 1, 2007. The USA Patriot Act (PL
107-056) accelerated the deadline to October 1, 2003, but granted the State
Department the authority to waive this requirement until the original deadline of
October 2007, if the country in question is making an effort to distribute the machine-
readable passports. The State Department has not waived this requirement for any
of the VWP countries. Travel industry associations are concerned that the shorter
deadline could disrupt travel to the United States from several countries, including
several European countries.
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