It’s always said that San Diego tourism, the county’s third-largest industry, is insulated from — if not immune to — recessions and high gas prices. When the economy sags and/or gas prices zoom, Angelenos and Zonies, in particular, cancel long trips and drive to San Diego for a vacation. Year after year, almost 70 percent of tourists come to San Diego by auto, and this so-called drive market bolsters the local economy. This year, however, there are signs that the old axiom might be shedding a bit of relevance.
According to statistics from Smith Travel Research, San Diego hotel occupancy is down 3.1 percent this year through March, compared with the same period last year. It was down 2.8 percent in March and 6.3 percent in February. Over the past year, the average room rate has moved up 2 percent to $137.79, but that doesn’t begin to keep up with reported inflation. La Jolla hotel guru Jerry Morrison says that the actual inflation rate is much higher than what the government tells us — perhaps running 10 percent now. That means the room rate should have moved up much more just to keep up with costs.
Occupancy rates are lagging throughout the nation, and the decline seems to be accelerating. Nationwide, occupancy was down 4.6 percent in March, and it’s down 2.7 percent for the year to date. For both the nation and San Diego, the visitor numbers were off slightly last year.
“For a city so used to doing better and better and better, this might be a problem for us, although it is a little early to tell,” says Morrison. And the drive market? “That’s the old rule of thumb that may have worked five or ten years ago. I’m not sure it’s working anymore. People are worrying about losing their houses, their jobs; everything they touch costs more money. We could be in for interesting times in the hotel industry.”
Employment in the local hotel/motel industry is holding up, but it’s not holding up the entire economy, as in the past. Accommodation jobs grew by only 0.6 percent between February and March, according to Employment Development Department figures. Over the past year, they were up only 1.9 percent.
Hotel expert Bob Rauch is not so worried about 2008, because the government and Federal Reserve will pump things up in an election year, as they always do. But he is concerned about the following several years. He owns the Homewood Suites by Hilton in San Diego–Del Mar and the Hilton Garden Inn in Torrey Hills. He is also chairman of the San Diego County Hotel-Motel Association and the San Diego North Convention & Visitors Bureau. And he teaches hospitality entrepreneurship at San Diego State. Rauch believes 32 million travelers will visit San Diego County this year, up from 31.4 million last year. Spending by those visitors will rise almost 4 percent to $8.1 billion, but inflation should eat up that increase, and then some. The average room rate might rise only 3 or 4 percent — again, not keeping up with inflation. The U.S. Open golf tournament at Torrey Pines next month should bring some visitors, he says.
Year after year, attracting tourists is not San Diego’s problem. Historically, “the problem has been too much supply [of hotels and motels],” says Rauch. “When we built too much in the late 1980s, overbuilding downtown by a wide margin, we got a combination of too many rooms and a recession. That is when tourism really goes into a funk. It only occurred one time — in 1991 to 1995.” This year, there will be 1869 hotel rooms coming online. “That’s only enough to drop occupancy [rates] by a couple of points.”
Election-year government spending and credit creation will bring a faux stability to the local and national economies this year, “but I do believe we will have a recession in 2009, and it might have impact for three years,” says Rauch.
Skip Hull of CIC Research says this year should be “fairly flat with possibly some modest growth.” One reason is that the drive market in Southern California alone holds a potential of 20 million visitors. The weak dollar makes it “more expensive to travel internationally. U.S. destinations for U.S. travelers look more inviting.”
“Generally, we see a slight economic downturn. Not a lot,” says Jack Giacomini, whose company operates the Crowne Plaza, Mission Valley Resort, and Hawthorn Suites, all in Mission Valley. “Our Crowne Plaza [formerly the Hanalei] is way ahead of last year and significantly ahead of budget.” Overall, “It’s too early to tell about next year, but advanced bookings are not slowing down. The airlines are not helping with all of their troubles, however. Where we are seeing cutbacks is in people not shopping as much or taking the lower-cost items in the restaurants. Premium wine sales are down a bit. Luxury amenities that go with a holiday or business trip are getting hit.”
San Diego is not benefiting from the decline of the dollar against the euro. New York is getting that business. Says Morrison, “Europeans fly to New York for a couple or three days, go on a shopping trip. Everything they buy is so much cheaper. They fly home and are still ahead.” Orlando might get some of that business, along with Los Angeles. “But there are no international flights to San Diego, so it’s not happening so much here.” The buck’s decline against the Canadian dollar has not stimulated San Diego tourism that much either.
The strongest part of San Diego tourism is leisure travel. But the county is also a leading destination for business travel. “As the economy slows, and clearly the economy is slowing, one of the first things businesses cut back on is business travel generally and meetings in particular,” says Heywood Sanders, professor of public administration at the University of Texas at San Antonio. Sanders is the author of a seminal 2005 study showing that convention centers are vastly overbuilt around the country. “Lots and lots of cities say, ‘If we expand, we will get more business,’ ” thus exacerbating the glut, says Sanders. “San Diego and other cities are going to face a continuing level of very high competition and are likely to see their own attendance stall out or decline” in the economic recession or slowdown, he says. “San Diego is a prime destination and has been quite successful, but larger economic factors are going to impact everybody.”
Both Morrison and Sanders point out that San Diego’s convention center puts out statistics that are often not credible. I, for one, have problems with the claim that the center’s impact on the local economy was $1.5 billion last year. (The multiplier effect gets stretched.) The impact is predicted to be $1.6 billion this year. The center boasts that its activities filled 738,758 hotel rooms last year. “While the expansion was being discussed in the mid-1990s, the Convention Center Corporation put out a study that said that an expanded convention center would generate 980,000 nights a year,” says Sanders. “That hasn’t happened yet by their own numbers.” Hull, however, says that the 738,758 number is low. Meeting planners are booking more rooms than their contracts specify. Since 600,000 attended events last year, and the average stay is three nights per delegate, the number “has to be well over a million room nights,” he says.