Update on economic trends of Chattanooga, Tennessee\'s travel & tourism trends, hotel performance, and tourism outlook for 2009. Dr. Steve Morse, economist, University of Tennessee

1. Chattanooga & Hamilton County
Economic Tourism Trends
Economic Tourism Trends
The Road Ahead
Stephen C. Morse, Ph.D.
Director & Economist
Tourism Institute
TiIi
University of Tennessee
Knoxville, TN

2. 3 Topics Today
1. Trends in Chattanooga Tourists
Spending
S di
2. Hotel Trends in Chattanooga (Occ.
Hotel Trends in Chattanooga (Occ.
Rates, ADR, RevPAR)
3. Factors Affecting 2009 Travel Demand 2

3. Topic No. 1
Topic No. 1
Hamilton Co.
economic &
tourist
tourist
spending
p g
trends
3

4. Top 10 Tennessee Counties for Tourist
Spending in 2007
Spending in 2007
1) Davidson Co. $3,991 million (Nashville)
2) Shelby Co. $3,064 million (Memphis)
3) Sevier Co. $1,502 million (Gatlinburg, PF)
4) Knox Co. $796 million (Knoxville)
5) Hamilton Co. $710 million (Chattanooga)
6) Blount Co. $276 million (Maryville, Townsend)
7) Sullivan Co. $270 million (Kingsport)
8) Williamson Co. $251 million (Franklin, Brentwood)
9) Rutherford Co. $237 million (Murfreesboro)
10)Washington Co. $188 million (Johnson City)
4
Source: TIA & TN Dept. of Tourist Development

5. Hamilton Co. Tourist Spending
Continues to Grow, 2002 ‐
Continues to Grow 2002 2007
$800.0
688 3 710.4
$ Millions
$ Millions 688.3
647.3
$700.0
601.3
533.7 562.8
$600.0
$500.0
$400.0
$300.0
$200.0
$200 0
$100.0
$0.0
$0 0
2002 2003 2004 2005 2006 2007 5
Source: TN Dept. of Tourist Development & TIA

6. Tourism Growth
Percent change tourist spending 2007
Percent change tourist spending 2007 – 2006
Bledsoe Co. 4.2%
Hamilton Co.
Hamilton Co. 3.2%
SE TN Region 3.1%
Bradley Co. 2.6%
Marion Co. 2.1%
McMinn Co. 1.6%
0.0% 2.0% 4.0% 6
Source: TIA & TN Dept. of Tourist Development

7. Topic No. 2
Topic No. 2
T di
Trends in
Hamilton Co.
Hotel &
Attractions
A i
Demand
7

8. Hotel Tax Revenues – Hamilton Co.,
2007 & 2008
$600,000
$600 000
2008
$500,000
$500 000
$400,000
$400 000
2007
$300,000
$300 000
2008
2007
$200,000
$200 000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
8
Source: Chattanooga CVB

9. Hotel Tax Revenues, Hamilton Co.,
2004 ‐ 2008
$5,000,000
$ Millions
$ Millions
4,425,756 4,486,733
3,885,941 ,
3 885 941 3,975,056
,
$4,000,000
$4 000 000
3,574,659
$3,000,000
$2,000,000
2004 2005 2006 2007 2008
Source: Chattanooga CVB 9

10. Monthly Hotel Occupancy Rates for
Chattanooga City, 2006 2008 (Nov)
Chattanooga City, 2006 – 2008 (Nov)
80%
2007
2007
70%
2008
60%
50%
2008
40%
Source: Smith Travel Research
Source: Smith Travel Research
30%
Aug Sep Oct Nov 10Dec
Jan Feb Mar Apr May Jun Jul

11. Percent Change Occupancy Rate,
Chattanooga City, 2007 – 2008 (Nov)
Chattanooga City, 2007 2008 (Nov)
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
0%
‐3.1%
3 1%
‐5% ‐4.2%
‐6.0% ‐4.7%
7 6%
‐7.6%
‐10%
‐9.4%
‐9.6%
‐9.7%
‐13.2%
‐15%
‐15.8%
15 8% ‐16.1%
16 1%
Source: Smith Travel Research
‐20% 11

12. Avg. Daily Rate (ADR), Chattanooga
City, 2007 – 2008 (Nov) Good News!
City 2007 – 2008 (Nov) Good News!
$95
2008
$90
$85
$
$80
$75
2007 2007 2008
$70
Source: Smith Travel Research
$65
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov 12Dec

13. Percent Change ADR,
Chattanooga City, 2007 2008 (Nov)
Chattanooga City, 2007 – 2008 (Nov)
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
15%
Source: Smith Travel Research
11.6%
10% 9.5% 9.0%
8.9%
8.3%
7.3%
4.8%
4 8%
5% 3.8%
3.2% 3.1%2.9%
0% 13

14. Revenue Per Available Room (RevPAR),
Chattanooga City, 2007 – 2008 (Nov)
Chattanooga City 2007 – 2008 (Nov)
$70
2007
2008
$60
$50
2007
$40
2008
$30
Source: Smith Travel Research
$20
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov 14 Dec

15. Monthly Gross Sales Attractions,
Amusements, Theaters, Hamilton Co.
Amusements, Theaters, Hamilton Co.
2007 ‐ 2008 (June)
$6
$ Millions
$5 2007
$
$4
2007 2008
$3
2008
Source: TN Dept. of Revenue
Source: TN Dept. of Revenue
$2
Oct Nov 15Dec
Jan Feb Mar Apr May Jun Jul Aug Sep

16. Topic No. 3
Topic No. 3
Economic
Factors
Influencing
Influencing
Hamilton Co.
Tourism in
2009
16

17. Airline Survival in 2009
1) Decrease Costs &
eliminate empty seats:
li i t t t
Less flights per destination
Smaller airplanes – l
ll l less
seats
2) Increase Revenues
Higher airfares for less seats
Hi h if fl t
available
Other non‐seat revenue
Other non‐seat revenue
(bag & meal charges)
17

18. Airlines have decreased seat capacity
in many markets
in many markets
• Let’s compare airline seat capacity for:
Let s compare airline seat capacity for:
March 2008
Vs.
March 2009
h
Source: Official Airline Guide, Federal Aviation Adm., U.S. Dept.
of Transportation, March 2007 ‐ March 2008
p ,
18

19. Tennessee – Percent Changes in Airline
Seat Capacity,
Seat Capacity,
March 2008 vs. March 2009
Chattanooga + 2.9% ( + 1,069 seats)
Knoxville ‐ 2.9% ( ‐ 3,023 seats)
Memphis ‐ 7 0% ( 18 442 seats)
7.0% ( ‐ 18,442 seats)
Nashville ‐ 9.5% ( ‐ 17,338 seats)
( )
Tri‐City (Kingsport) ‐11.4% (‐ 837 seats)
Source: Official Airline Guide, Federal Aviation Adm., U.S. Dept. of Transportation,
March 2007 ‐ March 2008 19

20. Other Southeast Airports– Percent
Changes in Airline Seat Capacity,
Changes in Airline Seat Capacity,
March 2008 vs. March 2009
Chattanooga + 2.9%
Huntsville/Decatur ‐ 5.6%
Birmingham ‐ 12 0%
12.0%
Atlanta ‐ 4.3%
Source: Official Airline Guide, Federal Aviation Adm., U.S. Dept. of Transportation,
March 2007 ‐ March 2008 20

21. Today’s Economic Health
• Lowest in 22 years
• Declining 9 months in a row
Consumer
Confidence
• Slowing since 2007
• Credit harder to get
Credit harder to get
Consumer
Consumer
Spending
• Sl
Slowest growth since 1986
t th i 1986
• 3rd Qtr. 2008 Gross Domestic Product
US.
Economic negative first time in 12 years
negative – first time in 12 years
Growth
21
Source: U.S. Dept. of Commerce

22. Top 10 Ways Tourists Reduced Travel
Spending in 2008
1) Take shorter trips (miles) 58%
2) Look for discounts 38%
3) Less on paid attractions 35%
4) Buy less souvenirs 33%
5) L
Less expensive lodging
i ldi 27%
6) Less nights away home 25%
7) More meals in room
More meals in room 18%
8) Drive different vehicle 10%
9) Split costs with others
Split costs with others 9%
10) More fast food 8% 22
Source: Jerry Henry and Associates

23. 3 Factors Influencing Chattanooga
Tourist Spending in 2009
Tourist Spending in 2009
Gas Prices &
Availability
Economic
E i
Uncertainty &
Housing &
Business
Credit Crisis
Profits
Tourist
Spending
23

24. V O L K S W A G E N
Business Travel Boost for Chattanooga
Bi T l B t f Ch tt
Will employ 2,000
workers at plant site
workers at plant site
Expected to generate
Expected to generate
another 20,000
additional workers
with suppliers and
with suppliers and
affiliates 24

25. Research shows that businesses that
Research shows that businesses that
maintain market share and increase
sales after a recession are those that:
l f i h h
Increased or maintained media
advertising and marketing
expenditures during a recession
expenditures during a recession
Source: Harvard Business Review, Jan – Feb, 1980; Strategic Planning Institute, 1982;
McGraw‐Hill Research, Laboratory of Advertising Performance Report, 1986

26. Market & advertise more in a
recession…
Primary goals in
Primary goals in
recession:
Maintain
Market Share
Market Share
Retain & Build
Retain & Build
Brand Loyalty
With Value &
With Value &
Service

27. Resist deep discounting during
a recession
i
Difficult to increase prices
later after recession
Chattanooga ADRs are holding
– Took hotel industry 3 yrs to
yy
recover back to pre‐9/11 rate levels
Consumer feel “ripped off”
from a previous low reference
price

28. Deep discounting will not motivate a
significant amount of additional
travelers in 2009
travelers in 2009
• Most of the time, deep discounting
Most of the time, deep discounting
only reduces revenue from those
tourists already deciding to travel
i l d d idi l

29. How much volume would your business
need to increase, to offset a 5% price
need to increase to offset a 5% price
decrease? (keep profits same)
35%
25%
25%
15%
Assumes a
Assumes a
contribution
5%
profit margin
(price cost)/price
(price‐cost)/price
‐5% of 25%
‐5%
Price decrease Volume increase
needed to break
dd b k
even
29

30. Forecast for 2009 Tourism Economy
“Dog tired” sluggish
economy y
$ 3 plus gas prices
next summer
Soft travel spending:
p
poor first half 09, fair
second half 09
New federal stimulus
package could stimulate
travel
Volkswagen makes 09
30
& 10 looks brighter

31. Thank you for inviting me
Questions? Comments?
Questions? Comments?
Stephen C. Morse, Ph.D.
Director & Economist
Tourism Institute
University of Tennessee
Knoxville, TN
PH: (865) 974‐6249
Email: smorse@utk.edu
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