Copyright 2002 FDCHeMedia, Inc. All Rights Reserved.  
FDCH Political Transcripts
September 25, 2002 Wednesday
TYPE: COMMITTEE HEARING

LENGTH: 14265 words

COMMITTEE: CONSUMER AFFAIRS SUBCOMMITTEE

SUBCOMMITTEE: SENATE COMMERCE

HEADLINE: CHAIRMAN HOLDS HEARING ON TOURISM AFTER 9/11

SPEAKER:
CHAIRMAN

LOCATION: WASHINGTON, D.C.

WITNESSES:

JOHN K. DURST, JR., EXECUTIVE DIRECTOR, SOUTH CAROLINA DEPARTMENT OF PARKS, RECREATION &, TOURISM
ANN MCDOWELL, CHAIRWOMAN, MARKETING ADVISORY COUNCIL, BRANSON/LAKE AREA CAMBER OF COMMERCE
HAL ROSENBLUTH, PRESIDENT AND CEO, ROSENBLUTH INTERNATIONAL
JONATHAN TISCH, CHAIRMAN, TRAVEL BUSINESS ROUNDTABLE
FRED LOUNSBERRY, NATIONAL CHAIR, TRAVEL INDUSTRY ASSOCIATION OF AMERICA
NOEL HETSCHEL, CHAIRWOMAN AND CEO, AMERICAN TOURS, INTERNATIONAL, INC.

BODY:

 
U.S. SENATE COMMITTEE ON COMMERCE, SCIENCE AND TRANSPORTATION:
SUBCOMMITTEE ON CONSUMER AFFAIRS, FOREIGN COMMERCE AND TOURISM
HOLDS A HEARING ON TOURISM AFTER 9/11
 
SEPTEMBER 25, 2002
 
SPEAKERS:
U.S. SENATOR BYRON DORGAN (D-ND)
CHAIRMAN
U.S. SENATOR JOHN D. ROCKEFELLER IV (D-WV)
U.S. SENATOR RON WYDEN (D-OR)
U.S. SENATOR BARBARA BOXER (D-CA)
U.S. SENATOR JOHN EDWARDS (D-NC)
U.S. SENATOR JEAN CARNAHAN (D-MO)
U.S. SENATOR BILL NELSON (D-FL)
 
U.S. SENATOR PETER FITZGERALD (R-IL)
RANKING MEMBER
U.S. SENATOR CONRAD BURNS (R-MT)
U.S. SENATOR SAM BROWNBACK (R-KS)
U.S. SENATOR GORDON SMITH (R-OR)
U.S. SENATOR JOHN ENSIGN (R-NV)
U.S. SENATOR GEORGE ALLEN (R-VA)
 


*


DORGAN: We'll call the meeting of the subcommittee to order. Good afternoon and welcome to the hearing. We are holding another hearing of this subcommittee, which has as part of its jurisdiction, the issue of tourism. We're holding another hearing about a year, slightly less than a year following the hearing we held last year in the aftermath of September 11.

In the aftermath of that tragedy we acted here in Congress quickly and responsibly to help the airline industry because that industry had been shut down on September 11 and remained down for some days.

We helped the airline industry, both in terms of financial assistance and new security majors so that the flying public would be confident that it is safe to fly. But, it's clear that the aviation industry is not the only sector of the economy that was deeply affected by September 11. We learned that in the hearing that we held in which we heard from executives and representatives of other portions of the travel and tourism industry.

Much of that industry was deeply affected by 9/11 last year and it continues to be effected today in a significant way. The travel and tourism industry is a significant part of our economy. It's the third largest retail industry, generating more than $582 billion in revenue each year and directly and indirectly employing more than 18 million people.

No industry took a bigger hit after September 11 last year than travel and tourism. Yet, this industry received nothing to help stabilize it or help it recover after 9/11.

The taxpayers of this country correctly, in my judgment, extended $5 billion in grants and $10 billion in guaranteed loans to the airline industry to help stabilize that industry and to help it recover. I was one of those who supported that assistance. I didn't feel we had much choice.

But, no such help was offered to other parts of the travel and tourism industry, which were devastated as a result of the attack by the terrorists.

Some in Congress, myself included, along with my colleague from Missouri and my colleague from Nevada, offered a proposed legislation to help the industry and to help workers recover. That legislation was not enacted.

But, the purpose of this hearing, then, nearly a year later is to examine how the industry is doing. It's an important question to ask in that this industry really has gone it alone for the last year.

The freedom to travel is a pretty basic freedom. It's a freedom that depends on having a network of successful hotels, travel agents, car rental companies, restaurants, airlines, attractions to give us place to go and things to do and to take care of us as we travel and take care of us when we get to where we're going.

Today we seek to understand the extent of the damage that was done to the tourism industry as a result of the terrorists' attacks and the economy's response to those attacks. And we want to understand what has happened to the people who work in that industry so we can evaluate what, if anything, needs to be done in public policy to respond to it. How's the industry doing?

We know that international arrivals in the United States were down by 12 percent in the first quarter of this year. But, what about American travelers? We know that if the hotel employees and restaurant employees' international union could be here today, they're not able to be here, they would tell us that 15 percent of their members are still out of work. We know that the airlines are still suffering from fewer business passengers and hemorrhaging in red ink.

So, are people traveling less? Is it a hassle factor going through airport security, encouraging people to travel by car? If that's the case do these new travel patterns have implications for the rest of the industry?

In the part of the country that I come from, we're well-familiar with disasters. We know what it's like when, through no fault of your own, the world falls out from under you as a result of a natural disaster. But, there was nothing natural about the cowardly and deadly acts of September 11 last year. And they were certainly, unexpected and clearly beyond the control of anyone who was affected by them.

Just as our country has generously responded to natural disasters, we must determine what is the best way to respond to help our economy heal with respect to this disaster. And the first step towards that end is understanding what has happened, what is the current status of this industry?

And we've asked a number of witnesses to be with us today. We appreciate the fact that they have traveled to be here and we are anxious to have a discussion and complete a record for our colleagues here in the Senate on the state of the tourism industry in this country today.

We are joined by Senator Carnahan and we will be joined by others on the subcommittee later.

But, Senator Carnahan, do you have a statement?

CARNAHAN: Thank you, Mr. Chairman, for conducting this hearing today. I certainly appreciate your leadership on this committee in this matter. Tourism is one of the most important industries in Missouri, a $7.8 billion a year industry.

The industry employs nearly 191,000 people, spending by travelers generates about $625 million a year in state taxes and $272 million in local taxes. The importance of the tourism industry in my state has a lot to do with the diversity that Missouri has to offer, from the Gateway Arch in St. Louis to the traditions of Jazz and Blues and barbecue in Kansas City. Missouri is rich in history and culture.

In fact, one of the most dynamic tourism destinations in the nation is located in my state. In February 2002 Byways Magazine named Branson, Missouri the top motor coach destination in the entire -- during the entire decade. The National Tour Association and group leaders of American ranked Branson as the number 10 most popular overall tourist destination in the country. And Family Fun Magazine named Branson the top family-friendly tourist town in the Midwest.

Branson is considered the live music show capitol of the world. It is home to 49 music theaters with a total of theater seating capacity of 61,714 seats. That's more seats than are available on Broadway in New York.

Mr. Chairman, I'm extremely pleased that we have a resident of Branson here to testify before this committee today. Ann McDowell is the co-owner and general manager of Ride the Ducks in Branson, which was recently named the small business of the year in the Branson lake area. She is also the chairwoman of the marketing and advisory council of the Branson chamber of commerce. I'm grateful for her willingness to take time out of her busy schedule to share her insight with the committee today, particularly the impact that September 11 has had on tourism.

Thank you again, Mr. Chairman, for holding this hearing and for exploring this timely topic.

DORGAN: Senator Carnahan, thank you very much.

I would have been disappointed after that description of Branson had we not had someone on the panel from Branson. I was in the State of Missouri with Senator Carnahan last Friday and I guess I wasn't so much aware of the barbecue sauce in Kansas City, but I escaped without having any, perhaps we could remedy that.

CARNAHAN: Well, I regret we didn't share that with you. If you return, we...

DORGAN: Well, perhaps we can remedy that at some moment. Let me thank you for your comments and say that we have an interesting set of witnesses.

We have Mr. John Durst, the executive director of the Southern Carolina Department of Parks and Recreation and Tourism; Ms. Ann McDowell, chairwoman, marketing advisory committee of the Branson Lake Area Chamber of Commerce; Mr. Hal Rosenbluth, president and CEO, Rosenbluth International; Mr. Jonathan Tisch, chairman of the travel business roundtable; Mr. Fred Lounsberry, national chair of the Travel Industry Association of America; and Ms. Noel Hetschel, chairwoman and CEO, American Tours International.

Let us begin with Mr. Durst, if I might. Mr. Durst is the executive director of the South Carolina Department of Parks and Recreation and Tourism. He will talk to us about the South Carolina tourism industry and initiatives from the Southern Governors' Association.

Mr. Durst, we thank you very much for being with us. Why don't you proceed and then when you're done I'm going to call on the ranking member, Senator Fitzgerald, for a statement.

Mr. Durst, why don't you proceed?

DURST: Thank you, Mr. Chairman, good afternoon to you and also the other distinguished members of the subcommittee.

My name is John Durst. I have the honor of appearing before you today representing South Carolina Governor Jim Hodges, our state's tourism industry and the South Carolina Department of Parks, Recreation and Tourism. I serve as the director of PRT.

DURST: It is my great honor to testify on the topic of South Carolina's tourism industry in the aftermath of 9/11. The past 12 months have been a time of testing and challenge for South Carolina's tourism industry, just as it has been for our sister states. South Carolina, a state known for its southern hospitality, its smiling faces and its beautiful places, has proven to be resilient. And today I'd like to share with you how our tourism industry, the governor, the legislature and the people in our great state have worked in partnership to achieve a remarkable recovery.

Travel and tourism have become South Carolina's number one industry. It employees nearly 13 percent of our workforce, generates over three-quarters of a billion dollars in state and local taxes and represents 8.8 percent of our gross state product.

In fact, in most southern states tourism ranks among the top three industries. As we all know, even before the tragic events of September 11, the affects of a slowing national and global economy were having a negative impact on every state's revenue stream. Tourism, however, had remained stronger than many other sectors of the economy.

Unfortunately, the terrorist attacks sent our tourism industry, along with that of our sister states, into a tailspin, and with it, the economy of most southern states.

We in South Carolina recognize the economic importance of travel and tourism to our state. So, in the aftermath of September 11 we aggressively moved forward to proactively address these unprecedented challenges. Within a month of 9/11, Governor Hodges convened a summit on tourism and travel to gain input from tourism industry leaders from across our state. That summit led to our developing a 10-point plan for recovery and our forming a special tourism resilience committee to implement the summit's recommendations.

Later that same month, in response to a request from Governor Hodges, and with bipartisan support from our legislature, our state budget and control board provided a $2 million emergency loan to our agency for the immediate development of an aggressive tourism marketing and promotion program.

My agency then leveraged these funds with dollars from our private sector partners to further extend the region frequency of our marketing at a critical moment. I want to commend those partners for their invaluable support, which was nothing short of economic patriotism.

The results of these strategic actions and the partnerships forged between state government and our private sector partners were both immediate and dramatic. In the past 12 months almost every measurable segment of South Carolina's tourism industry has, comparatively speaking, shown strong recovery. We have realized a return on the marketing dollars invested in that emergency program of about 20 to 1. And our general assembly forgave the $2 million loan.

I'd be remiss if I did not note that our state has always been a major drive destination for leisure travelers. We're not as dependent as many of our sister states on air transportation to maintain our industry's economic health and well-being. Nor, are we as dependent upon the business traveler or conventions and meetings, though they are an increasingly significant segment of our tourism economy.

We are, however, extremely cognizant of the fact that the travel industry's overall health is dependent upon the continued strength of our sister states' tourism industries. We are all interrelated and we are all interdependent.

Having said that, it should be noted that continued state revenue shortfalls are having major negative impacts on our ability to market and therefore sustain our tourism industry's momentum, limiting our ability to generate much needed revenue for our state. At the very time we need to generate revenue the most, our efforts are being impaired due to state agencies budget reductions arising from continued revenue shortfalls.

It is with this in mind that we respectfully believe that a strong tourism partnership, based on the successful partnerships we have developed between our state and our private sector partners, must be forged between the federal government and the states in order to move this vital industry forward significantly.

I'd like to suggest, Mr. Chairman, two arenas in which this partnership can have a major and measurable impact that involve both the domestic and international travel sectors. First, state tourism development of international markets is dependent upon reliable data to guide our strategic planning. The current in-flight surveys of international travelers has been so under funded that it provides insufficient sample size for any reliable analysis. The success of this program relies on sufficient recurring funding for the surveys and voluntary cooperation by the airlines in helping to administer the surveys, which are distributed during flights.

We respectfully submit that it is imperative that sufficient funding be provided to the office of tourism industries in the U.S. Department of Commerce on a consistent basis to better assist individual states and regions in international marketing.

Secondly, and finally, we would further respectfully submit that it is in both our interests, state and federal, to forge a cooperative partnership that helps leverage existing state government expenditures for travel and tourism advertising and assist with marketing efforts to regain and retain traveler confidence.

To this end, we would urge you to support legislation similar to that introduced late last year to grant federal funds to states based on tourism advertising dollars expended.

Gentlemen, lady, a strong national travel industry is vital for the economic health of our states and our nation. Forging and funding a partnership between the federal government, the states and our thousands of industry partners can help ensure its strength and thereby benefit all Americans.

Mr. Chairman, thank you again for the opportunity to discuss this important issue with you and the other members of the committee.

DORGAN: Mr. Durst, thank you very much.

Let me call on the ranking member of the subcommittee, Senator Fitzgerald from Illinois.

FITZGERALD: Well, thank you Senator Dorgan. And I'm glad that you're holding this hearing because I think it's important that we hear from more than just the airlines in the travel and hospitality industry. I'm concerned that too much of the focus on Capitol Hill has been how can we get out our checkbooks and write more checks to the airlines.

Last year we provided them with $15 billion in relief. If you add that to the roughly $15 billion we also spent last year on security and airport improvements, it really piles up to about $30 billion that were given to the airlines. But, I think that tourism and hospitality industry consists of a lot more than airlines.

I'm glad to see travel agencies represented here, hotels, tour bus companies and a broad cross-section of the tourism and travel industry. And I'd like to hear your ideas on what you think we can do to keep tourism going in America.

As you may have heard, the airlines are back asking for more. And they have an awful lot of clout on Capitol Hill. Last year they go a lot of money and everybody else was left twisting in the wind. I'll be interested to hear your perspective on the possible specter of Congress doing the same thing all over again and you guys being left out. And I hope you'll be more aggressive this year and not letting Congress forget about the rest of the hospitality and tourism industry.

So, thank you all for being here. And we'll look forward to asking you questions.

DORGAN: Senator Fitzgerald, thank you very much.

Next we will hear from Ms. Ann McDowell, chairwoman, marketing advisory council of the Branson Lake Area Chamber of Commerce. Ms. McDowell will tell us about the Missouri, Branson, Missouri tourism market one year after 9/11 and the health of the Missouri tourism issue in general.

So, Ms. McDowell, thank you for being with us.

MCDOWELL: Thank you, Mr. Chairman. It's my honor to be here to represent Branson, Missouri.

The tragedies of September 11 created an immediate impact in Branson, Missouri, similar to other tourism destinations throughout the United States. While we are no longer reeling from the impacts there is a lingering uncertainty about our economic future.

As you might suspect in a city of less than 5,000 residents, a city that hosts 7 million visitors annually, the people of our community are significantly dependent on tourism for our economic well being.

DORGAN: Ms. McDowell, would you tell us where Branson is?

MCDOWELL: I will. It is the southwest corner of the State of Missouri. We are about a three-hour drive from St. Louis or from Kansas City.

To understand the impact of this incident on Branson, it would be important to know a little bit about how Branson became tourism Mecca. Located in the Ozark Mountains, in an area too rugged for farming and too remote for other industrial development, Branson developed a tourism industry in the early 1900s. Lakes, mountain scenery and the simple lifestyle of the Ozarks described in a popular novel of the time, entitled The Sheppard of the Hills, drew early visitors. Float trips, fishing and water activities sustained the tourism industry until the 1960s when several major tourism developments were formed.

A theme park called Silver Dollar City helped to make Branson a regional tourism destination. In the mid-1980s celebrity entertainers who had been occasional featured guests in music shows in Branson began to move into the community and perform full-time. By the early 1990s Branson was a household name across America. Famous for live music shows and family entertainment, largely because of some exposure we received in 1992 on the 60 Minutes program.

It is difficult for any tourism destination to provide a definitive answer as to why people come and certainly no single event or incident can be blamed or credited with the destination's year-end results. It is always a combination of factors that result in success or disappointment in our, or probably any, industry.

However, for the first time in over 20 years, Branson experienced a decline in visitation during 2001. Year-end numbers indicated a decrease of approximately 3 percent. While Branson has certainly felt an impact since September 11, it has suffered less than other national tourism destinations.

We believe this is because of where we are located and what we are. Branson, Missouri is located, as I mentioned, in the southwest corner of our midwestern state, within a days drive of about half the nation's population. About 7 million people each year visit and over 90 percent of them drive to Branson in their automobiles.

Understanding where Branson is located relative to our nation's population and the heavy propensity for drive-in traffic explains some of our resilience to this tourism crisis. But, equally important, is the significance of what Branson is really all about.

Branson's core values of celebrating the American spirit and patriotism, its long-time appreciation for military veterans and its safe-based family friendly environment have given it broad appeal for many years.

The communities' commitment to these values was established 50 years ago and supported continuously throughout our development. Visitors know these values are not just a marketing ploy by Branson, but rather an intrinsic part of a culture and lifestyle of our area.

American Demographics published a major study in its September 2002 magazine that examines consumer behaviors, including travel habits relative to 9/11. In October of 2001 12 percent of Americans with young children said they planned to take a family vacation in response to the attacks on September 11. By June of 2002 almost twice as many, 20 percent said they had indeed taken a vacation with their loved ones.

There is also a change in the way people are spending their dollars. Overall, only 12 percent of those surveyed said they are spending more for vacations than they did prior to September 11. The increased number of leisure family travelers has helped to buoy Branson. Because our area is perceived as a value destination as well, a flat or decreased spending pattern by vacationers, coupled with a softening national economy may well make Branson an even more appealing travel destination.

During the first quarter of 2002 tourism taxes collected in our area indicate Branson travel was up more than 10 percent over the first quarter of 2001. Now, although those results are promising, it's important to understand that the first quarter of Branson's business is really our off-season and represents a very small total of -- a very small portion of our total economic picture.

A more realistic look is probably our 2002 year-to-date room demand through July that shows a 2.9 percent increase over the prior year. We feel extremely fortunate to show any discernible increase during these lean and turbulent times for tourism.

Branson rebounded quickly, but not without considerable and ongoing effort. Everyone in Branson is working harder and reaching further for new ideas to maintain our economic stability.

In summary, in the aftermath of September 11, Branson has been more fortunate than most tourism destinations. While we have not suffered great losses, we also have not enjoyed our traditional or expected growth. Our best explanation is that our resiliency is the result of where we are and what we represent. Branson's location in the heart of America is accessible for many by car who may be reluctant to fly. For the growing numbers of people in search of a great vacation value and a destination closer to home, Branson is an appealing alternative. Branson represents the wholesome family values, patriotism and safe-based foundation that comfort Americans in times of crisis.

We provide a safe haven of traditional family values in a world that is suddenly more uncertain than every before. Coincidently, our advertising message for 2002 was a remake of a marketing effort for our community that was originally developed in 1994. So, by no means was this a new branding or positioning effort on our part. But, it was a message clearly more meaningful than ever before. Its title was Rediscover America.

And it said this year visit a place in the heart of American, a place where you can sit outside and look at the stars, or come inside and do the same thing, a place where getting high means a roller coaster ride or a walk on an Ozark mountain top, a place of spectacular sites and smiles on faces you love, where family values and the American spirit endure. It's called Branson, Missouri and it's for everyone who wants to rediscover America.

MCDOWELL: For those reasons, Branson has a positive message to report today. Thank you.

DORGAN: Mrs. McDowell, thank you very much.

Next we will hear from Hal Rosenbluth, president and CEO of Rosenbluth International. Hal's company is truly an international company, but we're also very pleased and proud that his company has a significant presence in our state.

So, Hal Rosenbluth, why don't you proceed? Thank you for being here.

ROSENBLUTH: Thank you, Mr. Chairman, members of the Committee on Commerce, Science and Transportation. I'm pleased to have the opportunity to speak with you today about the current state of the travel industry one year after the attacks on September 11, 2001.

I offer this testimony, not only to provide statistics demonstrating the economic challenges faced by the industry during this past year, but also to leave you with my plan for industry recovery.

Please note that the statistics and information provided in this testimony are not reflective of Rosenbluth International, but rather an overview of the travel companies as a whole. The past 12 months have been amongst the most dramatic in history of the travel industry. In my testimony before you last year I discussed the tremendous loss of travel agency revenues in the days immediately following the attacks of September 11.

One year later, travel agencies are still struggling to recuperate, which is demonstrated by the following statistics released just this past September 12 by the Airline Reporting Corporation. In the past year alone, 11.3 percent of all agency locations have closed. This translates to a closing of 3,274 travel offices.

Also in this past year, 12.9 percent, almost 13 percent of all agency firms have closed. This percentage translates in the closing of over 2,260 travel agency businesses, all of them family businesses.

Total airline sales have decreased by 17 percent during this past year, or a loss of $9 billion in sales. And this past month of August, 104 agencies have defaulted on their payments to airlines for tickets issued on their behalf, which is nearly twice that of last august.

A survey of 200 corporate travel managers conducted from August 29 through September 5 by the National Business Travel Association determined that corporate travel is still below normal one year after September 11, 2001. 70 percent of these travel managers responded that their travel in their companies is down from this time last year by as much as 20 percent. 72 percent of the travel managers said that their travel is below 2000 levels, which is the last time travel was considered normal. I'm not sure there is any normal anymore and they need to change the definition of normal in the dictionary.

In fact, 31 percent of respondents said that travel was down by 20 percent or more since the year 2000. 62 percent of these same travel managers think that the recovery will take at least another 12 months. I certainly agree. In addition, 45 percent of the travel managers referred to the need for airline price reform in order for business travel to return to normal levels.

From these statistics it is clear that something concrete and immediate needs to occur in order for the travel and tourism industries to recover. It is no secret that most major airlines are in a state of financial crisis. In addition, the turbulent atmosphere of the U.S. economy and the prospect of war with Iraq can only hinder the improvement of our industry.

Despite a slight increase in positive sentiment toward travel at the beginning of 2001, the Travel Industry Association of America, the latest travel sentiment index shows a decline in the third quarter of 2002. The drop is mainly due to consumer concerns about not having money to travel due to the current state of economy.

That same association also stated that with the economy recovering slower than expected, business travel is faring even worse than leisure travel and that dropped nearly 9 percent for January through June of 2002, as compared to the same timeframe a year earlier.

It is imperative that we act quickly and effectively to enable a return to a prosperous travel industry. In conjunction with my testimony, I have submitted a fair plan for airline recovery, which maps out both short and long-term plans for the rejuvenation of the airline industry, which is critical to both strong travel agency recovery and commerce as a whole in the United States. We estimate that our fair plan will result in an additional $5 billion of annual revenue for the airlines, more passengers flying at fair prices and companies better able to leverage their dollars while having a credible airline system necessary to conduct business. None of that requires any government action whatsoever.

The second part of the plan for airline and travel industry recovery introduces a reconstructed and new distribution model. This complex and rather arcane subject that I have submitted in writing -- so, I have submitted in writing this plan in its entirety. I will, however, be happy to answer questions you might have relative to the white paper later in the session.

A healthy airline industry through the realignment of fairing and distribution, in addition to cost cutting measures now taking place should result in the return to a strong travel industry and the result in positive affects on commerce.

Thank you very much.

DORGAN: Mr. Rosenbluth, thank you very much.

Next we will hear from Jonathan Tisch, chairman of the Travel Business Roundtable. Jonathan, welcome.

TISCH: Thank you, Mr. Chairman. I am Jonathan Tisch, the chairman of the Travel Business Roundtable and chairman and CEO of Lowe's Hotels. Before I begin I'd like to thank Chairman Dorgan and Ranking Member Fitzgerald for holding this important hearing and inviting the Travel Business Roundtable to testify. I ask that my written statement be included in the record.

DORGAN: Without objection.

TISCH: Over the past year the travel and tourism industry has faced significant challenges on several fronts. When people stopped flying after September 11, or in many cases, stopped traveling all together, 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 industry workers were laid off or workers had reduced hours or companies faced steep revenue shortfalls and state and local governments saw a rapid decline in tax revenues that were badly needed in this recessionary economy.

Though lower prices and increased security measures have helped Americans travel again, the ongoing economic uncertainty of the U.S. and the perceived hassle factor associated with flying remains strong barriers to the industry's recovery. The slight recovery we are seeing in some industry sectors and areas of the country is uneven.

A number of examples of the disparity of the industry's recovery are included in my written statement, but I'd like to cite just a few. The Travel Business Roundtable conducted a poll in august on travel patterns one year after September 11. A summary is attached to my written statement. It did find that while people perceive airline travel to be relatively safe, the aforementioned hassle factor, a lack of confidence in the sufficiency of airport security and inconsistencies in the screening process amongst airports confirm a recent trend to drive instead of fly.

More than one in 10 travelers have canceled their flights or fly less frequently because of the hassles. And nearly one in five frequent business travelers are traveling less often. The Federal Reserve September 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 are seeing increased visitor traffic, room rates are down and travelers are spending less on food and entertainment.

As chairman of NYC and Company, New York City's Convention and Visitors Bureau, an official tourism marketing arm, I can report to you that while we are able to maintain roughly the same number of domestic visitors in 2001 as we had in 2000, spending was off by nearly $1 billion.

It is important to note that the unevenness in the recovery is not just affecting employees and owners of travel and tourism businesses. Cities, counties and states have also been affected by the decline in the tourism and sales tax revenues that visitors bring to these jurisdictions.

Where can we go from here? A collaborative effort will be the key to recovery. Included in my testimony are a number of recommendations about how we can work together to achieve a true recovery for travel and tourism. We offer these suggestions with the recognition that the federal government is facing fiscal restraints.

With that in mind, we are not asking for things that are unrealistic or unachievable. However, we hope that you will agree a small investment now will yield multiple returns for our nation's economy in the coming years.

A major part of our effort must include attracting more international visitors. We are losing market share and with it job and tax revenues to our foreign competitors who are spending vast sums of money to promote their countries.

Though travel and tourism generated a balance of trade surplus of nearly $26 billion in 1996, by 2001 that surplus had plummeted to only $7.7 billion. Moreover, the U.S. continues to rank as the third most sought after international destination behind France and Spain.

In 2000 international visitors spent approximately $106 billion in this country. It is well-known that international travelers spend far more than domestic travelers. For example, in 2000, though foreign visitors made up only 18 percent of New York City's total visitors, they were responsible for 42 percent of all visitor spending.

Beyond the financial benefits, 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.

What do we recommend? TBR is discussing with the commerce department the possibility of undertaking partnered research that would examine successful international marketing efforts by our largest foreign competitors. We hope that this study will create a roadmap for the development of an economically and politically credible international destination marketing campaign.

We hope that you will consider the following incremental measures as small investments that will yield multiple returns in the coming years. We ask that you urge the president to establish an advisory council on travel and tourism, create a destination marketing pilot program that would help a select group of cities and states undertake international marketing initiatives, increase funding for the commerce department's market development cooperative grant program to make it more accessible to our industry or fund a similar tourism-specific program, enact Congressman Foley and Farr's American Travel Promotion Act and work to pass terrorism insurance before you adjourn, increase and restore the tax incentives that spur business travel by increasing the business meals and entertainment tax deduction and restoring the spousal travel deduction, continue funding for the commerce department's travel and tourism satellite accounts, ensure that the industry has a consultive role in the creation of the new Department of Homeland Security, work with mayors and governors around this country to develop achievable travel and tourism strategies.

My final request requires no congressional action, but would make all the difference to our industry. Above all things, I urge you and your colleagues to help end the indifference that Washington has long held toward us. The 1950s industrial economy has given away to the 21st Century service economy. Travel and tourism now defines that service economy around the world. We create jobs. We create careers. We fulfill important social policy goals and we contribute more than $99 billion in tax revenue and create an enormous travel trade surplus. We are in all 50 states. We are in all 435 congressional districts. In short, we are your core constituencies.

Please respect our contribution by nurturing our business and employees with policies that will enable us to accomplish even more. And, again, I thank you for inviting TBR to testify. We look forward to continuing our work with you as we enact realistic policy solutions to spur increased travel to and within the United States.

I'm happy to answer any questions that you may have. Thank you.

DORGAN: Mr. Tisch, thank you very much.

Next, we will hear from Mr. Fred Lounsberry, national chair of the Travel Industry Association of America.

Mr. Lounsberry, why don't you proceed?

LOUNSBERRY: Thank you. Mr. Chairman, and members of the subcommittee, on behalf of the 2000-plus member organizations of the Travel Industry of America, I want to thank you for the opportunity to update this subcommittee on the state of the travel and tourism industry.

Last October our industry shared with you the devastating impact on our employees of the terrorists' attacks of September 11, 2001. The sudden and dramatic decline in air travel rippled out to hurt all segments of the industry, including hotels, restaurants, rental car companies, and my business, theme parks and resorts.

We are grateful that so many of you co-sponsored legislation embodying our proposed industry relief plan. Unfortunately, for reasons beyond our collective control, that legislation did not become law and many of our former employees are still without jobs or are working significantly fewer hours.

Today I want to describe the current state of our industry one year later and suggest how you might help our industry share American values abroad, generate jobs, increase tax receipts and help our nation compete for international visitors in the future. We hope you will step forward as you did last year to help us.

One year later our industry's situation has improved, but recovery is neither full, nor complete. Auto travel and travel by recreational vehicles have been leading positive indicators as Americans have expressed more interest in family travel and staying closer to home. Domestic air travel recovery, however, has stalled. In the first half of 2002, employments were down 10 percent over the previous year. Business and convention travel was down nearly 9 percent in the first six months of 2002.

But, the most effected segment by far has been international travel. In 2002, overseas travel to the U.S. declined 15 percent overall -- or excuse me, 2001. Travel industry employment has been affected dramatically.

LOUNSBERRY: From September to December of 2001, TIA estimates that more than 270,000 travel industry employees lost their jobs.From December 2001 to July 2002 an additional 47,000 jobs were lost in our industry. The single biggest obstacle to a full and complete recovery of our industry is the loss of international travelers to the United States.

In 2001 international travelers spent $72.3 billion here and an additional $17.7 billion on transactions with U.S. air carriers. These expenditures directly generated 1 million jobs and more than $12 billion in tax revenue for federal state and local governments, including the income tax of industry workers who are employed because of international visitors.

These economic benefits are not limited to any specific region of the country. In fact, one third of international visitors visit two or more states; 28 percent visit small towns; and 21 percent tour the countryside. One-fifth of all international visitors spend time at national or state parks. Bringing international travel levels back to the record-setting levels of the year 2000 will help replace the 320,000 jobs that have been lost since September 2001 and generate tax revenue for governments that are struggling with deficit budgets.

Yet, we should not be satisfied with the return to 2000 levels of inbound international travel. Our country's market share of world arrivals has decreased 28 percent in the last 10 years. The United States is no longer the world's premier destination. We are third behind France and Spain. We continue to lose share in five of the six world's largest tourist markets and continue to miss opportunities to share American values abroad.

The United States is the only western industrialized nation without a unified national tourism campaign that reaches out to global visitors and encourages them to see America. Our travel and tourism industry is asking Congress to join with us in exploring ways to brand, position and promote the United States as the premier travel destination in the world.

We are prepared to match federal dollars on a one-for-one basis. This idea has been unanimously endorsed by TIA's board of directors, the National Council of State Tourism Directors and the National Council of Destination Organizations. Additionally, this year, the Southern and Western Governors Associations have called on the federal government to fund a sustained international advertising and marketing program that encourages travel to the United States.

We encourage the members of this subcommittee to support exploration of a public private partnership to promote travel to the United States. Our industry needs to regain the international visitors that have been lost in the past decade and reverse the decline of visitors since September 11, 2001. Our nation needs to replace the jobs and tax revenue that have been lost. Our industry looks forward to working with you on legislation to achieve goal.

This concludes my testimony, Mr. Chairman, and I look forward to answering any questions you may have.

DORGAN: Mr. Lounsberry, thank you very much.

And, finally we will hear from Ms. Hetschel, Noel Hetschel, the chairwoman and CEO of the American Tours International. Why don't you proceed?

HETSCHEL: Thank you, Mr. Chairman and Ranking Member Fitzgerald and members of the subcommittee. Thank you for the opportunity to testify and I concur with Senator Fitzgerald that we need to be more aggressive.

I am Noel Erwin Hetschel, chairman and CEO of American Tours International, ATI, which I co-founded 25 years ago with the specific mission of promoting tourism to and within the United States of America. As the nation's largest visit U.S.A. tour operator, bringing more than 500,000 visitors each year from 70 countries to the United States ATI is the only major visit U.S.A. tour operator which is still American owned.

We also promote all 50 states of America at the preferred partner of the American Automobile Associate, AAA, by providing online travel services for their 46 million members domestically.

The events of September 11 had a profound impact on the U.S. travel industry. With international tourism and overseas arrivals down 15 percent in 2001 over 2000. Some markets have suffered more drastic drops in passenger arrivals than others. With the United Kingdom down 11 percent; France down 14 percent; Japan down 19 percent; Italy down 21 percent and Germany down 25 percent to the United States.

According to the Department of Commerce, the total international receipts for travel expenditures and passenger fares were down 12 percent for a loss of $11.billion (ph) from 2001 versus 2000 and 2002 will reflect an even greater loss. While Americans are traveling around America, especially by car, they are moving dollars from one state to another. International travelers bring in new money.

The challenges for tourism go beyond the tragedy of September 11 and it is time for America to take a visit U.S.A. tourism seriously. Travel and tourism generates more than $550 billion in total expenditures and 18 million jobs nationwide, which equates to one out of seven people employed in the private sector.

Visit U.S.A. international travel and tourism alone generated $90 billion in expenditures and was responsible for 1 million jobs nationally. As a service export, international travel and tourism provided a positive balance of trade in 2001 of $7.7 billion. But, it seems that the government of the United States does not take tourism seriously. We have had a severe lapse in policy on tourism in America and we are paying the price. We are paying the price economically, but also politically.

America needs to market and promote the United States as a destination. America spends zero dollars on promotion. And, yet, Cyprus spends $40 million and Thailand spends more than $100 million annually to promote travel to their countries.

Exactly one year ago I met with Secretary Don Evans and other leaders of our industry and recommended that instead of bailouts, the United States needs to allocate $100 million immediately to market and promote America as a destination. This can be joined in joint marketing with TIA, states that have individual tourism budgets, and with tour operators overseas who could provide matching funds. We need to be proactive and to create a demand for travel to the United States. Not only with this contribute positively to our economy and our employment rate, but it will also have a positive impact on our balance of trade.

We should ask the Office of Global Communications to work with CNN, CNBC and others to provide PSA's in cooperation with our tourism industry to invite and encourage people to travel to America by showcasing different attractions from Broadway to the Grand Canyon to Branson, Missouri, to Waikiki Beach.

Many of you will remember years ago when New York had the I Love New York campaign. We need to launch a similar campaign worldwide an I Love America. And we have the celebrity power to deliver this message.

Since September 11 I have traveled extensively to Europe and to Asia and I have met with the tour operators. While they are cautiously optimistic of 2003, they all feel very strongly that the United States needs to be more proactive in promotion. They are also concerned about the U.S. dollar versus the euro and the timing of any potential conflict with Iraq so that it doesn't impact the main booking season.

Most countries have a ministry of tourism. We need to create a national tourism office and provide them with a budget for marketing and promoting America throughout the world. If Malaysia spends $42 million and Australian spends $87 million, how can we expect to compete and spend nothing?

Not only will increasing international tourism have a positive economic impact, but also a positive political impact. What better way for people from around the world to have a constructive view of America than to visit the Grand Canyon, Mount Rushmore and the Grand Ole Opry? When international visitors fall in love with the beauty of our country and the friendliness of our people, they become our greatest ambassadors and they take their personal stories from their American experience.

Tourism generates literally millions of goodwill ambassadors spreading a positive image of our country abroad. In addition to spending to promote tourism, we need to protect the U.S. tourism industry. We need to level the playing field with the foreign companies doing business in America. Tour operators from Europe or Asia need to operate legally and our laws need to be enforced. American companies that pay taxes and operate within the law should not be penalized or driven out of business because of unfair and illegal business practices by foreign-owned companies.

Unfortunately, we are too often viewed internationally as a society where our laws are not enforced. The U.S. travel industry needs enforcement to stem the tides of billions of dollars that are flowing overseas each month. Thousands of U.S. workers are being unemployed every day because the INS, the Department of Labor and the IRS are not enforcing our laws with foreign corporations doing business in America.

Often viewed on the surface as bringing visitors into the United States, and therefore presumed to benefit the economy, some foreign tour operators instead host an underground economy that undermines a myriad of U.S. laws while unfairly competing with all law-abiding companies. We must level the playing field and protect our U.S. companies. We need to hold foreign corporations and foreign CEO's doing business in America to the same standards that we hold American corporations and American CEO's.

Foreign entities should not be able to hide profits offshore through non-U.S. subsidiaries, transfer pricing or predatory pricing. A recent article that I have attached from Touristic Report in German exposes an example of this activity.

Second, foreign tour operators need to be forced to abide by U.S. labor laws. Tour guides performing labor in the United States should be required to be authorized to work in the United States. Tour guides without authority to work in the U.S. should be promptly deported.

Third, foreign entities should not receive windfall tax breaks or special treatment for tax evasion because collection efforts may be viewed as harder. Companies illegally evading taxes or have received substantial compromises should be required to pay income tax on the amounts discharged.

And, finally, companies who charge consumers on travel transactions but never remit these amounts to the respective taxing authorities should be charged with fraud and prosecuted to the full extent allowed by law. As an example, foreigner-owned operators in New York City have been claiming for the past five years that they are permanent residents of the hotels they contract. They do this in order to evade the payment of hotel occupancy taxes, which they fraudulently collect from the consumer.

The wrongful retention of taxes has been a multi-million dollar windfall to these foreign operators who are billion dollar foreign corporations. This unfair competition has driven American, law- abiding companies out of the market and into bankruptcy. Stem the tide of foreign tour operators illegally operating in the United States and you will add billions to the U.S. treasury and thousands of jobs.

Enforcement action will not decrease visitors, but will increase revenues to both federal and state governments as overseas operators are forced to legally record their transactions and American companies will once again be able to compete.

In the materials I have submitted, I have provided 10 ways to help the industry by enforcing laws of this great land. We hope you will help motivate the Department of Justice, the INS and the state and local governments to take action now before there are no more American-owned visit U.S.A. tour operators.

There is a significant cost to be paid if we do not protect our U.S. tourism industry and aggressive promote the United States of America as the greatest and most diverse travel destination in the world. On the other hand, there is significant political and economic benefit to be gained if we can begin to take tourism seriously in America and provide the funds needed to compete as an international travel destination.

Mr. Chairman, tourism is an enormous source of revenue and an enormous opportunity of political influence. Our government's policies of not supporting this critical industry will potentially cost billions of dollars and scores of thousands of jobs. It will also deny foreigners a chance to see the real America and to go home and confront growing anti-Americanism. On tourism the train is leaving the station very quickly. I urge your committee to act aggressively and to put tourism on the front burner of commercial policy. Thank you very much.

DORGAN: Ms. Hetschel, thank you very much.

Senator Fitzgerald?

FITZGERALD: I would be interesting in the thoughts of others on the panel regarding Ms. Hetschel's suggestion that we spend $100 million, I think that was your figure, to promote tourism. Is that correct? We don't spend any money advertising for tourism abroad? Private interests would though, correct? Private...

ROSENBLUTH: That is correct, yes. Currently, the U.S., the federal government does not support any type of a national tourism message. You have individual companies, airlines, theme parks, hotel chains promoting. But, there is not a consistent U.S.A. ...

FITZGERALD: And states promote come visit our state, right.

(CROSSTALK)

ROSENBLUTH: Correct. But, there's not a national campaign on behalf of the United States.

FITZGERALD: Has anybody ever proposed one before? Has this come up before in Congress that you recall? Has it been voted on or defeated or does anybody know the history of that?

TISCH: Senator, right after the White House conference on travel and tourism in 1995, which was the first opportunity for our industry to speak with a unified voice and which was very successful and allowed us to create organizations like the Travel Business Roundtable, there was congressional movement towards creating a National Tourism Organization. It was in place for about two years and, unfortunately, we were not able to find a correct funding mechanism for the public side of the public private partnership.

At the Travel Business Roundtable we understand that there is a need to develop this partnership and come up with some dollars for international destination marketing. But, we also know that anything we do has to be politically and economically feasible. So, the $100 million number, in a perfect world, would be a great place to start. But, I'm not sure that in today's world it's a realistic place to start.

We are calling for some easy steps, some beginner steps working with the Commerce Department. And I do want to recognize Secretary of Commerce Evans and Linda Conlin (ph) on his team who have really focused on the needs of the travel and tourism industry, working with the administration and working with Capitol Hill. But, for instance, there's a $2 million program called the Market Development Cooperator Program, and any organization, a non-profit organization can go and ask for loans up to $400,000. We want to do more of that kind of mining for business through the non-profits. And, maybe take some of those dollars and really focus them on travel and tourism, or do a pilot grant program in certain cities and certain states, take five cities, take Chicago, take Fargo, North Dakota and come up with certain amounts of dollars and see what works, see what the best practices are, see where the successes are. But, start small. Let's see how we can grow the industry. Let's see how we can work with government and then look down the road to a $100 million number.

FITZGERALD: One of the problems in promoting a visit American program in other countries we'd have to decide which part of America we'd really advertise on unless we advertise such a broad cross- section that nobody'd get mad.

HETSCHEL: A rising tide will lift all boats. So, the main thing is we need people to come to America first because right now they're choosing to go to South Africa, to Australia, to other parts of the world. Even to Turkey, Turkey sold out this year because they're spending money.

FITZGERALD: Now, do you think $100 million would do more overall for the tourism industry in America than the bailout that the airlines are asking for for themselves?

HETSCHEL: Absolutely.

FITZGERALD: You do?

HETSCHEL: Absolutely.

FITZGERALD: Does anybody disagree with that?

TISCH: Well, the airlines are such an important factor in getting people from point A to point B. Clearly, they are the dominating...

FITZGERALD: Will they no longer get people from point A to point B if they have to file bankruptcy under Chapter 11?

TISCH: That remains to be seen. And if the airlines go out of business then fares go up.

FITZGERALD: Do you think they'll go out of business? You don't think they'll just file for bankruptcy and eliminate their debts? Do you think they'll go out of business?

TISCH: Some may, but the Travel Business Roundtable supports a strong airline industry. Clearly, we are in favor of this main way and this main mode of transportation. What we're seeing now is that people are finding ways around airlines. They're driving more.

FITZGERALD: But, when an airline files bankruptcy, don't their creditors take the hit? U.S. Airways filed for bankruptcy, they're still flying aren't they?

TISCH: Yes, they are. But...

FITZGERALD: I mean aren't we bailing out their shareholders really?

HETSCHEL: And from overseas you can't drive here. So, the key is we have to be able to promote. And if we do promotion and marketing the people will come. And that will mean that the flights will be full and then the airlines will not need the bailouts.

FITZGERALD: Mr. Rosenbluth, you were here last year after September 11, were you not, after the airline bailout. And I may have asked you this at that time, but I know your industry has been suffering greatly in the last couple of years, particularly the last year. Do you think that you've been losing a lot of your travel agents because they can no longer compete with Orbitz, which is owned by the airlines and an indirect beneficiary of the taxpayer dollars?

ROSENBLUTH: I don't think it's Orbitz or any other online agency. Although there has been some market share shift to online travel sites. The problem with the travel agency industry per say is twofold. One is that there are just few people traveling now, partly economic, partly as a result I think some uncertainty for the future. The other part is that the airlines, for the most part, have systematically tried to remove certain segments of the travel agency industry in order to be able to deal directly with the public.

One of the unintended results of their actions, however, is that now, having removed commissions from agencies, dealing directly with the public is the airlines most expensive form of distribution. I believe we need a very strong airline industry. But, I believe that the airline industry can help themselves in a lot of ways.

Now, I listened to some of the testimony yesterday over in the House where there was discussion about, you know, war risk insurance and things like that and it'll probably work its way over here and cockpit doors and I think those things are important.

However, the airlines it has been stated will lose approximately $7 billion this year. I believe that a good $5 billion is their own doing. And that if the airlines were to reform the way they price, both online and offline, then, in fact...

FITZGERALD: You mentioned reform of their pricings, do you think they're pricing structure is just too complex, too many different fares, do you think that hurts them?

ROSENBLUTH: No, I think it's completely broken I think. And it's not in the complexity. I think you can get airline reform without simplification. The problem with the airlines is self- inflicted. What they have been doing over the past number of years in indiscriminate discounting for major corporations. And the way it works is very simple. They set a benchmark walk-up fare, which are the high yield fares that everybody talks about which the airline say they're not getting those passengers anymore. They then discount the corporations off of that benchmark fare 30, 40, 50 percent. But, in return for that, they're requesting or requiring corporations to move 40 percent, 60 percent, 70 percent share to the airlines.

What has happened because airlines have not had the backbone to go to corporations who are not fulfilling their end of the bargain is that tens of millions, if not hundreds of millions of dollars a day are just going down the drain because major corporations that are doing their part that, in fact, moving the share and getting the discounts appropriately are subsidizing other corporations that are not hitting their share numbers. And the airlines aren't holding them to it.

So, it's just as if you were to go out and order 30,000 books and only buy -- and get a discount for that, but only buy three. You would get the same discount without ever buying the other 29,997 books. So, that is what is broken. That is where the money's going. It is very...

FITZGERALD: That's only some airlines though. It's really the big six, the Southwest and Jet Blue, they're traffic's up. Southwest I think 100 percent in the last year, isn't that correct?

ROSENBLUTH: They have very different models. But, those other airlines aren't Jet Blue and they aren't Southwest. But, they are there. And, yes, the marketplace is taking, you know, taking care of some of the situations. As you mentioned, some of the bankruptcies and there may be more et cetera. But, the shareholders don't have to lose if, in fact, you can have a profitable airline system. And the way to a profitable airline system is to change the airfare structure so that you can have this disparity that is between the business traveler, of which don't even fly anymore because the fares are too high. Those that are good corporations subsidizing bad ones and the leisure traveler, who is getting fares from a number of places, which is just confusing the entire marketplace. So, I think major airfare structure reform is necessary and the airlines can see billions of dollars flow to their bottom line, commerce will be better for it. Everyone at this table will be better for it.

I don't believe it requires that the government do any bailouts. I do think there is definite room to help with some of the security measures that have been imposed on the carriers. But, there is some self-help that can be done here that will be beneficial to all.

FITZGERALD: Mr. Tisch, does the hotel industry support continued taxpayer money for the airlines?

TISCH: I cannot speak on behalf of the hotel industry to answer your question, Senator. I can speak on behalf of the Travel Business Roundtable in that we support a strong airline...

FITZGERALD: Are the airlines members of that?

TISCH: We have about six airlines that are members of the Travel Business Roundtable.

FITZGERALD: OK.

TISCH: And, we're not the one that's causing any red ink pain, they're dues to us I guarantee you. We call for a strong airline industry. It is an integral part of the travel and tourism industry. It is a major employer in this country. And the issues are very complicated. We just want to see a strong profitable system that will get our travelers from point A to point B.

It's important to keep in mind that business travel is way down. That is one of the significant anchors on the travel and tourism industry right now. And that's why we're calling for other ways to stimulate travel. Let's increase the amount of business meals deductions to 100 percent. Let's reinstitute a spousal travel deduction so that two people are going on a trip, two people are staying in a hotel room, two people are eating in restaurant, two people are visiting theme parks and two people are shopping. Those kinds of ideas that I think we can work together with Congress to explore how we get more people traveling.

And when we call for the creation of a presidential advisory council on travel and tourism we need a body where we can discuss these kinds of ideas in the whole notion of creating these public private partnerships. It is working with the public sector that's going to get these ideas into action and get more people traveling.

FITZGERALD: I know Senator Dorgan wants to ask some questions. Hotels in major cities, New York, Chicago, LA, Washington, are probably down. The big hotels are down substantially. But, I would imagine the smaller hotels, the Hampton Inns, the Courtyard by Marriott along the interstate highways, they're probably doing pretty well right now because travel has shifted from airplane to automobile, isn't that correct?

TISCH: Yes, Senator. What we're seeing is that across the board, market-by-market it may vary. You look at New York City. You look at some of the bigger markets. San Francisco is, unfortunately, suffering quite a lot. Occupancies have remained about the same as last year. Our average rates are down anywhere from 10 to 15 to 20 percent depending on the particular market.

We used price as a tool last year to get people out of their homes then the economy continued to soften. So, we are unable to raise the prices in certain key markets. Because people are driving certain roadside hotels, lower price facilities are doing quite well. What we've been pleasantly surprised about is the number of hotel/motel foreclosures is not as significant as we thought it might be. And that's because in the last few years to build a new property, to buy a hotel, the amount of equity needed was far in excess of what it was 10 years ago when the industry was in a similar bind.

So, we're pleased that the basic economies of the hotel industry continue to remain strong. We've become much more productive. The break-even point on a hotel is lower than it's ever been because we've gotten a little bit smarter how to do things. But, the big cities are hurting because business travel is off and meetings and conventions are off.

FITZGERALD: What's the room occupancy in New York right now?

TISCH: We'll end the year, Senator, at about 76 percent. But, our rate will be down about 15 percent over last year.

FITZGERALD: And, over 2000?

TISCH: We were -- in 2000 we were at about 84 percent with a much higher average rate.

FITZGERALD: OK.

Well, do all agree on the importance of promoting the international travelers? One of you cited statistics that suggest international travelers or tourists are 19 percent of our tourists, but 42 percent of our spending?

TISCH: That was a New York City statistic.

FITZGERALD: That was in New York City statistic. And, so, if we could just have a slight increase in the international tourists that would really work wonders?

ROSENBLUTH: Yes. The international segment has been the most devastated this past year. And as we talked about our competition that has been taking market share away from the United States for the past 10 years, that has just been exasperated. And, when you talk about tour operators internationally, not seeing the U.S. market itself, they turn to the countries and destinations that are because it is up to the destinations that create the awareness and the interest in traveling to that destination.

So, it...

FITZGERALD: And this is even though our dollars we can vis-a-vis other major currencies in the last year.

FITZGERALD: I mean we had more foreign tourists when our dollar was stronger, is that not correct, Ms. Hetschel?

HETSCHEL: Well, yes and no, because the tourism was starting to decline from Europe prior to 9/11 because of the dollar becoming stronger. The programs are costed about a year or 18 months in advance for many of the European tour operators. So, you don't really get the effect immediately. So, now with the dollar becoming on par with the euro that will help for next year.

But, and that's why they're cautiously optimistic, but it depends on other elements and promotion is a key area. And, actually we're viewed as almost embarrassing that the United States of America, like we don't care about visitors coming from overseas. And, like Fred just stated, other destinations are very aggressive in -- they took over many of the taxicabs South Africa in London and painted their flag on it telling everybody to come to South Africa. This kind of thing really, you know, helps. And that's what we need to do.

FITZGERALD: Let me ask a few questions. One, we had invited several people involved with destination resort attractions to be here and did not have a witness from them. What has been the experience to the extent you know? Mr. Tisch, you have a hotel down near Universal in Florida. What's been the experience of Disney World, Disneyland, Universal and so on?

TISCH: Well, Senator, I can handle the hotel portion of that question because, as it turns out, we're partners with universal in three hotels on the grounds of universal studios, the third one, a thousand rooms, having opened just three months ago.

Our hotel experience is that we had a very good summer. And it's interesting to note because in our thousand-room hotel, which was designed as about 75 percent grew business, this summer we ran out of parking spaces. And if you went in the parking lot you would see cars from Florida, Alabama, Georgia because people were driving to the destinations. And so we were able to, with the great marketing that our partners at Universal are able to accomplish, we had a very good summer. It is not necessarily the case in the whole destination. And, once again, I just focus on the hotel aspect. And Fred can probably answer the theme park portion of your question, Senator.

DORGAN: All right. Certainly.

LOUNSBERRY: Yes. My real job is senior VP of sales for Universal Parks and Resorts. So, to Jonathan's comment, I think it really comes back to the international segment. Orlando, as a whole, had a pretty good summer, but it was really driven by local, state close-drive market. All of the down pretty much across the board you would hear in Central Florida and even South Florida, which is also dependent on international has been the international segment.

DORGAN: Let me ask about the international issue. Prior to 9/11 last year, we had pretty robust tourism from international sources. And we did that, I assume, without massive advertising. We didn't have an organized effort and no publicly funded efforts certainly with respect to that. But, since 9/11 you indicate that international travel is down. I was interested in the discussions about, Mr. Tisch, you described New York the international traveler apparently spends almost twice as much as the domestic traveler in New York. Tell me the cause of the drop in international travel? I expect I understand some of it, but tell me your perspective, what has caused it?

TISCH: Senator, I think there are three reasons. One, there is still the lagging affect of September 11. There is societal issues and many of the countries that send us visitors where they feel it is still not proper to visit specifically New York City, but the United States of America. You also have to keep in mind that many of the economies that send us our visitors are suffering themselves. If you look at Florida, if you look we have a hotel in Miami Beach, which did not have a particularly good summer. You have to fly into Miami Beach and most of those people are coming from international destinations. Their economies are not very strong.

And the third reason is one that we have all talked about is the countries that we're competing with get travel and tourism. They're spending hundreds of millions of dollars to get visitors to come to them and not come to us. And when you look at all the new travelers that might come out of Asia, and when you look at all the new travelers that are coming out Europe and now that the EU market themselves is one particular destination, the competition is stiff. They get it and we don't.

DORGAN: I'll come back to that in a moment. Let me ask a question about the airlines. I believe some of you have referred to surveys that have been taken. Business travel is down. That's a significant part of the success of airlines is that they robust business travel. But, it seems to me there are two other issues. One is the hassle. There's an increased hassle to fly with respect to all the security issues is one of them.

The second is I assume there is some component of the flying public, at least the constituents have told me this, that they just don't want to fly. I mean they're a little concerned. What percentage of the difficulty with respect to air travel comes from the downturn in business travel? What percentage you think, from surveys, comes from just the hassle? And what percentage is represented by a group of people who decide, you know, just based on safety issues, watching an airplane run into a building, I don't want to fly any more? Have any of you done any surveys that describe those issues?

TISCH: Senator, the Travel Business Roundtable concluded a survey the second week in August to judge flyers and travel sentiments the year after. And we found that safety and security has become sort of minimal issue. People are resuming their normal traffic patterns and their normal travel patterns. Only one in 10 were very obsessed with safety and security. They feel that the airlines and the government have done a pretty good job of dealing with the safety and security issues.

What we did find is that the economy is the major deterrent to people traveling. And when you combine that with, as we said, the hassle factor, it's creating enormous problems. It is not the fear of the airplane anymore. It's the fear of the airport. And people just don't want to deal with the problems that they may encounter or may not encounter. They just don't know. And when you combine that with economic reasons not to travel, they're deciding to stay home and that's an enormous challenge for us to overcome as an industry.

DORGAN: Mr. Tisch, have you been selected for an enhanced inspection at some moment at an airport?

TISCH: I have on a shuttle about two months ago.

DORGAN: Senator Fitzgerald, have you?

FITZGERALD: They seem to be looking of me as I arrive at the airport. I get the double enhanced inspection I guess.

DORGAN: Ms. McDowell and Mr. Durst, both of you, I think, described the fact that your resort areas and your state really the success of tourism there is more a function of people driving than flying. And you described a circumstance where those who've chosen not to fly and, perhaps, because of the economy are driving and taking vacations that are fewer miles away means that you have not seen the same downturn or the same difficulties that some other parts of the industry have experienced.

As you project ahead, now, you know, we have a kind of troubled economy, some say a weak economy, some are worried about a double-dip recession. We've got the intersection of a war on terrorism, the 9/11 of last year, a stock market that has largely pancaked because of the deflation of the tech bubble, corporate scandals. We have a whole series of things that create uncertainty in the minds of the American consumer. In our economy, and especially, it seems to me, the tourism sector of our economy is all about people's confidence. If they express confidence in the future they do things that manifest their confidence. They buy a house, buy a car, take a trip and so on. And that becomes expansion.

If they feel not very confident, not good about the future, then they do exactly the opposite. They defer the purchase of the car, the trip, the vacation and so on. As you look at the future and plan for the future in Branson, for example, or through your tourism efforts in your state, what are you expecting? And let's assume nothing happens here in public policy. You all have given us some ideas and thoughts. But, let's assume nothing happens here with respect to public policy. What do you expect to happen in Branson and also in the State of South Carolina with respect to the next couple of years?

MCDOWELL: All of the issues that you described are of grave concern to Branson, Missouri, even though we do not depend on international travel and we do not depend on business travel, we depend heavily on senior citizens and adult couples who may have a limited income. And in addition to travel being influenced by confidence, it's greatly influenced by disposal income. It is not something that anyone has to do. Therefore, when returns in the stock market and other investments are on the decline, 50 percent of our visitor base is at significant risk for not coming to Branson. Even though we are perceived as a value destination, we are still a luxury in terms of what are the necessities of life and what are not. Therefore, all of that can have tremendous impact on us and especially our senior visitors.

DORGAN: You know, the notion that the average 401k has diminished, retirement account diminished by perhaps a third or close to a third that gives people the feeling maybe we ought to defer this travel. And that would especially affect your type of resort, would it not?

MCDOWELL: Yes, it definitely would. And we've seen that in the past with economic downturns of that sort.

DORGAN: Mr. Durst?

DURST: Thank you, Mr. Chairman. In the aftermath of 9/11 one of the first things that we did was to put together a consortium of some of our sister states in the south to do some pretty extensive ongoing research to try and find out exactly what the travelers' attitudes were, and then from that to tailor our marketing program. And you absolutely are right on the mark with regard to what those surveys are pointing out, as with Mr. Tisch.

The thing that we see, sir, down the road is that -- no pun intended -- is that states such as ours, which are a drive destination, are going to be holding their own so long as they are strategically using their marketing dollars to try to bring the folks in that are within, like in our case, a two tankful of gas or so drive away. Plus, of course, we need to have the tourism product that you are putting forth to the folks and making sure that you're connecting with them. Families' values was mentioned. And that's one major component of our advertising message, talking about our beaches, talking about our golf, talking about the family-type experience.

But, I think respectfully that areas such as ours are going to be holding their own. We haven't begun any kind of campaign saying if you come to South Carolina on the way down to Florida and stop and stay there instead of going to Florida, that you'll save two days worth of vacation by going on our beaches as opposed to going to Universal. We wouldn't want to dare do anything like that.

But, we do know, sir, that with respect to our sister states in the south that we feel cautiously optimistic that we will be able to hold our own by going toward that drive market. But, going back to an earlier question that you had posed, the folks that come into South Carolina by car have gone up 10 percent in the aftermath of 9/11, which is no surprise. But, therefore, we are playing to our strength in going after that market.

DORGAN: Let me just ask one additional question.

Mr. Rosenbluth, I have taken a look at the white paper because you were kind enough to send it to me. And I wonder have you had a chance -- I think it's a fascinating description of some issues that the airlines need to be concerned about. We did not have an airline representative on this panel because they have been to Capitol Hill in the last couple of weeks and have testified with respect to their segment. But, I agree with all of you that it's a very, very important segment of our industry, of the travel and tourism industry, because we must, we just must have a healthy vibrant commercial air travel system in this country. I mean those are the companies that haul passengers to your hotels and resorts and destinations.

But, I guess I would ask the question, Mr. Rosenbluth, have you shared your white paper with the airlines and what is their reaction?

ROSENBLUTH: I've had a discussion or two with the airline executives. For the most part, I'm not sure they understand it. And I also believe, at the same time, that they're about to capitulate and do something radical because they need to. Airlines are risk adverse. And yet something radical needs to change. And I'm not certain that those senior officers of airlines have heard from those that are at lower levels exactly what the problem is because there's been such a fight for share out there that they've gone after share and as a result have lost billions of dollars.

This goes back far before September 11. It has been going on for a number of years now, but it is going to stop. And what I'm afraid of is that the airlines will do something arbitrary in nature and just stop corporate discounting completely as opposed to doing it in a rational way where, like any other business, you get a discount in return for giving something back or for buying something in bulk or for getting the market share. But, by allowing people to just get these prices and not getting anything back in return, the airlines have severely shot themselves in the foot.

DORGAN: Mr. Rosenbluth, thank you very much.

This testimony has been very helpful and instructive. And, Senator Fitzgerald and I will, along with our colleagues, evaluate it and try to develop some suggestions, working with you, Mr. Tisch, with the Travel Business Roundtable and Mr. Lounsberry, with the Travel Industry Association. And we would invite you, because this subcommittee has some jurisdiction here, we would invite you, as we move along periodically to send us information. Don't wait for a hearing. If there are things you think that we should know that is happening in your industry, we want you to send it to us and have the advantage of that.

And we know that you've come from some distance here today to testify and we very much appreciate your testimony.

FITZGERALD: If I could just say, I really encourage all of you to get involved as the airlines come forward with another bailout package for themselves, they're looking out for themselves. They're not necessarily looking out for the rest of you. They've very accustomed to getting benefits from government. As a regulated industry, they're CEO's are out here regularly, I see CEO's from the airlines more than I see most CEO's from Chicago. They're out here all the time. They're getting very used to surviving by virtue of special laws put into effect for them. And, in the case of last year, a bailout, they're bill is probably going to move really quickly. The bill bailing them out moved more quickly than any bill that I've seen in the four years I've served in the United States' Senate.

They have awesome power on Capitol Hill and I think that's unfortunate because I don't think we've helped the general public necessarily by helping them. But, I encourage you guys to be very active and aggressive in getting your voices heard so that you're just not left out of whatever they're on the verge of getting. And, that would just be my words of advice to you. And I'll try and be there speaking for all the others, but you need to come here yourselves too. And I'm glad you all were able to appear today.

DORGAN: Let me just say that I personally think that we should consider some initiatives and some incentives. You know, it wasn't too long ago that we had actually a significant part of the Commerce Department with an assistant secretary who was working full-time and concerned about these issues. And that was abolished. But, I think there are a number of suggestions you make today. Some are incremental suggestions to begin from one direction. The others come from the other direction. But, they aim at the same spot. And that is to try to increase the interest that people around the world have in this country as a destination for travel and tourism.

And I do think that it is a big, big significant industry in our country. And I don't think all of this happens by accident. If you watch the way other countries in the world promote themselves and try to promote and aggressively achieve the dollars that are -- or the currency that is spent for travel and tourism, they do that because it works. And our country would be well-advised to understand that sitting back and doing nothing in competition means that you lose the competition.

So, you have offered a good number of ideas today and we will certainly consider them and we think they are very useful. Now, Mr. Fitzgerald used to be chairman of this subcommittee and he has taken the gavel and so if he will provide the gavel, we will adjourn the subcommittee before he is chairman once again.

Anyway, before we get into a long discussion of that, we will be adjourned.

END

NOTES:
[????] - Indicates Speaker Unknown
   [--] - Indicates could not make out what was being said.[off mike] - Indicates could not make out what was being said.

PERSON:  BYRON DORGAN (73%); RON WYDEN (57%); JOHN EDWARDS (56%); BARBARA BOXER (56%); BILL NELSON (55%); PETER FITZGERALD (55%); GORDON SMITH (54%); CONRAD BURNS (54%); JOHN ENSIGN (53%); GEORGE ALLEN (53%); 

LOAD-DATE: September 28, 2002