On The Cover - October 2008

(photo on left) A McCain-Palin White House would have to prove it’s not just a repeat of the Bush administration. Industry leaders want an easing of overly rigorous homeland security processes, which hurt international attendance at meetings. (photo on right) “The travel industry is looking for leadership from Washington,” said Robert A Gilbert, president and CEO of HSMAI. To turn the economy around and stimulate business travel, an Obama-Biden administration would need a strong first 100 days. Photo on left courtesy of John McCain 2008 – www.JohnMcCain.com; Photo on right courtesy of Obama for America

By David A. Patten

Imagine planning a four-day event held in a 675,000-square-foot arena. You have 35,000 attendees traveling from every state in the union, and 15,000 members of the media on hand providing international coverage 24/7.

Sound like a nightmare?

Add to that a block of 17,000 hotel rooms, more than a thousand vendors, and a veritable army of staff members and volunteers, and you have a rough idea of the heroics required to pull off the 2008 Democratic National Convention held in Denver in late August. It was followed a week later in Minneapolis-St. Paul by the GOP’s own quadrennial gabfest.

Planners who watched the carefully scripted conventions were probably relieved that at least they didn’t have to plan that one. But make no mistake, planners and meeting-industry leaders have their own role to play in the 2008 presidential race: evaluating the candidates and their proposals, and deciding whom to support.

The stakes for the travel industry could hardly be higher. Socked by rising fuel prices, reduced airlift, and a turbulent economy, industry executives are looking to Washington for answers.

The two candidates represent a pronounced fork in the road. One is a Harvard Law grad and the first African-American in U.S. history to be nominated by a major party. The other is a Vietnam veteran who refused to leave the POW camp where he was being tortured until his comrades could walk away with him.

The mantra of silver-tongued Sen. Barack Obama of Illinois, as everyone on the planet knows by now, is change. That chant is music to the ears of the Democratic faithful, who are desperate for a new tune in Washington after eight years of the Bush presidency.

In the other corner is four-term Arizona Sen. John McCain, the GOP’s 72-year-old maverick standard bearer. “I’m past the age where I can claim the word ‘kid,’ no matter what adjective precedes it,” McCain declared the night of the improbable upset victory in New Hampshire that launched his Straight Talk Express on its journey to the GOP convention in Minneapolis — a trip that could culminate with an extended layover at 1600 Pennsylvania Ave. “But tonight we sure showed them what a comeback looks like.”

It remains to be seen whether McCain can complete his comeback saga. An informal Corporate & Incentive Travel survey of meeting industry leaders shows that they expect whoever wins the White House to break through the legislative logjam and help the industry manage its growing pains as the economy recovers later on down the road.

“We need somebody in office who understands that travel has a huge balance-of-trade value,” said Robert A. Gilbert, president and CEO of the Hospitality Sales and Marketing Association International (HSMAI). “The international traveler spends more, stays longer, whether it’s a meeting, leisure, or a corporate traveler from overseas. That’s a huge, huge economic opportunity for us — and we’re just turning a blind eye to that.”

From rising energy costs, to a sputtering economy, to an airline industry that appears stuck in a downward spiral, nobody needs to tell meeting industry leaders that there are plenty of bumps in the road to the White House. Obama and McCain represent two very different approaches to the challenges facing the industry. 

Industry movers and shakers are watching the battle for the White House closely, knowing that their industry’s growth may well depend on how effectively the next president addresses these critical issues:

Debating taxes during an election year is as American as apple pie. This election cycle, however, that discussion is complicated by two factors: 1. The need to address a staggering budget deficit that is diluting the value of the dollar, which makes petroleum relatively more expensive, and 2. The sluggish economy, which normally would not be addressed by massive tax increases.

Despite all the chatter about a new era of bipartisanship, the candidates’ positions on raising taxes fall predictably along party lines. McCain favors keeping the Bush tax cuts and cutting other taxes, such as the 35 percent U.S. tax rate on corporations.

Obama generally favors raising taxes, and would do away with the Bush tax cuts over the course of the next two years. Obama has also said he would “look at raising the capital gains tax for purposes of fairness.”

And while Obama pledges not to raise taxes for anyone earning less than $200,000 per year, he favors a 10.2 percent payroll tax for anyone earning more than that amount.

Obama also wants to close loopholes, simplify the tax code, and extend tax credits and rebates to ease the burden on families, students and those with high energy bills.

The wisdom of Obama’s focus on making the tax code fairer all depends on whose wallet is getting gored.

“We don’t think they should increase the corporate tax rate at all,” said Joe McInerney, president and CEO of the American Hotel & Lodging Association (AH&LA). “Corporations are already paying a significant amount of money. You can’t keep raising their taxes — we’ll be driving U.S. corporations to other countries, although they’ll still be doing business here.”

Others, such as Maura Gast, the executive director of the Irving (TX) Convention & Visitors Bureau and the chairperson of Destination Marketing Association International, are more open to the idea. “Nobody wants to be taxed,” she pointed out. “And also nobody wants less services. If everyone’s fuel costs have gone up, chances are good the government’s costs have gone up as well. So you either cut services or raise fees. Our infrastructure — highways, bridges, airports — needs funding to keep up.

“Everyone says, ‘You can’t raise income taxes, you can’t raise gasoline taxes,’ and yet somewhere, something has to give,” she added. “I don’t know how the government raises more revenue without higher taxes. And yet you can’t tax the little guy.”

Gast’s conclusion: “You’re never going to make anybody happy with a tax discussion.”

Companies Stash Billions Abroad Most planners want the next president to ease visa restrictions, citing the economic benefit of tourist dollars flowing in from abroad. “The impact of a dollar that comes into an economy from outside of that economy has been proven again and again,” said Robert A. Gilbert, president and CEO of the Hospitality Sales and Marketing Association International. “It multiplies many more times.” Given that perspective, most corporate planners probably would be surprised to learn that the companies they work for are currently parking as much as $200 billion outside their own country. That estimate comes from economist Gary Hufbauer, author of U.S. Taxation of Foreign Income (Peterson Institute, 2007). Why don’t U.S. companies bring the profits they earn back home, where the money could stimulate the economy and the meetings industry? Hufbauer explained that U.S. companies hoard the profits overseas to avoid the 35 percent U.S. tax rate on corporate profits, one of the highest such tax rates among industrialized nations. The total federal tax bill of U.S. companies was about $354 billion in 2006. Sen. Barack Obama, who sees the deferment of overseas corporate taxes as a loophole, said the current system motivates companies to effectively export American jobs. For his part, Sen. John McCain offers a different approach. He favors cutting the corporate tax rate to 25 percent, which would give U.S. companies less incentive to stash their cash overseas. According to Hufbauer, most countries don’t tax profits that their companies earn abroad. He called the U.S. tax code “tremendously complex” and said it creates “huge administrative burdens.” — DP

It wouldn’t exactly be fair to say Obama was against drilling before he was for it, but it is true that he’s modified his stance against it, as skyrocketing gas prices made the issue as obvious as the rapidly revolving digits at the gas pumps. And while some continue to maintain that energy exploration won’t actually improve the supply-and-demand equation until five or 10 years down the road, it is generally acknowledged that any move that suggests increased future supplies at least discourages speculators from bidding up the price of gas even more.

That helps explain why McInerney, who describes himself as “probably one of the only Democrats in this building,” prefers McCain’s approach to addressing high fuel costs. “I am for offshore drilling,” he conceded.

Gilbert’s position on drilling is driven by one thing: the shaky health of the airlines. Gilbert said, “I think the meetings industry, and the companies that depend upon airlines to move their customers around — travel agencies, incentive companies and so forth — should want more lift that will give them the flexibility they need to do their business. I think ultimately that would lead to the conclusion that they would support drilling. But they also should be supporting development of alternative energy sources as well.”

There are other important differences over energy policy. Obama opposed McCain’s proposal to give consumers a summer holiday from gasoline taxes. McCain opposes Democrats’ plans to sell off oil stored in the nation’s Strategic Petroleum Reserve. Obama has placed more emphasis on incentives designed to spur the development of alternative energy sources, while McCain appears fully onboard regarding the dangers posed by global warming and fossil fuels.

One indication of the resilience of the business travel industry was the record turnout at the July 2008 National Business Travel Association (NBTA) International Convention & Exposition. One of the educational sessions was “U.S. Presidential Perspectives,” a panel discussion about issues in the 2008 race for the White House, hosted by Jessica Herrera-Flanigan, a partner of the Washington, D.C.-based consulting and government affairs firm Monument Policy Group.

In addition to “large economic questions” such as mounting fuel costs, Herrera-Flanigan heard a lot of questions suggesting that the next president “really needs to address aviation capacity and the infrastructure associated with that, such as traveler-security initiatives.”

As that NBTA session suggests, striking a reasonable balance between national security and efficient air transportation is a chorus increasingly being sung by the meetings industry. In fact, only a week after returning from the International Convention & Exposition held in Los Angeles, the NBTA legislative team voiced its support for the Fast Redress Act introduced in the Senate, which would expedite the appeals of those whose names have been wrongly placed on the federal terror watch list.

Industry leaders such as Roger Dow, president and CEO of the Travel Industry Association, and Gilbert of HSMAI have been sounding a drumbeat, warning that overly rigorous security concerns are discouraging international travelers, and has hurt attendance at some meetings and events. Gilbert described the current hurdles required to obtain a visa as “just ludicrous.”

“It’s a function of making sure that as a destination the United States is making travel accessible to international travelers, without interfering with homeland security,” he said.

“The visa issue is a big piece of it,” Gast agreed. “We’ve got to figure out a way the United States can be the welcoming, accommodating place we used to be, while still maintaining security as a priority. I respect the need for security, but we’ve got to understand we’ve made it hard for people to come here and do business.”

Lee Ann Adams Mikeman, co-chair of the NBTA Groups and Meetings Committee, said Global Entry, the program that would speed immigration checkpoint processing for low-risk international travelers visiting the United States, should be an important priority for the next administration.

“While NBTA is pleased that Customs and Border Protection this year launched a pilot program in three U.S. airports, we would like to see this be expanded to all international airports,” Mikeman said.

McCain has supported initiatives to boost economic growth and increase the rights of airline passengers. But he has made it clear that his top priority is national security and winning the war on terror.

The numbers 59 percent and 88 percent help explain how much high fuel costs are hurting the airline industry. That’s how much profits plummeted at Air France KLM and British Airways respectively in the first quarter of this year. Most other airlines report similarly dismal figures.

Indeed, the International Air Trans­port Association estimates for every $1 increase in the price of a barrel of oil, the aviation industry loses $1.6 billion. Small wonder then that airlines have been adding surcharges and fees left and right while also trimming their flight schedules.

“We need to carefully watch the impact of the price of oil on the airline infrastructure,” cautioned Gilbert. “If lift is reduced much more to destinations like the Caribbean and Hawaii, that’s going to have serious implications for those destinations, and for customers who want to go there.

“We’ve already seen an awful lot of routes experience service less frequently,” he added. “Depending on how far that decline goes in the airline industry, or if a major carrier goes under, the meetings industry is certainly going to be impacted.”

While easing visa and security requirements will help airlines, it will be hard to fix that industry until oil prices return to planet Earth.

The extent to which the meetings industry has gone global is reflected in the surprising number of industry leaders who say one of the next president’s top priorities must be repairing America’s image abroad. The view that America is isolated from the values and opinions of other nations’ citizens is thoroughly passé.

“No matter who becomes the next president,” said McInerney, “they have to repair our image abroad, whether in Europe, the Middle East, Asia, you name it. People in many areas of the world simply don’t like the United States. I was in Thailand when Bush got elected. It only took him 90 days to alienate most of the people I worked with, and we’ve been going downhill ever since. There has to be something done to rebuild that relationship.”

On this point Gast strongly agreed. “Our international image is hugely important. It’s important because we need to be seen as the country so much of the rest of the world would still like to see us as. I think as long as whoever is elected understands the importance of that, we’ll be fine.”

When it comes to appealing to citizens of other nations, the junior senator from Illinois is without rival, as the 200,000 who showed up to hear him speak in Germany can attest. In July, throngs waved German and American flags and strained for a glimpse of the Democratic candidate, who told them that America needed their help to address the war on terror, global poverty, world hunger and the environment.

“America cannot do this alone,” he told them.

While Obama’s barnstorming tour across the Middle East and Europe didn’t appear to nudge voter polls much back home, it did help solidify his image as the more globally acceptable candidate.

Industry veteran Joan L. Eisenstodt, of Washington, DC-based Eisenstodt Associates, says of America’s image abroad: “It’s in bad shape, is not getting better, and won’t until we have a different outlook on who we are and where we are in the world.”

Regarding the U.S. image abroad, McCain labors under his GOP association with President Bush (although he’s taken pains to distance himself from the president on a range of issues). Clearly, McCain recognized the importance of globalism, and promises to “shore up our alliances.” But when it comes to striking a note of multilateral reconciliation, it would be difficult to find a more charismatic figure to represent America abroad than Obama.

Among the policy questions that have been stuck on hold until new leaders take office in Washington is what to do about the estimated 12 million persons who are residing in the United States illegally. This issue actually transcends the narrow issue of whether to grant those already here a path to citizenship. It also involves the need to secure America’s borders in an age of international terror. And whether Congress and the next president find a way to legalize the illegals, it’s clear that American companies, including the lodging industry, will need a large work force to draw on as the industry expands.

“As an industry, by 2014 we’ll need 300,000 more employees than we have today,” said McInerney of the AH&LA. “That’s according to the Department of Labor. We think the real number is more like 700,000 workers.”

Few experts think mass deportation of 12 million people is a viable answer to the problem, and both McCain and Obama want to work with Congress to find a path to legalization. McCain, however, has clearly been chastened by the defeat of the June 2007 immigration reform legislation he co-sponsored with Sen. Ted Kennedy.

Congress was unable to muster the support needed to pass immigration reform, and talk-radio hosts led an uprising against the measure. McCain still believes in the need for a temporary worker program, but hastens to add, “We’ve got to secure the borders first.”

Indirectly related to the immigration debate is Obama’s plan to raise the minimum wage from $6.55 to $9.50. Although the number of illegals in America has dropped by 1.3 million over the past year due to the soft economy and tougher enforcement, increasing wages would probably draw them back north of the border.

Obama’s success in breaking the logjam over illegals may depend on whether his fellow Democrats can grab enough seats in the Senate to override any GOP filibuster. That won’t be easy, but at the current pace of fence building, it could easily take a decade to secure America’s borders.

Under current labor laws, a union isn’t recognized as representing a company’s work force until a majority of workers approves that representation in a secret ballot. Employers generally feel secret ballots prevent workers from being intimidated into signing union representation authorization forms, also called “cards.”

The Employee Free Choice Act (EFCA) would change that, establishing union representation based on cards alone — no secret ballot would be needed. The AFL-CIO sees it as a way to add hundreds of thousands of workers to its membership.

“Card check legislation, that’s a real problem for us, because it could cause problems for many small businesses,” McInerney told Corporate & Incentive Travel magazine.

The House passed card-check legislation in March 2007, but Democrats didn’t have the votes they needed to squeeze the measure through the Senate.

“I will make it the law of the land when I’m president of the United States,” Obama told the AFL-CIO. McCain warns the measure would effectively deny workers the right to decide free of intimidation whether they want to be represented by a union. 

Apart from their positions on specific issues, there’s another critical factor that planners will consider: leadership.

“One of the most frustrating things to our members is that this has been a year when nothing got done,” lamented AH&LA’s McInerney. “That isn’t always true in a presidential election year. This year, everybody was too busy politicking to get anything accomplished.

“Looking forward to this next Congress, it’s important that the new president gets down to business right away. If Obama wins, the first 100 days of his administration have to be really strong. And for McCain, they have to be even stronger, because he’s got to prove he’s not just a repeat of the Bush Administration.”

Gast would like to see the next president elevate travel to the status it enjoys in most other nations.

“You know, we’re the only country in most of the free world that does not have a countrywide tourism initiative,” she said. “We do not have a U.S. Department of Tourism. And yet Jamaica, England, Spain, China and almost every other country recognizes the importance of travel. Tourism is the great humanizer. It’s critical to business, and the United States is the place in the world where business reigns supreme.”

Ironically, the current economic adversity may conceal a golden opportunity. Corporate travel and meetings can provide the shot in the arm that the nation’s economy sorely needs.

“Travel has the opportunity to be the shining star in this whole economic environment we’re in right now,” said Gilbert. “And meetings are a huge part of travel. We can fill the airline seats, the hotel rooms, the rental cars. For Europeans, it’s a great exchange rate right now — the best half-off sale they’ve ever seen in their lives. That’s got to be the political message from the hotel, convention and travel industries this election cycle: The travel industry is looking for leadership from Washington.”    C&IT