Quarterly Analysis - First Quarter 2001

Quarterly Analysis of International Arrivals &
Receipts to the United States
First Quarter, 2001
Tourism Industries (in collaboration with DRI·WEFA)

The arrivals data presented in this analysis are from the U.S. Department of Commerce Tourism Industries' monthly publication March 2001 & Year-To-Date Summary of International Travel to the United States. The data on estimates for travel and passenger fare exports and imports were obtained from the U.S. Department of Commerce, Bureau of Economic Analysis.

Arrivals to the United States leveled-off in the first quarter of 2001 as the world economy has continued to slow. Robust growth in the first quarter of last year has been difficult to improve upon given the current glum economic climate-particularly in Europe. Overall, total international arrivals, including Canada and Mexico, held steady compared to last year with nearly 9.5 million visitors. Total overseas arrivals tallied 5.5 million in the first quarter also; almost equaling the number of visitors in the same period last year.

Total Overseas Arrivals from 1999 to 2001 Arrivals were at around 1.6 million in the beginning of 1999, peaking at almost 2.6 million in the summer of 1999, dropping again to about 1.7 million in 2000, reaching almost 2.7 million in the summer of 2000, and following the same pattern to 2001.

Despite the slowdown in inbound travel, the U.S. experienced an estimated tourism trade surplus of $3.1 billion, with $22.3 billion in travel expenditures received in the first quarter of 2001.

The World Economy Slows This Year Percent change in real GDP from 1995 to 2005. GDP grew from under 3% in 1995 to over 4% in 2000, however, for 2001 it is only to grow about 2% and then topping 3% through 2005.

The top ports of entry for overseas travelers were Miami, New York, Los Angeles, Honolulu, Agana, Guam, Newark, San Francisco, Chicago, Atlanta, and Washington, DC. Although the total arrivals figures indicate a leveling-off in the first quarter, results were mixed across regions.

Western Europe
Western European arrivals declined 5 percent quarter-over-quarter, totaling 2.2 million visitors. Much of the decline was in pleasure travel visas-posting a 7 percent loss-while business travel gained 2 percent. It is important to bear in mind that the first half of last year was exceptionally strong, giving the first quarter of this year a tough act to follow. It is in the second half of the year where growth can be potentially expected.

Western European Arrivals Western European Arrivals to the US from 1999 to 2001 by month, peaking in the summer months to almost 1.2 million visitors.

However, the risk to the Tourism Industries' forecast for 2001 remains on the downside. Growth throughout Europe has slowed considerably over the past quarter and, although the euro is appreciating versus the dollar (as expected), its ascent has been slow.

The Euro Exchange Rate Will Reach Parity With The U.S. Dollary - Eventually The dollars per Euro from 1997-2003 started at 1.2 in 1997 and fell to between .8 and .9 in 2000 and is forecast to rise to par in 2003.

In addition, economic growth and associated income growth have slowed markedly over the last three to four months throughout Western Europe. This year promises to be a struggle for Germany and, to lesser extents, France, Italy and the UK (see following chart). The weakened performance in the United States, in particular, and elsewhere in the global economy is having an increasingly dampening effect on the Eurozone, not to mention the negative effects of persistently high oil prices. These negative factors have outweighed some relatively healthy domestic fundamentals in most Eurozone countries, including major tax cuts.

However, economic strengthening toward the end of the year, combined with an appreciating euro should help this market register positive-albeit slow-growth for the year. Look for an economic rebound in most of the major European markets during the last three months of this year.

Real GDP Growth is Slowing Across Europe Percent change from 2001 to 2002 for France, over 3% in 2000, declined in 2001 to 2% and about 2.5% in 2002. Germany same as France except in 2001 only 1% growth, Italy same as France. Netherlands had almost 4% in 2000, only 3% in 2001 and a little less in 2000. Spain was over 4% in 2000, over 3% in 2001 and a little less in 2002. The UK was at 3% in 2000, over 2% in 2001, and a little more in 2002.

Arrivals from the Asia Pacific region expanded by a solid 4 percent in the first quarter compared to the first quarter of last year. This is right in line with the arrival forecast of 4 percent. The Asian leisure and business markets continue to recover strongly from heavy losses in 1998. It should be noted that risk remains strong for this market over the next twelve months as economic growth slows over the course of the year, particularly in Japan, where economic prospects remain bleak.

*-Asia Will Avoid a Replay of the 1997-98 Crisis Asia will avoid a reply of the 1997-98 Crisis: real GDP growth outside Japan from 1996-2004

South America
South American arrivals improved slightly, growing 2 percent in the first quarter. The forecast of 5 percent for the year is put at risk by Argentina's economic woes and possible contagion to the rest of the region.

Real GDP Growth Prospects Vary in South America Real GDP growth prospects vary in South America for 2000-2002 for Argentina percent change below 0 in 2000, -2% in 2001 and almost -6% in 2002. Brazil, Chile, Colombia, Peru and Venezuela were all above zero. Brazil was 5% in 2000, 2.4% in 2001, and 2.1% in 2002. Chile was almost 6% in 2000, 4% in 2001, and 5% in 2002. Colombia was over 2% in 2000, a little more in 2001, and almost 4% in 2002. Peru was almost 4% in 2000, almost 0 in 2001, and over 4% in 2001. Venezuela was about 3% in 2000, 4% in 2001, and below 3% in 2002.

Brazil will also experience a slowdown this year-causing some concern. South America has proven to be a resilient market except in the worst of economic times and has a long way to go to catch up to the height of arrivals achieved in 1997.

Other Regions
Positive increases in arrivals to the U.S. were realized in the first quarter from most other regions, which have helped ameliorate the effects of the weak European market. Central America increased nearly 5 percent over the same period last year; Africa increased 4 percent; and the Middle East jumped to almost 7 percent. Oceania and the Caribbean were the notable exceptions, declining 1 percent and 6 percent, respectively.

Top International Markets
Arrivals from Canada, the largest source of visitors to the United States, declined by 2 percent in the first quarter of 2001, following last year's strong growth. This quarterly decrease is largely attributable to the effects of the U.S. economic slowdown on the Canadian economy. Despite the slight decline, the U.S. continues to enjoy a healthy travel surplus (U.S. travel receipts minus payments) with total Canadian expenditures in the U.S. reaching $2.4 billion, giving the U.S. a surplus of $1.3 billion for the first quarter.

The Canadian market may be due to rebound in the second half of the year as the Canadian dollar might regain value if economic growth accelerates in North America as predicted. Recent tax and interest rate cuts bode well for the near-term future of the Canadian outbound market.

The Canadian Dollar will Eventually Recover From 1997 to 2003 the dollar was at .73 US cents per Canadian dollar, dropping to a low of .65 in 1999, climbing to .69 in 2000, dropping to .64 in 2001 and recovering to .71 by 2003.

Mexico is the fourth largest source of air arrivals to the United States and registered a healthy 4 percent growth in the first quarter. Pleasure travel increased 6 percent in the first quarter while business travel declined 8 percent. The weak business travel market contributed to the trade deficit of $791 million that the U.S. incurred with Mexico in the first quarter.

Mexico has not yet been affected by the regional crisis from the Argentine malaise. In fact, it seems that Mexico has benefited from it, as capital that would have gone to that region has opted to go to the more secure Mexico. At this point, Mexico has its newly found political stability and some benefits from the NAFTA, even though the Mexican economy has slowed down considerably during the first half of this year due to the slowdown in the U.S. economy. As a result, the Mexican outbound market to the U.S. should be able to sustain steady growth between two and three percent this year.

* Mexican tourist arrivals reflect only those Mexican visitors who fill out the INS Form I-94. Essentially this is limited to those visiting the U.S. interior, beyond the 40-kilometer (25 miles) U.S. border zone. This encompasses all air travelers to the United States. Mexican visitors who stay within the border zone and travel with border crossing permits (INS Form SW-444) are not included in these tabulations. They were included in the INS visitor counts before 1983. Because of this change, it is estimated that the Mexican arrivals count in this report only represents about 15 -20 percent of the total visitation from Mexico.

Japanese arrivals expanded 3 percent in the first quarter, reaching 1.3 million visitors. This marks continued growth since the effects of Japan's financial crisis in 1998. January was the strongest month of growth with a tapering off in February and decline in March. The recent increase in Japanese visitors was composed mainly of business travelers-a strong turn for a market, which is renowned for its leisure travel market. This volume increase was accompanied by robust travel receipts. The U.S. registered a travel surplus of $3.3 million with Japan in the first quarter. The top ports of entry for Japanese travelers to the U.S. for the first quarter of 2001 were: Honolulu, Agana, Guam, Los Angeles, San Francisco, and New York.

The Japanese economy continues to struggle and is now positioned to slip back into recession this year. At this point the market is still expected to hold its ground with caution for ripple effects into the following year of bookings.

Japan's Ecnomy Continues to Struggle Real GDP percent change from 1986 starting at over 2% in 1986 and reaching a hight of over 6% in 1988, followed by a low of less than 1% in 1993, steadily growing to almost 5% in 1996, then falling to -2% in1998 and slow to grow until 2002-2004, at 2%.

United Kingdom
British arrivals held flat in first quarter of 2001. British leisure visitors accounted for 80 percent of total UK visits to the United States, declining 2 percent in the first quarter compared to the same period last year. Meanwhile, business travel grew 4 percent, comprising 19 percent of the UK travel market. Students accounted for the other one percent. British total expenditures reached almost $2.5 billion. The top ports of entry for British travelers were: New York (JFK), Orlando International, Newark, Los Angeles, and Miami.

The second half of 2000 was particularly lackluster for the German market and this has continued into the early part of this year. German arrivals declined 12 percent in the first quarter of 2001 compared to the first quarter last year. German leisure travel alone declined 17 percent while business travel increased marginally by 1 percent.

The German economy has weakened markedly this year with activity being hit hard by the U.S. and global economic slowdown. Most recent data have been very disappointing overall, and suggest that the economy struggled particularly in the second quarter of last year. Unemployment rose in each of the first seven months of the year, taking the number of unemployed up to 3.9 million in July of 2000. The industrial sector has also weakened in recent months.

However, the losses of last year and the first part of this year should be ameliorated as the German market responds to a strengthening deutsche mark and tax cuts stimulate consumer demand.

German Arrivals German arrivals to the US from 1999 to 2001 starting at 100,000 at the start of 1999, peaking in the summer to over 200,000, following the same trend for 2000 and 2001.

France and Italy
French arrivals decreased by 7 percent in the first quarter-which is not surprising considering last year's first quarter growth of 16 percent. Most of the decline occurred in March. The French market experienced declines in both leisure and business travel. Italian arrivals decreased steadily for the first quarter of 2001, by 4 percent compared to the same period last year.

Spain, Netherlands, and Switzerland
Spanish arrivals declined 2 percent in the first quarter of 2001 compared to the first quarter last year. Spanish pleasure-visa travelers declined 3 percent while business travelers increased 4 percent. Dutch and Swiss arrivals decreased by 15 percent and 7 percent, respectively, in the first quarter of 2001.

Brazilian arrivals increased 3 percent in the first quarter of 2001, in contrast to a decline of 4 percent in the same period last year. Brazilian travel experienced a monthly increase of 11 percent and 25 percent in January and February, respectively. March, however, registered a decline of over 20 percent. Pleasure visa travelers increased 4 percent while business travel declined slightly in the first quarter. Brazil may face further malaise given its proximity to Argentina. Brazil's currency, the Real, has fallen by about 25 percent since the beginning of the year and interest rates have risen.

Australian arrivals in the first quarter of 2001 decreased by 3 percent, after last year's first quarter growth of 9 percent. January experienced the strongest growth (5 percent). This decrease in volume was accompanied by a decrease in U.S. travel receipts from Australia, giving the U.S. a trade deficit of $43 million for the first quarter.

South Korea, Taiwan, China
South Korean arrivals expanded 5 percent in the first quarter of 2001, a continuation of the strong recovery of the past two years. The forecast from TI and DRI-WEFA anticipated a slowdown this year which will be likely realized as economic growth slows in the region. Most of the first quarter increase came from travelers with pleasure visas, (61 percent of total travelers) which were up 27 percent. Taiwanese arrivals dropped slightly- 5 percent in the first quarter of 2001 compared to last year. Taiwan had a strong start with 36 percent growth in January but then fell in February with a 41 percent decline compared to the same period last year. Arrivals from the reunified Hong Kong and the People's Republic of China increased 12 percent, the building on last year's strong growth. Both pleasure and business issued visa travelers were up, 12 percent and 9 percent, respectively. Taiwan and Hong Kong will continue to be soft markets as economic growth stalls this year in these countries. However, the economic prospects for mainland China remain strong and should support strong travel demand.

Argentine arrivals dropped 2 percent in the first quarter of 2001, countering a 4 percent decline last year during the same period. Business visa travel declined 12 percent. Pleasure visa travel remained relatively stable. Argentina is currently in its third year of economic recession and is suffering from high interest rates and problems with domestic debt. TI's current inbound travel forecast projects no growth for this market in 2001, but may be revised downwards considering the current political climate and economic uncertainty.

Venezuela and Colombia
Venezuelan arrivals increased 11 percent with a 25 percent increase in January alone. Colombian arrivals fell 4 percent with leisure travel declining 5 percent. Both leisure and business travel increased- 11 percent and 7 percent, respectively.

To obtain additional information on arrivals to the United States, please consider subscribing to the monthly, quarterly, and/or annual Summary of International Travel to the United States. This report contains 28 tables. Each table has two Sections, arrivals by volume and percent changes for the current month and year-to-date arrivals and percent changes. Within the report arrivals data are provided for 9 world regions and more than 90 countries. To learn more about this report, visit TI's website at https://travel.trade.gov/view/m-2001-I-001/index.html.

The product of a recent merger between two economic consulting firms in the United States, DRI·WEFA provides a broad range of consulting capabilities covering market analysis, business planning, investment strategy, risk assessment, infrastructure analysis, policy evaluation, and economic development and impact. DRI·WEFA has over 3,000 clients in industry, finance, and government around the world, with over 500 employees, and 30 offices covering North and South America, Europe, Africa, the Middle East, and Asia.

Your feedback on this analysis is greatly appreciated. Please email vivian_vasallo@ita.doc.gov with your comments and/or suggestions.