How did we screw up something so wonderful?
That’s the nagging question for the golf travel market. Forget, for a moment, the faltering economy. Recessions are fairly regular occurrences; the United States has had three in the past two decades.
The problems confronting the resort industry can’t be explained solely by a bad business cycle, and they won’t be corrected by a rising GDP.
The industry is overbuilt, and its biggest clients – corporations and associations – have run for cover. Revenues have plunged and discounting has increased as resorts try to drive more traffic. Looming on the horizon are big financial problems. Robert W. Baird & Co., a Milwaukee investment firm, reports that nearly $30 billion of hotel commercial mortgage-backed securities mature by 2012, and the firm anticipates “high levels of defaults ahead.”
It’s unclear how much of that debt is connected to golf resorts. But Scott Anderson, group president of Kohler Co. Hospitality & Real Estate, which operates The American Club, Whistling Straits and Black-wolf Run in Wisconsin, said, “What’s happening in the commercial market is as scary, if not scarier, than what happened in the residential market.”
Smith Travel Research reported that the occupancy rate at U.S. golf properties in 2009 was at the lowest level since the company began tracking that data in 2003. Revenue per available room (RevPAR) plummeted 18.8 percent last year, to pre-2003 levels, and total revenues dropped 17.3 percent.
Driving that decline is the corporate market, which typically accounts for more than half of resort revenues.
“I would characterize it as nothing short of fear,” Anderson said. “It’s not that in many cases the company or the group doesn’t have the money. They’re frankly afraid of being seen at a resort destination playing golf and getting negative press.”
Anderson said that some companies that do visit Kohler or are buying hospitality at this year’s PGA Championship at Whistling Straits “don’t want any signs or credit.”
Resort operators have taken steps to combat this perception problem. Just last week, Loews Ventana Canyon, a 36-hole property in Tucson, Ariz., announced it was joining many of its counterparts around the country in dropping “resort” from its name. Brian Johnson, managing director of the hotel, told the Arizona Daily Star that resorts that don’t take that step “don’t even get to bid on the (corporate) business.”
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Leisure travelers are making tentative steps back into the market. If they’re flying – domestic or international – they’ll almost certainly have to swallow airline baggage fees, which purportedly were instituted to offset higher fuel costs, but now are a fact of life. Airport security lines are a nightmare, and flights have never been more crowded.
Consumers’ uncertainty is reflected in two ways. Gordon Dalgleish, founding director of tour operator PerryGolf, said he sees more customers acquiring travel insurance to cover their losses if they can’t make a trip. In addition, booking windows continue to shrink.
“There is no visibility at all,” said Marty Carr, CEO of the Carr Group, which operates golf tours and events.
Still, Anderson said, “People are at about the end of their rope in terms of their denial quotient.” Recently, he said, spending per customer has been up 2.5 percent. “When people come,” he added, “they don’t mind spending the money. They just don’t come as often.”
Bucket-list properties such as Destination Kohler, Pebble Beach and Pinehurst have created more packages and offered upgrades, more amenities and resort credits to attract golfers. Discounting is an option they avoid or downplay.
“We don’t ever want to lose sight that people are coming here for a great experience,” said Tom Pashley, Pinehurst’s executive vice president of marketing, who said room-nights in early 2010 are running more than 20 percent ahead of last year.
Internationally, Ireland has had to reassess its pricing structure after a big run-up in fees over the past two decades. Alison Metcalfe, vice president of marketing for Tourism Ireland, anticipates Ireland’s golf tourism business will be off 5 percent to 6 percent this year, though she hopes to increase total tourism 3 percent.
“Visitors have never experienced the value they’re getting now,” Metcalfe said.
There’s a similar story in Scotland. Turnberry Resort, for instance, is offering a fourth night free – typical of some of the deals available at resorts that historically haven’t had to cut prices.
“That type of thinking was anathema to anyone in the British Isles 18 months ago,” Dalgleish said. He warns, however, “The prices are slowly rising and the deals are slowly going away.”
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Finding winners in this market is a relative exercise. Winners might include those whose businesses are off just 15 percent compared to three years ago.
Bandon Dunes Resort is opening its fourth course, Old Macdonald, in June, and KemperSports president Steve Skinner, whose firm manages that property, said, “We’re already seeing sellouts and near-sellouts near the time of the opening.”
Kohler Co., which will host the PGA Championship and will be the de facto host of the British Open as owner of the Old Course Hotel, also figures to benefit from that exposure.
Sam Baker, CEO of tour operator Haversham & Baker, is among those who believe that England, which has taken a backseat to Scotland and Ireland in golf tourism, has a big upside because it has a wealth of great links courses and features three venues that are regulars in the Open Championship rota. He also suggests marketers will try to “flush out the edges” in popular markets; he points to southwest Scotland, where a second course has opened at Machrihanish and a ferry ride to the Machrie Hotel and Golf Links on Islay makes for a good day trip.
“The American golf traveler has become more and more sophisticated,” Baker said. “They want to see more of Scotland. One trip isn’t enough.”
Bruce Glasco, Troon Golf’s senior vice president for Europe, Middle East and Africa, sees emerging destinations for European golfers, and perhaps a modest number of Americans. Turkey’s Antalya region is packed with more than a dozen courses and has great weather, and Morocco’s economic policies make it very price-competitive relative to other European destinations.
The bigger question will be Wales, which is banking on getting a bump from hosting the Ryder Cup this fall at Celtic Manor. Tour operators generally are enthusiastic about Wales’ links courses. But they raise various concerns: Wales still has low awareness relative to Scotland and Ireland; its hotels are unaccustomed to hosting golfers; and the country doesn’t have a caddie culture that American golfers expect to find in the United Kingdom. Several tour operators said they believe Wales will be a good alternative to other U.K. destinations, but probably not a place that will generate a significant amount of repeat business.
Much will depend on the economy and consumer confidence of Americans, whose free-spending ways powered the golf-tourism boom of the past 15 years.
“There are still deep pockets out there,” Kohler’s Anderson said. “They just have short arms.”