Take an iconic travel slogan in a state blessed with natural beauty and history, increase funding for marketing and infrastructure, and what do you get?
A second-to-none tourism industry.
That’s the industry’s goal. But are we there yet? Not quite. While Virginia is competitive, it hasn’t ascended to the top of the Ferris wheel, say industry executives. Nor is it a tiny teacup player. What holds Virginia back, they say, are several challenges: outdated product, the need for improved infrastructure such as sports arenas and convention centers, and more marketing funds to make a push into affluent Northeastern markets such as Boston and New York.
By many measures, Virginia’s tourism industry is thriving. In 2014, domestic travelers spent $22.4 billion on lodging, transportation, food and recreation, supporting 216,900 jobs and generating $1.5 billion in state and local taxes.
In fact, Virginia ranks ninth among the 50 states and Washington, D.C., in domestic traveler spending. Yet the state falls to No. 21 based on its 2014 state budget of $18.6 million for tourism. That figure pales when compared with heavy-hitting tourism states such as Florida and California that spent nearly four times as much — $69.4 million and $64.4 million in 2014 — according to the U. S. Travel Association.
The Old Dominion is home to many large hospitality companies. Hilton Worldwide Inc. in McLean is a global giant with holdings in 100 countries. It, along with other players such as Apple REIT Hospitality, Shamin Hotels and Cornerstone Hospitality, are investing in new properties in Virginia.
Sparking the growth is the rise of millennial travelers and their families, an increasing recognition of Virginia’s award-winning culinary scene and a heightened focus on authentic experiences — from feasting on Virginia’s homegrown oysters to cycling from Richmond to Washington, D.C.
With the potential for new growth, though, are operational pressures. The industry struggles to find enough skilled people to staff positions. It’s the target of cyber criminals intent on hacking the hotels’ large cache of personal credit-card data. Throw in increased competition from Airbnb and other players in the short-term online rental industry, and it becomes apparent that the industry behind those carefree vacation images is anything but carefree.
“It’s not fun and games,” says Mark Carrier, president of B.F. Saul Hospitality Group in Northern Virginia and the 2015 vice chairman of the American Hotel and Lodging Association. The AHLA is a national association representing the 1.8 million-employee U.S. lodging industry. In Virginia that includes 1,495 properties and 45,092 lodging jobs.
“It’s a real business with a real return on investment that benefits the community. Things like the governor’s focus on Dulles Airport is huge when you think of that as a massive piece of public infrastructure and the need to get more passenger traffic through.’’ Carrier was referring to the $50 million in the state’s recently passed biennial budget that’s earmarked for the Metropolitan Washington Airports Authority, which manages Dulles. The idea behind the money is to cut fees charged to airlines to make Dulles more competitive, driving up domestic traveler traffic.
That’s the kind of public support, say industry insiders, that will help Virginia take tourism to the next level. During a recent gathering of C-suite executives for a roundtable discussion on Virginia’s tourism and hospitality industry at the Salamander Resort & Spa in Middleburg (see story and transcript), the overall mood was optimistic.
Ian Carter, president of global development, architecture, design and construction for Hilton, has served on state tourism boards in Florida and California. “As a general statement, I would say, yes, we’re pretty competitive.’’
Virginia is a diverse state, he notes. “We’re close to D.C. on the edge of the northern part of the state. We’ve got beaches. We’ve got resorts.”
Hilton gauges the health of the state by looking at the performance of its inventory in Virginia. “In our case, we’ve got close to 22,000 rooms in operation in the state,” says Carter. “We’ve got a pipeline of just under 4,000 rooms, meaning hotels that are going to open in the next two years. More than half of those are under construction. We see good representation of our brands and others.”
Another good sign for Virginia? Hotel occupancy rates are on the rise. They averaged 61.6 percent in 2015, compared with 59.7 percent in 2014, according to STR Inc., a hotel market data company. Meanwhile, the average daily rate per room (ADR) increased from $99.93 to $103.96.
Government’s double-edged sword
When it comes to room-rate revenue, Virginia — the No. 1 state for U S. defense expenditures with $54.7 billion spent here in 2014 — is hurt by federal lodging per-diem rates, says Eric Terry, president of the Virginia Restaurant, Lodging & Travel Association.
Terry grew up in Virginia and returned in 2014 after working for years in the Texas hospitality industry. He fingers the government’s reimbursement rate as “just a killer” for Virginia’s hospitality markets. The national standard rate for 2016 is $89 per night.
Reimbursement is based on location of government work activities, so the rate varies across the commonwealth. It is influenced by things such as seasonality and an area’s average daily rates. In May, per-diem rates ranged from $96 in Williamsburg, up from $89 in February, to $121 in Richmond and $226 in Northern Virginia.
“The military in this state has competed with the hotel industry by building large hotels on base, for instance at Fort Lee in Petersburg and at Langley. And now the Department of Defense is negotiating even lower, below-the-standard per-diem rates. It’s a huge concern for us. That’s our biggest impediment to new development in the state,” he said during an interview with Virginia Business.
The location of some of Virginia’s resorts is another challenge, according to Doug Henkel, who leads CBRE’s MidSouth hotel brokerage practice in Norfolk. “They’re not all well located or have ease of access. Look at Kingsmill in Williamsburg as an example. It’s 45 minutes from two airports and two hours from Washington. D.C. You have to have a reason to be there. The same is true for the resorts in the western part of the state,” he says. “… I think Virginia could do a better job of marketing its resorts.”
More and longer visitor stays would help raise room revenue. Rita McClenny, president and CEO of the Virginia Tourism Corp., says her agency is trying to increase the average length of stay for domestic visitors, which currently is about three days.
To do that, Virginia markets a diversity of attractions: history, food, wine and craft beer, the arts, sports and outdoor recreation. “We haven’t forgotten about boomers, but the millennial really is the focus,” says McClenny, “because it’s the 80-million-person market with young families who we want to create legacies and traditions for them to continue to come to Virginia.”
If more marketing dollars become available, McClenny has a wish list. “We desperately want to get to Boston and New York. We just don’t have the financial resources to be in that marketplace.” Instead, she explains, the state’s buy “is 99 percent digital for getting ‘Virginia is For Lover’s’ in the marketplace. ”
With a steady uptick in the amount of domestic travel expenditures in Virginia every year since 2009, hospitality companies are trying to tap into the growth with new product. New hotels and brands are going up across Virginia. For instance, downtown Norfolk looks forward to next year’s opening of a new 300-room hotel and conference center, Norfolk Hilton The Main, which will make the city more competitive as a convention and meeting destination.