The Impact of the BP Oil Spill in the Gulf of Mexico on the State of Florida’s Hotel Industry Author: Holly Spencer, MBA Candidate Adviser: Dr. Woody Kim, Robert H. Dedman Professor of Hospitality Management Florida State University Dedman School of Hospitality
Contents • Introduction • Introduction • Statement of the Problem • Purposes of the study • Literature Review • Natural disaster and outbreak research relating to the tourism industry • Articles relating to industry growth in the U.S. for 2010 • Data Source • Analysis • Results • Discussion and Future Studies • Implications
Introduction • April 20, 2010 – Transocean’s Deepwater Horizon Oil Rig explodes killing eleven people and dumping oil into the Gulf of Mexico • Media frenzy amplified the effects by showing intense coverage of oily beaches and damaged wildlife causing consumers to question visiting Florida and eating Gulf seafood • Initial review of Smith Travel Research data showed an interesting picture as Fort Walton Beach showed continued losses June – August in 2010 compared with 2009 while Pensacola showed steady growth over 2009 • This brought to question what the effect of the BP Oil Spill actually was throughout the state of Florida
Statement of the Problem • Because of the intense media coverage, many hoteliers throughout Florida felt that their hotel’s performance was affected by the BP Oil Spill. • This can best be determined on a property by property basis, however, this study aims to quantify the effects on an aggregate level in order to summarize how this event has shaped Florida’s hotel industry • The oil spill caused relief workers to deploy to some regions buffering the displacement of leisure travelers • Cannibalization factor: “People who want to go to the beach will go to the beach regardless of if they have to switch coasts”, Paul Tang, Hyatt Regency Grand Cypress
Purpose of this Study • While the entire Gulf region has been affected by the BP Gulf Oil Spill, this study focuses on its effects on Florida’s hotel industry including regions whose shores were not actually reached by the oil as well as the regions which saw oil on their sand. The purpose of this study is to a) show the effects of the oil spill on regions within Florida in comparison with those results from other directly affected states and to b) show its effects on the state as an entirety in quantitative terms and by interviewing Florida hoteliers. This study will in turn lead to a better understanding of the economic impact of an environmental crisis on the lodging segment.
Literature Review • There is little discussing effects of actual crises on the tourism industry. • Chandler (2004) found that national media coverage during the hurricanes Dennis, Floyd, and Irene influenced prospective visitors’ travel plans to the North Carolina Coastal Plain region. • Pizam (2009) cited DLA Piper’s 2009 Hospitality Outlook where 90% of American respondents described the 12-month outlook for their respective hospitality industries as “bearish” and that 43% felt that this recession has had the biggest impact on RevPAR.
Literature Review • Reynolds and Belinbin (2003) studied the effects of Mad Cow Disease and found that outbreaks of disease lead to product avoidance which changes consumer buying behavior while educating consumers showed to add value. • Miller and Glantz (1988) found that Florida’s freezes were partially responsible for growing the Brazilian Frozen Concentrate Orange Juice market.
Literature Review • Frietag (2010) of STR stated that 2010 gave optimistic signals for the U.S. hotel industry • Demand up by over 10 percent (luxury, upper upscale, and upscale) • ADR maintaining or increasing in June 2010 • Upper upscale and upscale stagnant ADR due to group business • Hart (2010) of Rubicon stated that group room nights committed in Q2 2011 was up 4.5 percent and group pace up 43.7 percent. • Group and business segments occupancy rates at their worst in first half of 2009 • Loss of promotional rates from during recession caused some loss of demand for lower-rated leisure
Data Source • Secondary data of 25 separate regions from Smith Travel Research • Monthly occupancy, ADR, RevPar, and total room revenue statistics • Directly Affected in Florida: • Fort Walton Beach • Panama City • Panhandle Area • Pensacola MSA • Directly Affected not in Florida: • Baton Rouge, LA • Biloxi/Gulfport, MS • Mobile (City) • Mobile Area, AL • Southern Louisiana • Southern Mississippi • Not Directly Affected in Florida: • Daytona Beach • Florida Keys • Fort Myers • Fort Pierce • Fort Lauderdale • Jacksonville • Lakeland Area • Melbourne • Miami/Hialeah • Naples MSA • Ocala MSA • Orlando • Sarasota • Tampa/St. Pete • West Palm Beach
Analysis • “Directly Affected”- area that was either touching or highly publicized in association with the BP Oil Spill • Paired t-tests and ANOVA using mean percent change for the three months prior to and the three months after the event month (April) from 2009 to 2010 • Interviewed hoteliers by telephone as done in Reynolds and Balinbin (2003), Chen et al. (2006), and Chandler (2004).
Analysis • The performance factors asked about included • a) in which market segment(s) did the respondents see the biggest drop(s) from April 2010 to August 2010 • b) if they saw a decline in group business, what percentage of those canceled plans does the respondent expect to reschedule • c) to what does the respondent most directly attribute the departure from their property’s forecasts, • d) what segment does their property fit into • e) what is the ownership/management structure of their property • Respondents were also asked about Occupancy, ADR, RevPAR, and Revenue trends in their region as well as demographic items about themselves such as age, years of experience in the hotel industry, prior background, and current position.
Results • July 2009 – July 2010: • Occupancy- • 5% increase for Florida’s East Coast • .1% increase for Florida’s Gulf Coast • RevPar- • $6 increase for the East Coast • $3.64 increase for the Gulf Coast • Many articles in the media expressed dramatic increases in occupancy on the East Coast implying possible cannibalization
Results- Occupancy • Mean percent change from 2009 – 2010 after the BP Oil Spill was improved and of greater magnitude than the before in tested areas including state of Florida as a whole and some Gulf Coast areas outside of Florida • Only statistically significant in areas tested on the Gulf Coast outside of Florida • Many emergency management personnel even from Florida were directed to Mobile, AL • Mean Percent Change Before versus After • -3.61% Before, 20.23% After
Results- Occupancy • Mean percent change for Directly Affected area of Florida after oil spill proved to be of significantly less magnitude and had a vastly smaller percent change than those areas directly affected outside of Florida • Mean percent increase for directly affected area outside of Florida was of significantly greater magnitude than those areas in Florida not directly affected by oil • Mean percent change for area not in Florida showed significantly smaller mean percent change before oil spill compared with the areas in Florida not directly affected • BOTTOM LINE: Areas outside of Florida on Gulf Coast experienced much better effects in occupancy than the areas in Florida both affected and not affected
Likely Causes • Florida Department of Emergency Management: • May 1st, 2010 Situation Report: • More than 2,000 personnel involved in the response as of that date both on and offshore with additional resources ready to deploy • 242 BP and contract personnel in Pensacola, FL • May 19th, 2010 Situation Report: • 19,400 personnel working on offshore response • 538 BP and contract personnel working on the effort in Florida • 33 members on-site at Unified Command in Mobile • July 3rd, 2010 Situation Report • 587 state personnel currently deployed • 188 of those 587 in Florida’s Panhandle
Results- ADR • Both directly affected outside of Florida and not directly affected in Florida areas’ mean percent change after was significantly smaller than the before thus their ADR had improved. • The directly affected area had a significantly greater mean percent change (negative) than both the tested areas outside of Florida and the not directly affected areas in Florida after the oil spill. • In terms of ADR, it appears that the BP Oil Spill truly negatively impacted the Gulf Coast of Florida’s hotels and did so more significantly than in the other tested areas.
Results- RevPAR • RevPAR results nearly mirror the ADR results implying that ADR had a bigger impact overall on performance than did Occupancy • The mean percent change after is significantly greater in magnitude and improved in all areas except for those directly impacted and in Florida. • The mean percent change for the directly impacted areas of Florida did in fact improve over 2009 despite not being significant
Results- Total Room Revenue • The mean percent change of Total Room Revenue after the oil spill for all areas tested both in and outside of Florida proved to be of greater magnitude than the mean percent change in the months prior and showed improvement in mean percent change in 2010 over 2009. • All areas also showed higher after mean percent changes than the months leading up to the spill and were significant with the exception of the directly impacted area of Florida.
Discussion AND FUTURE STUDIES • It can be inferred from the data that while the Gulf Coast of Florida was affected in terms of ADR and thus RevPAR, their overall performance was not severely affected in comparison with the prior year. • Looking at the other areas of Florida, however, as well as the rest of the U.S., summer 2010 marked an uptick in occupancy and in revenue higher than that which was felt in the directly affected areas of Florida, though this study was unable to trace how much growth was lost in that region.
Discussion AND FUTURE STUDIES • Areas of Florida not bordering the Gulf of Mexico, however, who did not have oil on their beaches, appear unaffected and seem to have seen growth over 2009 due to the rebounding economy. • It is uncertain from this data how the areas outside of Florida which also had oil on their beaches achieved such astronomical gains over 2009, although it can be at least partially attributed to government aid agencies reacting to the BP Oil Spill.
Discussion and Future Studies • Interviews with Florida General Managers: • Mr. Dale Haney of the Ponte Vedra Inn and Beach Club, a five diamond resort near the Jacksonville, FL market, noticed an uptick in leisure travel from Alabama with some travelers noting that they normally traveled to the Gulf beaches of Florida but instead chose Ponte Vedra during summer 2010 in fear of the oil spill. The Ponte Vedra Inn and Beach Club saw a large increase from April 2010 to August 2010 in individual leisure travelers. • As stated by Paul Tang, Vice President and Managing Director of the Hyatt Regency Grand Cypress in Orlando, “People who want to go to the beach will go to the beach regardless of if they have to switch coasts”. Mr. Tang also noted that his hotel experienced a great drop in individual leisure travelers mostly due to the effects of the current economic downturn and felt that the Orlando market remained largely unaffected by the oil spill. • Mr. Derrick Morrow of the Hyatt Regency Tampa also saw a downturn in his hotel’s business but also attributed it to the recession. It is also noteworthy to mention that Mr. Morrow disclosed an increase in group business throughout summer 2010. • Note that Gulf Region General Managers were unavailable for comment due to pending litigation.
Discussion AND FUTURE STUDIES • Future studies may include findings as to why the Gulf region outside of Florida made such positive gains in summer 2010 over 2009 and factor in how much of that growth was due to government aid and relief attempts. • Future studies may be able to figure in how much the economy actually played a part in this disaster by going further in depth analysis of the government’s response both in Florida and in the surrounding areas. • Future studies may also be able to measure the long-term impact of the oil spill on the hotel industry by being able to measure summer 2011’s performance to 2010 and 2009 performance.
Managerial Implications • State Tourism Bureau: • Natural disasters will undoubtedly affect your state’s industry • Acting swiftly and strongly will buffer the blows dealt to your operators by the media • Florida’s State Tourism Bureau could have benefitted by getting the word out there sooner that Florida’s beaches were clean as the state was unfortunately bundled in to the rest of the spill prior to oil hitting their beaches • Hotel Marketers: • Fighting with deeply discounted rates to increase occupancy may not be necessary • Working with your local visitor’s bureau, you may look to attract state government relief and task forces in your state and look to attract relief from other states to help out your state
Managerial Implications • Hotel Operators: • Having good relations with state government is more important than ever when disaster strikes • This disaster proves that attracting government customers, despite typically lower rates, will at least buffer the blow to your total revenue • Hotel Owners: • It is important to keep abreast of new happenings related to natural disasters even if they do not originate in your own state • Be proactive and empower your management team to contact state government to attract their business • State Government Officials: • Support your state by holding task force response meetings in your state
References • British Petroleum. (2010). BP Releases Report on Causes of Gulf of Mexico Tragedy, Press Release. BP Internal Investigation, 13 September 2010. Retrieved from http://www.bp.com/genericarticle.do?categoryId=2012968&contentId=7064893 • Chandler, J. A. (2004). An analysis of the economic impact of hurricanes Dennis, Floyd, and Irene on North Carolina’s lodging industry. Journal of Hospitality & Tourism Research, 28(3), 313-326. • Chen, M., Jang, S., & Kim, W. G. (2007). The impact of the SARS outbreak on Taiwanese hotel stock performance: An event-study approach. International Journal of Hospitality Management, 26(1), 200-212. • Freitag, Jan D. (2010, September). Half-Year Chain-Scale Review, The Numbers Provide Hope. Lodging Magazine, 28. • Hart, Time. (2010, September). Group, Business, and Leisure Travel, How Future Business Looks for Each Segment. Lodging Magazine, 30. • Pizam, A. (2009). The global financial crisis and its impact on the hospitality industry. International Journal of Hospitality Management, 28(3), 301-301. • Reynolds, D., & Balinbin, W. M. (2003). Mad cow disease: An empirical investigation of restaurant strategies and consumer response. Journal of Hospitality & Tourism Research, 27(3), 358-368. • Seccombe, Will. (2010) Impact of Deepwater Horizon Oil Spill – Perception, Reality and Next Steps — Sunshine Matters. Sunshine Matters — The Official Corporate Blog for VISIT FLORIDA, 13 September 2010. Retrieved from http://www.visitfloridablog.org/?p=1098#more-1098