Staycations are dying and the economy’s happier for it

DJ Steve Aoki sprayed champagne on attendees before selecting some to surf the crowd on an inflatable raft during opening week of the Hakkasan night club in Las Vegas last month.

The five-story, $100 million-plus addition to the MGM Grand symbolizes a revival of the unbridled partying Sin City was known for before the real-estate bust turned Las Vegas into the foreclosure capital of the U.S. It also created 500 jobs in a state that had an unemployment rate of 9.7 percent in March, the highest in the nation.

“The domestic customer is coming back, they’re spending a bit more money,” MGM Resorts International Chairman and Chief Executive Officer James Murren said in a telephone interview. “When you see a strong housing number, that bodes very well. People feel they’re wealthy.”

After years of dipping in backyard pools and exploring neighborhood festivals during so-called summer staycations, Americans may be ready to splurge a bit more this year, giving economic growth and employment a boost. A rebounding housing market, lower gasoline prices and falling joblessness are among reasons households will venture farther from home.

With travel expenditures projected to increase 3.6 percent this year, faster than economic growth, the share of gross domestic product coming from the industry may approach 3 percent in 2013, up from about 2.7 percent in 2010, David M. Huether, vice president for research at the U.S. Travel Association, said in an interview. The world’s largest economy is forecast to expand 2 percent this year, according to the median estimate of 81 economists surveyed by Bloomberg.

Home Prices

House prices climbing at the fastest pace since 2006 are helping repair household finances, while unemployment at a four- year low of 7.5 percent boosts confidence. The Bloomberg Consumer Comfort Index reached a five-year high in the week ended April 28.

That means Americans will be more willing to travel as gasoline prices remain below last year’s level. New attractions, such as Walt Disney Co.’s Cars Land at its California Adventure Park in Anaheim, California, may encourage long-postponed vacations.

“With the unemployment rate coming down, folks are feeling more secure about their jobs, and I would expect to see more people go on traditional vacations this year,” Mark Vitner, senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina, said in an interview.

Leisure Stocks

After under-performing the market last year, the 11 members of the Standard & Poor’s 500 Hotels, Restaurants and Leisure Industry Index are faring better in 2013, rising 13.4 percent so far this year through yesterday compared with a 14.6 percent advance for the broader S&P 500. Standouts include slot machine maker International Game Technology, up 27.6 percent, and hotelier Wyndham Worldwide Corp., up 20.5 percent.

Stocks climbed today, with the S&P 500 Index headed for its eighth record high in the past nine sessions, on increased optimism over growth in the world’s largest economy. The index rose 0.9 percent to 1,648.41 at 1:44 p.m. in New York.

Elsewhere, German investor confidence rose less than forecast in May, highlighting the risks to the economic outlook as the euro region remains mired in recession.

In Atlantic City, New Jersey, they are preparing for the May 24 opening of singer Jimmy Buffett’s Margaritaville, a beach-front casino and restaurant complex at the Resorts Casino Hotel that will employ about 600 people in a market that’s lost 6,900 gambling-related jobs in the past five years, according to state data.

New Addition

Mitchell Etess, chief executive officer of the Mohegan Tribal Gaming Authority, which manages the property, said the $35 million addition will encourage patrons weary from years of a slow economy and last year’s Hurricane Sandy to revisit what was the state’s first casino in 1978.

“Resorts had fallen to the bottom of the pack,” Etess said in a telephone interview. “What you’re going to get is almost a complete redo.”

As in the broader economy, one headwind for the travel industry is the automatic across-the-board federal government spending cuts, or sequestration, which began on March 1.

“As sequestration has imposed limitations on travel for government employees, cancellations of government bookings have increased,” the Federal Reserve Bank of Atlanta said in a May 2 blog posting about southeast tourism.

Additionally, “destinations that offer government-funded programs such as military air and sea shows are also experiencing disruptions,” according to the post.

Capital Spending

Disney, the world’s largest theme park operator, is among companies sprucing up or adding offerings to spur sales. The Burbank, California-based company said attendance at its domestic resorts rose 8 percent in the quarter that ended March 31 and that reservations were trending up 7 percent in the current quarter. The results follow a three-year period in which it invested $9.45 billion in hotels, cruise ships and other projects.

U.S. hotels will fill seven out of 10 rooms every night this summer and lift their daily rate 4.4 percent to $112.21 on average from $107.52 in 2012, according to Hendersonville, Tennessee-based Smith Travel Research, Inc. In 2009, when vacancy ratio plunged to 61.5 percent, a hotel room cost $97.54.

The travel industry added about 13,000 jobs a month on average from January through April, compared with 4,000 a month in the last four months of 2012, according to the U.S. Travel Association.

Orlando, Florida, New York and Los Angeles are among this year’s top visitor destinations, Simon Bramley, Travelocity.com Inc. vice president for transportation and lodging, said in a telephone interview.

Cheaper Gasoline

One reason may be cheaper fuel costs. Average gasoline prices, while elevated, are below levels seen at this point in 2012 and 2011, making it more likely Americans will drive farther to their destinations this year and have more cash to spend once they arrive.

“We’ve seen steady increases since the lows of 2008, 2009, when leisure travel really retracted,” said Heather Hunter, a spokeswoman for AAA, the nation’s largest motoring organization.

Gas prices will probably decline to the range of $3.20 to $3.40 per gallon by mid-summer, according to AAA. Regular gasoline at the pump, averaged nationwide, was $3.58 a gallon yesterday, compared with $3.73 a year ago, according to the organization.

“We saw people traveling further from home,” said Travelocity’s Bramley. “The austerity years of the staycation are behind us at this point.”

–With assistance from Jeff Kearns in Washington. Editors: Carlos Torres, Vince Golle

To contact the reporters on this story: Kasia Klimasinska in Washington at [email protected]; Christopher Palmeri in Los Angeles at [email protected]

To contact the editor responsible for this story: Christopher Wellisz at [email protected]