While Scottsdale’s tourism industry is unlikely to reach pre-pandemic levels anytime soon, the city’s tourism arm is confident that it is on the road to recovery.
On June 22, City Council approved the budget, marketing guide and performance standards for the next 12 months for Experience Scottsdale, the city’s contracted tourism and convention bureau.
According to the organization’s business plan, occupancy at area hotels was 40.1 percent in 2020 – down over 40 percent from 2019.
That was a steeper drop-off than hotels in Phoenix Metro and U.S. as whole, which saw occupancy drop between 30 and 35 percent during the pandemic.
It was also a bigger drop than similar warm-weather destinations like Tucson and Palm Springs.
Still, Scottsdale hotel occupancy has begun to bounce back in 2021 – especially during the spring tourist season, which was abruptly cut short by COVID-19.
According to hotel research company STR, from April 4-10, the Scottsdale area’s tourism industry experienced 70.8 percent occupancy – well above the sub-10-percent occupancy in early April 2020.
STR put Scottsdale’s overall hotel occupancy rate at 45.9 percent for 2021.
That relatively modest increase over 2020’s rate of 40.1 percent might come as a shock to locals who have seen downtown Scottsdale, the entertainment district and resort pools seemingly bounce back to life.
But industry experts do not expect the U.S. tourism industry to fully recover until 2024.
Rachel Pearson, Experience Scottsdale’s vice president of community and government affairs, said tourists are returning to Scottsdale but are only part of the equation.
She said that corporate business travel still has not returned and that segment of the market comprises a significant portion of Scottsdale’s hotel occupancy, especially on weekdays.
“If you’re out and about on the weekends, you probably feel like ‘gosh, there’s so many visitors’…but that meetings business is not yet back at full capacity and it’s going to take a while to get that back at full levels,” Pearson said.
Experience Scottsdale is seeing indications that those weekday visitors could be back soon, based on inquiries from business groups that typically bring that kind of traffic.
Pearson said that since March, the organization is seeing inquiries for future business travel opportunities back to pre-pandemic levels.
“They could be meeting months out or even a year out, but the leads and interest have returned to pre-pandemic levels, but it will still take a little bit of time to come back in terms of the actual occupancy,” she said.
Hotels in Scottsdale should be in a good position to recoup losses when that business returns.
That’s because the average rate charged per room did not change much during the pandemic even as occupancy plummeted.
According to Experience Scottsdale, the average daily rate in Scottsdale in 2020 was $204, about $88 higher than the Phoenix Metro and $100 higher than the U.S. market as a whole.
Pearson said hoteliers recognized that the drop in traffic was caused by COVID-19, not prices, so dropping room rates during the pandemic was unlikely to make a significant difference.
“I think our hotels – and maybe some of this is from their experience during the last downturn – they’ve really held strong on their rates,” she said. “I think many felt that you couldn’t sell your way out of the problem with just low rates and it’s much harder for hotels to get their rates back up than their occupancy.”
Experience Scottsdale is going into the last year under its current contract.
But while it has held the contract in various incarnations since 1977 when it was the tourism arm of the local Chamber of Commerce, Experience Scottsdale could face competition for the contract when it comes due next year.
Council recently directed city staff to put out a competitive bid and hired New York-based Clarity of Place to analyze its current contract with Experience Scottsdale.
The company also is charged with determining whether the city should continue its sole source contract with Experience Scottsdale or put it out for bid next year.
Karen Churchard, Scottsdale’s director of tourism and events, said Clarity of Place will evaluate the existing contract against similar organizations to determine if the city is getting its best return on investment.
While most contracts are required to go to that bid, the city procurement code allows for sole source contracts of up to five years if city staff determines there is only one available provider or if the award is in the city’s best interest.
According to the City Code, 50 percent of Scottsdale’s bed tax dollars are to be used for destination marketing.
Scottsdale’s base contract with Experience Scottsdale is worth approximately $10.8 million of the $21.6 million in bed tax the city is expected to bring in this year.
That will go into the organization’s coffers along with $189,100 to cover 50 percent of the costs associated with Fiesta Bowl and nearly $1.2 million in additional unanticipated bed tax collected last year.
For the next year, Scottsdale’s total contribution of $12.2 million will account for 74 percent of Experience Scottsdale’s total revenue.
That marks a substantial increase over 2019 (66 percent) and 2020 (64 percent).
Part of the city’s increased contribution could be due to decreases in Experience Scottsdale’s other revenue sources.
According to budget documents, Paradise Valley – which also has a DMO contract with Experience Scottsdale – saw its payments decrease from $1.8 million in 2019 to $900,000 annually in 2020 and 2021.
Overall, payments from non-Scottsdale sources dropped from $4.9 million in 2019 to $4.4 million this year.
The latest report to City Council shows that 67 percent of Experience Scottsdale’s $16.5 million budget will go to the programming, an eight percent increase over last year’s budget.
At the same time, the percentage of the budget going to personnel costs decreased by seven percent this year.
Pearson said the organization uses industry data to keep its annual expenses in line with industry norms and some of that decrease in personnel costs this year is connected to pandemic-driven layoffs.
The city’s contract with Experience Scottsdale requires the organization to keep non-program costs in line with industry norms.
An analysis of its 2019 budget ordered by Paradise Valley indicated Experience Scottsdale’s costs are par for the course.
According to the report from DMO Proz, Experience Scottsdale’s budget mix in 2019 was in line with averages for destination marketing organizations representing areas with similar hotel inventories.
When compared to luxury destinations like St. Petersburg, Ft. Lauderdale and Newport Beach, Experience Scottsdale spent about 2.6 percent less on personnel than the average.
The report found that Experience Scottsdale spent 2.2 percent less on personnel and one percent more on programming and administrative costs than the average spent by Nashville, San Antonio, Palm Springs and Phoenix – cities identified as Scottsdale’s biggest competitors for meetings and other events.