July 2, 2008 - --The tourism industry appears to be slipping for the first time in recent years, slowed by a potent cocktail of rising airfares and falling economic fortunes. And the slide is likely to intensify this fall as airlines slash their flight schedules.

Downtown Chicago hotel occupancy rates dipped to 65.2 percent during the first five months of this year, from 67.4 percent in the year-earlier period--the first erosion of strength in such a time frame since 2004, according to data from Smith Travel Research.

Nationwide, hotel occupancy dropped to 66.7 percent for those months, down from 68 percent in the year-ago period.

Coming off several strong years, hotels likely will see occupancy rates downtown and nationally drop by 2 percentage points this year, though prices should hold strong, said hotel industry expert Ted Mandigo.

Some observers see a potentially harsher scenario.

"This is the bow wave, and the rest of the wave will wash over," said airline industry analyst Robert Mann, president of R.W. Mann & Co. in Port Washington, N.Y. "Most of the effects won't be felt until after the big schedule cuts this fall."

The pain is expected to be most deeply felt in leisure destinations such as Las Vegas and Orlando, as airlines cut service more deeply to destinations that draw flocks of tourists seeking cheap flights, he said.

With high prices for heating fuel, consumers this winter will face the question "whether to heat, eat or fly," he said. "It will be heat and eat, not fly. Something's got to give."

The Chicago market may be bolstered somewhat by the convention business, if early signs of strength pan out.

Convention-related hotel bookings, which dipped in 2007, are expected to edge upward this year and next, though not quite as high as the banner year 2006, the Chicago Convention and Tourism Bureau reported Tuesday. The bureau, which books the business, made its report to the Metropolitan Pier and Exposition Authority, known as McPier, which owns and operates the center.

"We're not taking anything for granted," Mark Theis, executive vice president of the bureau, said after the McPier board meeting. But the bureau is hoping the convention business "will hold us afloat if the business or leisure travel markets get wobbly."

But even in the convention segment, there is anecdotal evidence of belt-tightening.

The Hyatt Regency McCormick Place saw a 1 percentage point drop in its occupancy rate for the first five months of this year, to 68 percent, according to John Belcik, chief financial officer at McPier, which owns the hotel.

"The hotel folks are noticing some occupancy rates are lower on the shoulders of events, with people cutting three-night stays to two-night stays," he told the McPier board.

And the convention bureau will be selling the city on a reduced budget in the fiscal year that started Tuesday.

A McPier five-year allocation of $1.5 million annually for marketing the new West Building just ended, reducing the bureau's budget to $14.1 million, a fraction of the budget for trade-show rivals Las Vegas and Orlando.

To adjust, the bureau cut seven jobs, though none in the sales force, Theis said.

So far, Chicago hotels "are holding pretty tightly to their corporate rates during peak use times," Mandigo said. But many are using "a lot of promotions and discounting and special pricing" for off-peak periods, he said.

Among the hotels rolling out promotions to attract families is the Four Seasons Chicago, whose weekend packages offer $125 credits against room rates or $200 credits against suite rates. Families also have access to Radio Flyer red wagons and Wii video game consoles, among other perks.

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