Arizona will ring in the next millennium with celebrations as dramatic as those at America’s
Grand Canyon and the red rock country of Sedona, adding to the usual influx of tourists
during what typically is called the fall and winter “snowbird” season, when the state plays host to northerners in search of a warmer climate.

True to its name, Phoenix, the state’s capital, will rise to the new millennium with the grace
and style that epitomizes its history of elegant 5-star resorts, celebrated golf courses and western charm. The city will host the “Celebration of the Century,” encompassing a 12-block section of the downtown area recently revitalized as a sports and entertainment center. Featuring musical acts spanning six decades and an elaborate fireworks display, the city estimates a crowd of 500,000 will attend the street party. With major concerts at the America West Arena, home of the Phoenix Suns professional basketball team, and Bank One Ballpark, where baseball’s Arizona Diamondbacks play, downtown Phoenix promises to be “party central.”

Near Phoenix, Tempe, home to Arizona State University, will expand its traditional New Year’s Eve Block Party that coincides with college football’s Fiesta Bowl game. Ranked by USA Today as one of the top eight places in the country to spend New Year’s Eve, activities in Tempe will include 40 bands on five stages, fireworks, carnival rides, a pre-game pep rally, and more than 50 souvenir and food booths.

Resort packages are commanding premium prices. Indeed, the Los Abrigados Resort & Spa in Sedona tops the list with a US$19,999 package for four that includes a psychic reading, custom-made jewelry and artwork. Phoenix’s Arizona Biltmore follows with a US$10,000 four-night package for two that includes musical performances by the Temptations and The Righteous Brothers.

Professional sports, golf and gaming attract tourists 

While these festivities are sure to boost tourism during the fall and winter snowbird months, Arizona is a hot destination in more ways than one. The state attracts both leisure and business travelers not only because of its mild winter weather, but also because of its diverse geography, which includes the Grand Canyon, and outdoor sports.

More than 12 million people visit Phoenix each year, making the city one of the top tourist destinations in the U.S. While the industry employs more than 175,000 in Phoenix alone, 30 million travelers passed through Sky Harbor International Airport in 1998.

Sports are fast becoming one the state’s top industries. In its inaugural season in 1998, professional baseball’s Bank One Ballpark contributed US$300 million in statewide economic impact. Add other professional sports franchises—basketball’s Phoenix Suns and Phoenix Mercury, football’s Arizona Cardinals and Arizona Rattlers, hockey’s Phoenix Coyotes, college football’s Fiesta Bowl and auto racing’s Phoenix International Raceway—and the numbers mount.

And then there is Arizona’s #1 sport—golf, which contributes an estimated US$5 billion in the state annually. While Arizona is typically ranked as one of the top five golf destinations in the U.S., the National Golf Foundation recently referred to Phoenix as “The Golf Capital of the World.”

Indeed, nearly 500,000 visitor and resident golfers have a choice of more than 300 courses statewide.  Professional golf’s Phoenix Open boasts the highest attendance of any PGA tournament, drawing more than 400,000 fans and contributing US$75 million to Arizona’s economy each year.

Meanwhile, the growth of casino gaming on Arizona’s Indian reservations adds more than US$128 million to the state’s non-Indian economy. And, there is talk of building 4- and 5-star resorts adjacent to the casinos, which would further boost the tally.

Competition and redevelopment among many challenges ahead 

In the midst of all this tourism sunshine, the hospitality industry has a few clouds on the horizon. A 7.3% growth in room supply outpaced the 5.5% in demand growth during the first quarter of 1999. As a result, occupancy was down 1.7%, while the average daily room rate declined by 0.5%. The good news is that projections call for this disparity in supply and demand to rectify itself in the coming year. Other challenges include:

New competition: Competition poses a more significant problem for Arizona, as Las Vegas mounts a strong campaign to attract Arizona’s golf, gaming and Grand Canyon visitors. It is difficult to compete with Las Vegas’ US$160 million tourism budget, when Arizona only funds US$8.6 million. Arizona will be forced to consider alternatives, such as private funding through the hospitality industry itself, in order to keep competition from chipping away at its market share.

Outdated convention facilities: While downtown Phoenix is rejuvenated and booming, the city is struggling with selling itself as a convention destination. Phoenix Civic Plaza’s convention facilities have fallen behind their counterparts in other major cities. A recent market study recommended doubling the facility’s size—a major renovation. The city also is looking to the hospitality industry for funding ideas and will likely use its bed tax to pay for the project, but it will need some creative thinking to fit any expansion into the landlocked site.

Downtown rooms shortage: Another critical issue is the shortage of downtown hotel rooms.  Only 1,600 rooms exist within a five-block radius of the downtown area, forcing conventioneers to stay in outlying areas. Proposed Marriott and Embassy Suites hotels would add more than 1,000 rooms, but those projects are on hold pending a lawsuit contesting city financing from another downtown hotelier.

New stadiums: The development of a hockey arena for the Phoenix Coyotes in Scottsdale and a new football stadium for the Arizona Cardinals for Mesa, West Phoenix or Indian reservation property are currently political hotbeds. When and if those venues are realized, they will not only add to Arizona’s tourist attractions, but a new football stadium could mean another Super Bowl for Arizona—a huge tourist draw.

The good news is that Arizona never stands still. Plans include four proposals for theme parks in rural areas of the state, the City of Phoenix expanding Sky Harbor Airport by 200 acres to accompany its runway expansion already in progress and new light rail transit system to ease highway congestion and make downtown more accessible.

The Grand Canyon Railway already has bolstered tourism in Flagstaff and Williams, and this group looks to profit from the addition of its own airline and the possibility of a light rail system on the South Rim. In Tempe, the Rio Salado project will offer a man-made lake, golf facilities and a new hotel to add to the Valley’s recreation area. Scottsdale will have to regroup after the proposed canal-like redesign of its downtown area failed at the polls.

Moving forward, Arizona’s hospitality industry would like to leave behind over-development - especially in the limited-service sector - cuts in the tourism marketing budget, and constant debate over stadiums, arenas and downtown hotels.

The industry has a lot to look forward to in the new millennium, including increasing tourism demand and maximizing the impact of an already powerful golf and sports market. And casino gaming expansion and the possibility of 4- and 5-star resorts on Indian reservations can only help Arizona compete with Las Vegas.

Taking advantage of the increase in its healthy tourism base, growth of the time-share market, new convention and sports facilities and technological advances in reservations and planning systems should ensure Arizona’s hospitality industry a profitable new millennium.

(Al Hague and Dan Nahom are partners in Arthur Andersen’s Hospitality and Leisure Services practice in Phoenix.) 

©Arthur Andersen