Is Demand Infinite?

by Susan on May 2, 2016

PCBI was born in Panama City, Florida and recently had the good fortune to spend several weeks there with my family during my move from Portland (Maine) back home to Atlanta. At every social gathering I attended during those two months, the hottest topic of conversation was Spring Break.

Traditionally, the month of March brings college students on Spring Break to the white sandy beaches. The beach gets busy in March and then cools down again until June and July. Business owners, hotels, and condos make most of their money in the peak months of March, June, and July.

In 2015, an increase in alcohol-related violent crime (rightly) shocked the community, provoking (justified) outrage that Spring Break had gone too far, so new restrictions were put in place for the month of March that were intended to curb the problem. The most reported of these restrictions was a new rule that no alcohol could be consumed on the sandy beach — during the month of March only. While I was there, I saw big digital signs in various places that read “No drinking on the sandy beach during the month of March,” and several photos of tank-like law enforcement vehicles parked at popular destinations made the rounds on Facebook.

This is all everyone was talking about while I was there.

One side of the argument was that by outlawing alcohol on the beach during the month of March, the community would change the type of people who came to visit. Rather than college-aged spring breakers, families would come to Panama City in order to enjoy themselves. The idea was that by shutting down one valve of business, the other valve would automatically open.

On the other side of this argument is of course the idea that there aren’t that many families who are available to vacation during spring break every year, not enough to sustain the businesses that have built themselves around the previous demand pattern.

So the question is, is demand infinite? Is it possible to shut down one type of demand and by virtue of that shutdown, open the other valve?

This reminds me of many arguments I’ve had with hotel operations folks who didn’t like serving particularly budget-conscious groups the sales team had booked. They’d say, “Why are you booking this terrible business? Why can’t you book groups that order lobster and caviar and throw tips around like confetti?”

Why indeed.

Why? Because while supply is relatively static over the course of a year, demand is relatively dynamic during that same period. Some months are busy, and some months are slow. Smart hotels book the best possible chunks of the available demand they possibly can at a given point – but they can’t magically produce new demand just because they want to.

Ask a hotel in Maine who stays there in January – it’s quite a different customer from the one who travels in July. When demand is high (the weather is good, there are fun things to do, and travel isn’t threatened by snow), lots of people want to be in Maine, so hoteliers can pick and choose who they accommodate. When demand is low, like in January, only a very few intrepid travelers are coming to Maine, mostly because they have business to get done, and hotels take what they can get.

Here’s an analogy. Football games are played during football season (news flash) starting around Labor Day and lasting through the Super Bowl. If you want to watch a football game, you have to free up your schedule on the day it’s happening, which is why many Southern brides watch the college football schedule carefully before booking a wedding venue. You can’t call up Jimbo Fisher and say, “Hey listen, Jimbo, I’d like for the FSU/UF game to happen on March 1 because it is more convenient for me.” Ladies and gentlemen, you can’t bend the natural trajectory of supply and demand to your whims.

In the same way, the citizens and business leaders of Panama City Beach can’t say, “Look, world, we’d really like to continue to have March be our third-busiest month of the year, but we’d prefer not to accommodate the folks who like to come here in March. Could you reschedule your lives so that your vacations happen in March rather than when you have it planned? Oh, and can you also come back again in the summer when you’d ordinarily be here? That would be great.”

The numbers are in for Panama City Beach. The Tourist Development Council released March bed tax numbers, and they are down 41% as compared to March 2015. That’s about $40 million in top-line revenue that did not make it’s way into the PCB economy in March of 2016, plus another 21% drop in retail sales tax.

I think that’s our answer, folks – demand is not, in fact, infinite. Stay tuned for my thoughts on how Panama City Beach can recover from this massive fiscal wound.

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