Posted on: Wednesday, March 21, 2001

Tourism outlook turns bleak

By Michele Kayal
Advertiser Staff Writer

When the Maui Visitors Bureau started tramping across the Mainland to promote the island six months ahead of schedule, it made Mark DeMello nervous.

"When you see Maui aggressively selling during the first quarter, it's probably cause for concern," the general manager of the Waikiki Parc Hotel said of the extra effort.

A fear that began as a whisper late last year has turned into a shout in the past few weeks as a plunging U.S. stock market, growing energy crisis, looming airline strikes and plummeting yen have conjured images of the state's last great tourism slump, in 1991, and pushed tourism executives to say out loud what many had only been thinking: 2001 is going to be rough.

"If we were having a conversation three months ago, it still looked pretty good, but the change in the economy has really been breathtaking," said Rick Garrett, president of California-based Happy Tours Vacations, which has seen a decade of double-digit growth shrivel to zero so far this year.

The last time it was this bad? "The Gulf War," he answered without hesitation.

Federal Reserve Chairman Alan Greenspan swung into action yesterday with the third half-point cut in a key federal interest rate this year, but it was unclear whether that would be enough to slow the economic decline. The Dow Jones industrial average closed its worst week in 11 years on Friday, and the Fed last week revealed that U.S. households lost 2 percent of their net worth last year, the first annual setback in 55 years.

In California, which supplies roughly half of all Hawai'i's Mainland tourists, rolling blackouts continued to rile businesses this week as the Bush administration unofficially upgraded the country's energy situation to a "crisis."

And in Japan, the second-largest supplier of Hawai'i tourists after the Mainland, banks revealed piles of bad debt as the Nikkei average sank to a 16-year-low and the yen plumbed alarming depths. It hovered yesterday around 122 to the U.S. dollar.

Many local executives say they never expected this year to match 2000, which broke records for visitor arrivals and hotel revenues. And many have known for months that 2001 was lacking in the meetings and conventions business that helped make the millennium year strong. But the recent implosion in the U.S. and Japanese economies could worsen the shortfalls, many said, and executives are scrambling to salvage what they can by increasing marketing budgets and offering greater incentives to travelers and sales partners.

"We have a lot of concerns, and I would say they're serious concerns in looking at the remainder of 2001," said Keith Vieira, Hawai'i

director for Starwood Hotels and Resorts Worldwide, which has been shifting second-half marketing money to the front of the year. "We're doing everything possible to increase activity."

Many wholesale tour operators, who buy large blocks of hotel rooms to sell to travel agents, are down on future bookings by 10 to 19 percent, Vieira said, and hotels also are seeing softness.

U.S. hotel industry profits are expected to grow at their slowest rate since 1992, according to a new report by PricewaterhouseCoopers' hospitality consultancy, less than 3 percent. In Hawai'i the trend is likely to continue, said Joseph Toy, chief executive officer of Honolulu-based Hospitality Advisors. Room revenues last year reached a record $2.7 billion statewide, but softer figures could show up as early as this month, Toy said.

"It will certainly be noticeable, probably starting with the March occupancy figures," Toy said. "How much lower remains to be seen."

Businesses have begun belt-tightening, according to national reports, with many companies cutting back on travel, banning first-class flying, booking cheaper hotel rooms and asking executives to stay over a Saturday night. Some have begun cancelling meetings.

Maui, a favorite destination for toney corporate meetings, lost an unheard-of eight events in the first two months of the year, said Marsha Wienert, executive director of the island's visitor bureau.

"Very few fall out once contracts are signed," she said from New York, en route to Toronto, the next stop on a marketing blitz. "But contracts were signed, and we actually saw them in some cases paying cancellation fees."

The conventions business appears to be remaining stable, some experts said, but the number of attendees is slipping.

"Travel is the second-biggest cost item for most companies," said Peter Shure, editor-in-chief of the trade journal Convene. "So on the corporate side they cancel meetings, but they say we'll still go to Convention XYZ, but instead of sending six people we'll send three."

That seems to be the case in Hawai'i, where the Hawai'i Convention Center has held on to its 22 bookings for the year, but shown weaker-than-hoped-for attendance ­ half of last year's.

In 2000, the center saw 29 out-of-town events with 106,000 attendees. This year the 24 events booked will deliver only 53,000 attendees. The Hawai'i Visitors and Convention Bureau, which markets the center to offshore groups, had hoped to lure 31 events and 106,000 attendees this year, said executive director Tony Vericella. Four tentative bookings may still come through, Vericella said, adding 20,000 people to the rolls.

In the Japanese market ­ still fitful after falling from its peak in 1997 ­ business looks strong through the Golden Week holiday in April-May, according to Hawai'i's two largest Japanese wholesalers, but after that it's a roll of the dice.

Japan Travel Bureau, the nation's No. 1 travel operator, is banking on 5 percent growth in the Hawai'i leisure market, said JTB Hawai'i president and chief executive Takashi Kitamura. That would be about half of last year's growth. Japanese group tours, which account for about 30 percent of JTB's business to Hawai'i, could shrink as much as 10 percent from last year, Kitamura said.

"The last couple of months the situation has drastically changed," he said. "We enjoyed a high increase in the last year, but after February it seems that everything is going down again.

"If the yen becomes stronger, around 110, it would be OK," he added. "But if it keeps going this way and stabilizes around 120 or 125 or 130, then it will hurt us very much."

When the yen weakened in 1997, from 112 to the dollar in October 1996 to 123 by February, Hawai'i retailers saw a 4 percent decline in per-person spending among Japanese visitors, according to data from OmniTrak Group. Some local retailers have predicted more precipitous declines this time around.

"If the currency rate doesn't improve, and the economy doesn't improve, I think we're going to be down at least 10 percent," said Robert Taylor, chief executive officer of Maui Divers, which gets a quarter of its revenues from the Japanese market. "I haven't run into too many retailers who are smiling right now who sell to Japanese visitors."

However, the urge to splurge appears to be the last thing flagging. The Washington, D.C.-based Travel Industry Association reported last week that pleasure trips will increase almost 2 percent this spring over last year, and some reports say cruise lines are getting a record number of calls.

Louise Nemirov and her husband Steven, a Los Gatos, Calif., physician, have already booked a weeklong stay at Maui's Kea Lani Resort for February 2002, which they expect to cost about $7,000 for them and their two children.

"We do have insurance on it, so if something happens that would change our financial status to where we would say we just can't spend the money, I'd just call and say we can't do it," she said. "We'll have to see what happens in the next year."

High-end travelers like the Nemirovs are the least likely to be deterred, tourism experts say. But while they drove last year's record highs, they might not be able to fill the gaps this year.

"We will do everything we can to increase business, but can we bring it to the level of last year? Probably not," Wienert said. "But you make the effort. But everybody's got to face reality. We've got too many outside factors running against us."

Michele Kayal can be reached by phone at 525-8024 or by e-mail at mkayal@honoluluadvertiser.com.