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The Honolulu Advertiser
Posted on: Wednesday, March 21, 2001

Tourism industry bracing for rough year

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, that's when Mark DeMello got 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 record-breaking island's extra efforts.

A fear that began as a whisper in Hawai'i's tourism industry late last year has gained full voice in the past few weeks, as a plunging U.S. stock market, a growing energy crisis, looming airline strikes and a plummeting yen have conjured up images of the state's last great tourism slump in 1991, and pushed Hawai'i 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, who has seen a decade of double-digit annual growth shrivel to zero so far this year.

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

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

May stay away

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 had helped make the millennium year so strong. But the recent implosion in the U.S. and Japanese economies could make the shortfalls even shorter, many said, and they 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 begun moving a lot of 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 percent to 19 percent, Vieira said, and hotels themselves are also 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, coming in at less than 3 percent. The trend is likely to continue in Hawai'i, said Joseph Toy, chief executive officer of Honolulu-based Hospitality Advisors. Room revenues in Hawai'i last year reached a record $2.7 billion, but softer rates and occupancy could hit the state 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."

Business cutbacks

Businesses have already 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 also begun cancelling meetings.

Maui, a favorite destination for tony 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, where she was 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 may remain stable, though, some experts said, with events holding steady, but the number of attendees slipping.

"Travel is the second-biggest cost item for most companies," said Peter Shure, editor in chief of the conventions 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 trend seems to be holding in Hawai'i, where the Hawai'i Convention Center has held onto its 22 bookings for the year, but has shown weaker-than-hoped for attendance — exactly half of last year's.

Convention Center

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

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

Japan's No. 1 travel operator Japan Travel Bureau is banking on 5 percent growth in the Hawai'i leisure market, said JTB Hawai'i president and chief executive officer Takashi Kitamura. That would be about half of last year's growth rate. The 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 showed similar performance in 1997, dropping from 112 in October 1996 to 123 to the dollar by February, Hawai'i retailers saw a 4 percent decline in per-person spending from 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 25 percent 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."

Keeping commitment

But 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 compared with 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 their week-long stay at Maui's Kea Lani Resort in 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 such as the Nemirovs are the least likely to be deterred, said local and national tourism experts. But while they are welcome — and actually drove last year's records — 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?" Wienert said. "Probably not. 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.