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The Honolulu Advertiser
Posted on: Thursday, October 11, 2001

The September 11th attack
Report confirms downturn for Hawai'i hotels

Advertiser Staff and News Services

Hawai'i's hotels have been hit harder by a drop in demand after the Sept. 11 terrorist attacks than the overall U.S. lodging market, and will recover slower because of the Islands' dependence on air travel, a report by Ernst & Young said.

Nearly empty Kuhio Beach reflects the low occupancy at hotels after last month's terrorist attacks on the Mainland. In the week following the attacks, occupancy rates for Hawai'i's hotels dropped as much as 52 percent from a year earlier.

Advertiser library photo • Sept. 17, 2001

In the week following the attacks, occupancy rates for Hawai'i's hotels dropped as much as 52 percent from a year earlier, while overall U.S. hotel occupancy fell 26 percent, Ernst & Young said, citing data from Smith Travel Research.

Revenue per available room, a measure of demand based on occupancy and average room rate, fell as much as 54 percent in Hawai'i, the biggest drop since the Gulf War in the early 1990s, as U.S. and Japanese airlines cut flight schedules by as much as 20 percent.

The state's top economic development official said yesterday that unemployment claims among the Islands' hotel workers have ballooned to 20 times last year's level, and Hawai'i could face its steepest economic decline a month after terrorists attacked the United States.

In the two-week period following the Sept. 11 terrorist attacks, 3,607 workers in hotel and related industries filed for unemployment benefits. In the same period one year ago, there were 184 applicants.

"Some of it is plain old logistics," said Jeff Dallas, head of Ernst & Young's West Coast hospitality practice. "You're a destination that's fairly dependent on two economies and when both are in a weak position, you're going to curtail demand."

"The main access — airlines — are in a state of flux," he said, "so you're not only curtailing demand but giving people less opportunity to get there."

The state's $11 billion tourism industry accounts for a quarter of the Islands' economy and a third of its jobs.

Before Sept. 11, Hawai'i's lodging market performed above 2000 levels. Revenue per available room was 3 percent higher in August than a year earlier. Occupancy, which was at 78.4 percent in August, fell to an average of about 50 percent after the terrorist attacks.

Maui was "very, very quiet" between Sept. 18 and Sept. 24, said Coby King, president and chief executive of CrossPoint Advisors a Los Angeles-based public relations firm specializing in real estate. Coby, who vacationed there with his family, said restaurants didn't require reservations and there were no lines at an aquarium they visited.

"Normally, the streets are crowded and we would be worried about our children being jostled and knocked down," he said. "We didn't have those concerns."

O'ahu may be slower to recover than the rest of the state because of its dependence on tourism from Japan, Ernst & Young said.

Almost half the visitors to O'ahu are from outside the U.S. — and most of those are from Japan.

Japan Airlines said it is cutting 20 percent of its weekly flights to Hawai'i for October and November. Japanese arrivals to Honolulu were down more than 50 percent at the end of last week from a year earlier. A year ago, 5,000 to 6,000 Japanese tourists arrived in the Islands each day. Since the attacks, inbound tourists from Japan number 3,000 to 4,000 daily.

U.S. travelers account for up to 80 percent of visitors to Maui and Kaua'i, which may hasten those islands' recovery, the consulting firm said. Arrivals from the U.S. were at 80 percent of their usual levels last week.

In rebuilding its tourism industry, Hawai'i will have to contend with "aggressive competition" from U.S. destinations, including Disneyland in Anaheim, Calif., Disney World in Orlando, Fla., and Las Vegas, Dallas said.

Hawai'i's hotels are offering discounts and such incentives as meal credits, free cars and free air fare between islands, said Michael Paulin, past chairman of the Hawaii Hotel Association and co-chairman of Castle Resorts & Hotels, a unit of Castle Group Inc.

Castle, which has 15 hotels throughout the Islands, is concentrating its incentives on the local market by offering such things as free tanks of gas, Paulin said.

The Ala Moana Hotel, between downtown Honolulu and Waikiki, is offering a rate of $89 a night this month, according to its Web site, down from the normal rate of $155.

Paulin said he expects revenue to drop 40 percent this quarter but to return to normal levels around next July. He said the lodging market experienced its best year after the Gulf War, so the end of the current conflict may give it a similar boost.

"I'm hoping latent demand will be created to kick us off when it's over," Paulin said.