Posted on: Wednesday, September 12, 2001

America's bloodiest day

Islands' economy may slow in wake of attacks

By John Duchemin
Advertiser Staff Writer

Hawai'i's economic climate will probably worsen after yesterday's terrorist attack, though the severity and duration of ill effects is still uncertain, said economists and other observers.

The immediate loss of air travel, cancellation of at least one pending corporate summit, and disruption of hotel business is sure to cost millions of dollars in the near future.

Observers also cited several long-run concerns: People may be more afraid to fly, a downturn in financial markets could cause a recession in the already slow U.S. economy, and global uncertainty could cause governments to discourage flights to the United States, as Japan did during the Persian Gulf War in 1991.

"Such a huge, traumatic event is bound to have a negative impact, but it's far too premature to speculate on what that will be," said Leroy Laney, a finance professor at Hawai'i Pacific University and economics consultant to First Hawaiian Bank.

One thing is clear: Tourism, the state's biggest economic driver, can't get better because of the attacks. In the near term, Hawai'i must cope with tens of thousands of tourists stranded in hotels, thousands more halted en route and hundreds of inadvertent guests from international flights stopped in Honolulu.

"Every day (without air travel) impacts us," said Outrigger Enterprises spokesman Jim Austin. "But right now our biggest concern is the safety ... of human life. Right now money isn't an issue."

After that, the visitor industry has to figure out how much travel will drop, and for how long.

So far, trip cancellations have been few, Hawai'i travel agents said.

"A lot of people are frightened, but I think they're going to wait and see what happens," said Sharon Lester, manager at International Travel Service in Honolulu.

Meanwhile, the meeting business will probably take a hit. The Hawai'i Tourism Authority indicated that many corporations may decide to cancel planned Hawai'i conventions and meetings in the months to come — though it's too soon to tell for sure, said Bob Fishman, the authority's chief executive officer.

"What we do know is, it's tougher for everyone to market tourism today than yesterday," Fishman said.

Nationwide, tourism analysts said yesterday's attack could chill the industry worse than the Gulf War, during which Hawai'i lost about a quarter of its visitor traffic from terrorism fears and U.S. commandeering of isle-bound airliners.

"There's never been anything in terms of a precedent for this. This is likely to be the worst year in the history of the lodging industry," said Bjorn Hanson, chairman of PricewaterhouseCooper's lodging practice. "It makes the 1991 fears of terrorism pale in comparison."

A Japan Airlines executive agreed.

"In 1991, there was the Gulf War halfway around the world, but because the terrorists threatened to bomb airports, that slowed down travel," said spokesman Gilbert Kimura. "Because this tragedy occurred because of a hijacking of airplanes and using that plane for an attack, I have a feeling it will have severe consequences."

But several local observers likened such dire predictions to Chicken Little's claim the sky is falling, and said that knee-jerk gloomy forecasts should be discounted until more data is available.

"It's really too early to conjecture whether this terrorist act really represents the kind of event that leads to a Gulf War-type impact," said Paul Brewbaker, chief economist at the Bank of Hawai'i. "We should think about how to deal with that risk, but we should also be careful not to cause a negative response."

As it stands, the Hawai'i economy may be too strong to push into a recession this year, Laney and other economists said. After a strong 2000, Hawai'i's economy has stayed afloat this year, with slower but positive job growth, unemployment slightly up and gross state product growth forecast around 2 percent.

The state has largely avoided the brunt of the U.S. slowdown, which has had more impact on telecommunications companies and high-tech centers like Silicon Valley than on service-oriented states like Hawai'i.

But Hawai'i would have cause to worry if the terrorist attack proves depressing to American consumers' confidence, because the spending of U.S. tourists is a key driver in recent economic growth, Brewbaker said.

A slowdown in overseas travel would also cause problems, Gov. Ben Cayetano said. Cayetano noted the absence of Japanese tourists during the Persian Gulf war, and said that if his planned trip to Japan later this month is not postponed, "we will do everything we can to assure them that they should continue to come to Hawai'i."

Advertiser staff writers Kevin Dayton and Michele Kayal, and Bloomberg News contributed to this report.