Convention Center at agency crossroads
By Katherine Nichols
Advertiser Staff Writer
Coconut palms brighten the interior of the Hawai'i Convention Center, where the outdoor feel is complemented with soaring glass walls that offer a stunning view of the mountains. Elegant meeting rooms boast the latest high-tech accommodations. Impressive architecture is the final touch on what should be one of the most desirable meeting locations in the world.
The Convention Center, built in 1997 at a cost of $350 million, was billed as a critical boost to Hawai'i's economy, allowing the Islands to better tap into the lucrative market of business travelers who generally stay longer, spend more money and could influence more meeting professionals to gather in the Islands.
But now the facility is facing what may be one of its most crucial times even as it finds itself facing increasingly fierce competitors in a $52 billion nationwide industry that has suffered with an economy that had begun to slow even before the Sept. 11 attacks.
Marketing and management of the center — under two separate agencies, the Hawai'i Visitors & Convention Bureau and Philadelphia-based SMG — is set to change under recently passed state legislation set to take effect Jan. 1. At the same time, the state's transient accommodations tax has declined along with visitor expenditures in the state, leaving less money to pay the center's substantial debt service. And critics note that the number of conventions — and booking pace — have fallen short of the center's goals.
Still, some in the industry say the center has been invaluable in drawing visitors and money to the Islands that would never have landed here without it.
"We are better off having the Convention Center because now we're a player," said Roberts Hawaii media spokeswoman Sam Shenkus, who also admitted the center has meant minimal increases in business for the transportation and tour company. "We have the opportunity to bring major groups to O'ahu. We've not been able to do that before."
Expectations for bookings
Evaluating the effectiveness and economic impact of the center is at the heart of the new changes and longheld criticisms.
The Hawai'i Visitors & Convention Bureau, which has a $4 million annual budget dedicated to marketing the center, says the conventions it has attracted in the past four years have brought an estimated $2.4 billion in visitor spending to the state.
This year, the center is expected to be host to 30 off-shore events with about 100,000 attendees, up from 22 off-shore events last year, and close to the record of 31 conventions in 2000.
While the pace of booking conventions has picked up this year — with 28 offshore bookings through June — only 30 offshore meetings were booked last year for future years, far short of the center's goal of booking 52 that year. And far short of goals set in 1999 by the Hawaii Tourism Authority that the bureau book a total of 180 off-shore conventions averaging 4,500 people per event from 2000 to 2004.
"I think we'd hoped and wanted to have it more fully booked," said Donna Mercado Kim, D-15th ('Aiea, Kalihi Valley), chairwoman of the Senate committee on tourism and intergovernmental affairs who spearheaded the legislation that will change the way the center is marketed and managed.
And ultimately, measuring the center's economic benefits remains an imprecise science and a source of debate. Booking goals get adjusted, and not all conventiongoers actually meet the formula used to estimate economic impact: Did the reported 1,000 students who came to Hawai'i Convention Center to take the two- to three-day certified public accountants' exam really each stay 10 days and spend $154 a day?
Chuck Gee, international tourism consultant and dean emeritus of the University of Hawai'i School of Travel Industry Management, thinks it might be time to shake up the system: "Since the last four years have not been exactly an overwhelming success, well, why not try something?"
Shaky beginnings
Like most convention centers in the country, Hawai'i's is a money-losing operation. Gross total expenditures amounted to $12.2 million in fiscal 2002, while revenues hovered at previous-year levels around $8 million.
The difference — plus the center's debt service, nearly $332 million of which is still owed — is paid by 17.3 percent of the transient accommodation tax collected, which this year is projected to fall to its lowest point at $157 million.
Despite the costs, many in the industry believe it's a vital component to the state's travel industry and economy.
"Without it, the city would be severely handicapped," said David Carey, president and chief executive officer of Outrigger Enterprises, parent company of Outrigger Hotels & Resorts.
If a group anticipates 5,000 attendees, a center-less Honolulu would not make the list. Even if the group experiences enough attrition to render the center too large, the center sold the group on Honolulu; so maybe the group chooses to hold its meeting at the Hilton instead — it still brings business to the state that would otherwise have gone elsewhere.
"That happens more than you know," Carey said.
Many believe the lack of consensus that surrounded the center from its beginning — political disputes over its location, size, community image and survival as a standalone facility without a connecting hotel that bogged down the project nearly a decade — diluted any edge the state might have had in an increasingly competitive market.
But operators of competitive convention destinations that fill more hotel rooms and generate more for their economy — often on a smaller budget than the $4 million devoted exclusively to marketing Hawai'i's center — are among the first to admit that Hawai'i faces a uniquely daunting challenge because of its remote location.
"Being a destination on the Mainland is a whole lot easier to sell," said Kevin Kamenzind, vice president of sales and marketing for Citywide Conventions with the San Diego Convention and Visitors Bureau.
Hawai'i must battle the perception that shipping costs are high, airfare is high and space is limited, and the distance makes time away from the office or home too lengthy. Hawai'i marketing officials are also quick to point out that a facility like San Diego's, with three times the amount of meeting space that Hawai'i's center has, can draw larger groups more easily.
Kamenzind would not disclose the amount San Diego spends each year to market its center, but said it was far less than $4 million. San Diego hosted 49 conventions last year, with 293,000 attendees.
"It would be difficult to compare the marketing effort," he said.
Improvements, new plans
Local events have helped the center. SMG, the company that manages the center under the direction of Iolani graduate and San Diego Convention Center veteran Joe Davis, booked 160 local events in fiscal 2002. Charged with drawing groups that want to book and hold the event within 13 months, SMG has a staff of four and had a fiscal 2002 marketing and administration budget of $436,704.
Also under SMG, operation of the center appears to be gaining ground.
"It seems to me, when you look at the budget numbers, the cost of running the Convention Center has decreased," said Pearl Imada Iboshi, the state's chief economist.
Among other efficiencies, SMG is monitoring rooms more effectively, turning off lights and air conditioning, and closing doors to preserve cool temperatures when rooms are not in use — so much so that even the electricity bill dropped to $909,000 in fiscal-year 2002 from $1.1 million in fiscal-year 2001, said Joseph Scheper, the center's director of finance.
What SMG thinks it does best is "execute the basics," said director of marketing Randy Tanaka. "We take care of the customers when they're in the building. We network with our hotel partners and gather intelligence from our SMG partners."
But now, after four years of marketing and booking their own niches for the convention center, SMG and the Hawai'i visitors bureau find themselves in what could be competition under the new legislation.
While the new legislation calls for a single entity to market and manage the Hawai'i Convention Center, it's unclear whether it could be SMG or the bureau — both of which report to the tourism authority. One entity subcontracting to another — essentially maintaining the current working relationship — also remains a possibility.
Many hope that any consolidation of these efforts might result in better service to clients. Details of each deal-making promise won't slip through the cracks, and clients will never be passed around based on when they might book.
"We're just hoping that if there's one entity solely concentrating on the Convention Center, it would be more successful," said Kim.
The concept of managing and marketing the Center under one entity, while not common around the country (New York is the only example of a major convention center where the operator also handles marketing), is an idea long bantered about in Hawai'i. It seemed the objective when the Convention Center Authority was dissolved and the center moved under the auspices of the tourism authority in 1999.
Proponents of putting SMG at the helm say that as managers of 35 convention centers around the world, SMG understands all aspects of the business, including marketing.
But others say SMG as the major marketer might create conflict. Would SMG be put in the position of pulling business from other centers it manages? And even Gee said that the visitors bureau's reach and relationships with clients — established over decades in the marketing business — cannot easily be replaced.
Davis and Tanaka said they think the current marketing/managing system has worked well and they did not lobby for change.
They said they will, however, present a marketing plan to legislators when asked. In the meantime, they refuse to speculate about how it might all play out.
"We're really spending our time on the business rather than 'what ifs' at this point," said Davis.
The Hawai'i Visitors & Convention Bureau is less patient, wondering if its 18 people devoted to the meetings, conventions and incentives market will continue their jobs unchanged, search for new employment, start work for SMG as a subcontractor, or, if legislation would allow, take over the management and possibly subcontract out to the SMG staff.
"One way or another, somebody would have to ramp up," said Tony Vericella, president and chief executive officer of the bureau, emphasizing that no single entity could handle both jobs without significant changes.
The bureau has emphasized that selection of a convention site is based on a comprehensive bid package. This is most effectively presented by the visitors bureau, which cost-effectively integrates its leisure and convention marketing, selling not just a facility but the entire destination.
Solutions
No matter how management and marketing issues proceed, what seems to have been reluctant cooperation between SMG and the bureau must evolve to collaboration.
Getting an accurate number of bookings at any given time can be challenging, and debate about whether SMG or the bureau closed the deal doesn't always seem the result of innocent confusion.
But both groups realize the center can be a key component of the state's economic engine, and they seem ready to put any differences aside to work toward growing the meetings, conventions and incentives market from 15 percent of total visitor expenditures in 2000 to 30 percent by 2005.
It will be essential, say experts, to clearly define the roles of each group, then obtain a steadier flow of midsize groups of 5,000 people that more effectively fill in the shoulder periods.
To monitor this new system, as well as the value of each event and how marketing dollars are spent, more rigorous evaluations should be conducted by a "nonpartisan analyst" so attendance and expenditure numbers don't get inflated, said Ira Rohter, associate professor of political science at the University of Hawai'i.
Most analysts agree that hopes remain high for the impressive structure. Change is coming. And nobody has given up.
As Gee said, "It's a promise waiting to be fulfilled."
