Uncertain tourism outlook dampening economy

By John Duchemin
Advertiser Staff Writer

As chief executive of Marc Resorts in Hawai'i, Matt Delaney tries to plan a few months ahead, but lately he has had trouble.

The Diamond Head Beach Hotel is undergoing renovations in anticipation of the long-awaited turnaround in Waikiki tourism. Deborah Booker • The Honolulu Advertiser

"Things are fluctuating so much, and we don't know when it's going to turn around," said Delaney, who runs Marc Resorts' 17-hotel Hawai'i division. "This makes us all incredibly nervous."

Nervousness has become ingrained in Hawai'i tourism since the Sept. 11 terrorist attacks and the subsequent shocks. Surrounded by mixed economic signals, global instability, and changed visitor travel patterns, many Hawai'i tourism businesses continue to hunker down, spending as little as possible, hiring as few people as possible and cutting out speculative ventures.

The effect of that uncertainty in the state's $10 billion tourism industry is dampening the entire economy. While there are some bright spots such as the business services industry and the state's booming residential real estate and construction markets, the changes in Hawai'i's biggest industry, by their sheer magnitude, are cutting into overall job growth and rippling into other sectors such as retail and transportation.

Most forecasters say key signs are showing the Islands' economy has stabilized and probably has emerged from a mild recession, with a further rebound likely the remainder of this year, but growth is far from robust, and expectations are that without any major changes in the state of tourism, the gradual economic growth pace will continue for the rest of the year.

Still cagey

Ronald Fronda checks the Alii Kai’s bar supplies before the start of a dinner cruise. The volume of business is difficult to predict far ahead. Deborah Booker • The Honolulu Advertiser

Tourism officials, burned by a slow winter and remembering the tourism-shock caused by the Gulf War, factor this uncertainty into their planning — and come away with a very unclear forecast.

"The thing that concerns me is fear of a second major terrorist event," said David Carey, president and chief executive of Outrigger Enterprises Inc., the parent company of Outrigger Hotels & Resorts. "There's still a doubt factor as a result of 9/11, and it's affecting a certain portion of travelers."

The situation is worsened by a trend among travelers these days toward impulse buying, which renders long-range forecasting more difficult than ever for industry executives. In recent years, the "booking window" — the time between a traveler's reservation and actual trip — has shortened dramatically as more customers get last-minute deals on the Internet. Hotels could once forecast several months' activity based on advance reservations. No longer.

"Ten years ago, I could tell you today how August was going to be," Carey said. "Today I'd have a pretty good shot at the next two weeks in June."

After Sept. 11, the booking window has gotten even shorter. As hotels and travel agents resort to same-week bargain specials to fill empty plane seats and hotel rooms, many would-be travelers are making reservations mere days in advance. A recent American Express survey found that 48 percent of travelers in 2002 are waiting until the last minute to book trips.

One side effect is lower room charges, particularly in Waikiki, where widespread discounting has lowered the average daily rate to $109 in April, down from $117 the same time last year.

Hotels dislike this trend — it eats up valuable revenues — but no one will raise rates until volume increases, Marc's Delaney said.

"If we were confident that business was coming back, then we'd all take a different approach," he said. "But with the forecasts the way they look, and the shortened booking windows, most of the major hotel companies are afraid to increase rates to overprice relative to the competition.

"It's going to take a long time to get back to the earlier levels, and in the long run, that's going to hurt everyone in the business."

Marketing has also become tougher. Hotels have preferred to advertise in strategic markets at least a month or two in advance of expected demand but now have little idea what the "hot" market will be until the last minute.

"It's a bit more challenging, in this environment, to determine how to strategically place your marketing dollars," said Stan Brown, vice president of Pacific island operations for Marriott International.

Japanese arrivals lagging

Aboard the catamaran Alii Kai at Pier 5, Alan Davidson, David Akers and Kaman Oliveria prepare tables for a dinner cruise. They are seeing more visitors from the western half of the Mainland than from Japan. Deborah Booker • The Honolulu Advertiser

While the western half of the United States has firmly provided its normal load of visitors since December, the eastern half and Japan are still wavering well below 2001 levels — and few trends point to a quick rebound in either market. The Hawai'i Visitors & Convention Bureau is now saying Japanese travel may not fully recover until 2005.

In this environment, many Hawai'i tourism businesses that were conservative to begin with — job growth and capital spending were already down in mid-2001 as the economy had started to slow — have become even more restrained. While they hope for better times, they won't plan for expansion until they see certain signs of recovery.

Tour bus company Polynesian Adventure Tours, which went through a severe six-month cost-cutting period after Sept. 11, is one of those. The company even turned away passengers if the buses weren't full, president Michael Carr said.

"Every day I had to convince myself that each tour going out had enough passengers to make money, and if it didn't it wouldn't go," Carr said. "That upset customers, who of course expected we'd go out even if there's no one on the bus, but we just didn't do it. We were very cold-hearted about that."

Business has improved for several months, but Carr is still trying to keep his expenses down.

"We've had a couple good months, but that doesn't mean we're throwing out all the cost disciplines that we've just created," Carr said.

In hotels, nonessential investments have virtually disappeared, several experts said. While many are taking advantage of sparse occupancy to renovate unused rooms, only the highest-priority projects are likely to go forward.

"If a project is related to revenue, customers or infrastructure, it gets a high priority, but we've slowed the pace of discretionary projects," Outrigger's Carey said.

"If a front desk needs repair but it looks fine on the outside, we may leave it alone. And if a carpet can last another year, then it will have to last another year."

Outrigger and Marriott, two of the more aggressive developers in recent years, are still moving ahead with big long-term investments, such as Outrigger's proposed Lewers Street redevelopment and the Marriott time-share project at Ko Olina.

But projects like these have little effect on the short-term fortunes of Hawai'i's 100,000-plus tourism workers, who have borne the brunt of tourism's cost-cutting.

Thousands of retail, hotel and transportation workers are still without jobs after losing them last fall. Afraid to overstaff for a rebound that could never come, tourism businesses are only hiring for the current depressed visitor levels, said Sam Shenkus, spokeswoman for Roberts Hawaii Inc., the state's largest ground transportation company.

Roberts laid off about 12 percent of its staff last fall and cut everyone else's pay by 10 percent. Employees dropped from 1,800 in 2000 to 1,400 by the end of 2001.

The company probably won't rehire until it sees a strong, consistent rebound in its Japan-related business, which is still off by about 25 percent, Shenkus said.

"If we can see a steady stabilization, hopefully by the holiday period, with numbers back where they were in 2000 — that's what we're looking for," she said.

As it has been for months, the hotel job count in April was down 6.5 percent, or 2,550 jobs, from April 2001, according to the state Department of Labor and Industrial Relations.

The losses are also holding in restaurants, down 3.0 percent; other retail, down 4.4 percent; and transportation, down 10.9 percent. Economists expect the job count to remain low until early next year.

"At this point, we're living with the new reality, and not planning on an uptick," said Sharon Weiner, vice president for retail company DFS Hawaii, which laid off 90 of its 1,300 Hawai'i employees and cut hours and salaries.

Like many others, DFS is trying to redirect its marketing away from Japanese visitors to the more steady supply of Mainland tourists — but business is still slow, Weiner said.

"We hope this isn't the new norm, we're doing everything we can to make sure it's not," she said. "If it is, then that means big trouble for a lot of people in this state."

Reach John Duchemin at 525-8062 or send e-mail to jduchemin@honoluluadvertiser.com.