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The Honolulu Advertiser
Posted on: Sunday, November 17, 2002

Battered, but surviving

 •  Tourism officials focus efforts on O'ahu
 •  Effect of 9/11 attacks skews tourism data
 •  Convention center optimistic about '03
Status reports
 • Spending by Hawai'i visitors per trip
 •  Vital tourism statistics

By John Duchemin and Kelly Yamanouchi
Advertiser Staff Writers

After a year of financial hardships, layoffs, tight budgets and desperation, Hawai'i's visitor industry is still coming to grips with the symptoms of a hard new reality.

Tony Marsic of Vancouver, British Columbia, is among recent visitors to Hawai'i who have helped reverse the steep decline in tourism attributed to the Sept. 11, 2001, terrorist attacks on the U.S. Mainland.

Cory Lum • The Honolulu Advertiser

Hotels are less full than they would like and are engaging in unprecedented discounting to lure customers. Stiff price competition has reduced airfares to uncomfortably low levels for airlines and charters.

The volume of tourists has increased from the steep slide after the terrorist attacks of Sept. 11, 2001, but Hawai'i is still seeing far fewer high-spending Japanese and U.S. East Coast visitors. The improved volume comes from U.S. West Coast visitors, who tend to spend less each day — and this year are watching their pennies.

The shift has forced every business from hotels and retailers to tour companies to stretch every dollar. With cash still tight, employment at many businesses is frozen at levels well below the peak they reached during the banner year of 2000.

This, then, is the new reality: A world in which the visitor industry is not approaching its peak capacity and dramatic improvement seems distant.

"People are paying less for their tickets to get here, and then once they get here they're spending a little less," said Hawaiian Airlines spokesman Keoni Wagner. "At the moment, we're not planning for any uptick."

With expectations ratcheted downward, some industry leaders think that Hawai'i tourism officials need to revise their long-term strategy of focusing on high-spending visitors.

"At the time, we crafted our strategy so that we wouldn't jam more people into buildings than we can handle," said David Carey, president and chief executive of Outrigger Enterprises Inc. and a member of the Hawai'i Tourism Authority board. "Now, we've got the issue of, 'Gee, we're under potential of getting the people we need.' So I think we need to think of a different strategy."

The reflections come after the third quarter of 2002 saw the industry continue to struggle through uncertainty.

After a decent spring, visitor volume slackened in July and August. The number of visitors in September, while far ahead of 2001's depressed levels, was otherwise the lowest in nine years.

Hotel occupancy and revenues also continue to be soft. Occupancy this winter will likely be higher than in fall 2001, but still well below the standards set two years ago.

For the year ending September 2002, the average occupancy was 66.9 percent — compared with 73.3 percent the previous year, according to statistics provided by the state Department of Business, Economic Development and Tourism.

Many in the industry hope the Christmas season will be strong, but travel agents say O'ahu hotels still have vacancies in late December, even though most airplane seats are sold out.

In this environment, price discounting has become ubiquitous — a highly unusual situation for Hawai'i hotels, which are accustomed to charging full fares most of the time.

The trend is reflected in a drop in the statewide average daily room rate to $141.56 for the year ending September 2002, down from $145 the previous year, according to state statistics.

Hotel discounting has become so common that many worry visitors are being trained to wait for last-minute bargains — and that the industry will never return to the days when full fares were the norm.

"Until the last year or so, hotels would pretty much set their prices once a year, and that would be that," said Thomas Low, president of Blue Hawaii Vacations, a travel firm on Maui that specializes in arranging packages for U.S. Mainland visitors. "Now, they find they almost have to have some special price just to get people to come. If they see slack in a certain month, they'll throw out a special. That's helped us all out a lot — if not for the specials, we'd all be dying right now.

"But once you start doing this, you can't stop. Now that you've put up specials, everyone is looking for one."

Low said Maui is pretty full for the holidays — but that hotels on O'ahu are resorting to startling discounts.

"The Royal Hawaiian quoted me $75 a night over Christmas, and that's shocking," he said. "That tells me Honolulu must be hurting, and still has lots of rooms."

Airlines have also been forced to discount to a painful extent, particularly after a year of layoffs and cash crunches. Among the sufferers is Pleasant Holidays, a California tour company that arranges charter flights to Hawai'i.

"To be competitive, we have to match what the big guys are doing," said Ron Krueger, executive vice president and chief operating officer. "And what they're charging, for us, is not a sustainable level."

The discounts may have helped stimulate the post-Sept. 11 recovery of travel, particularly from the West Coast. Visitors from the 14 westernmost Mainland states recovered the quickest after 9/11, and in 2002 set a record for visitor days in September.

But observers say industry revenues are still well down, as the higher-spending Japanese and East Coast visitors have not returned in force and West Coast visitors have proved more price-conscious than ever.

A DBEDT forecast in September predicted visitors would spend around $10.5 billion in Hawai'i this year — up from $10.1 billion in 2001. But that would still be $500 million below the 2000 levels, and chief DBEDT tourism researcher Eugene Tian said the forecast will probably prove optimistic.

"The stock market and talk of war has made people conservative in their spending," said Carlton Kramer, vice president of sales and marketing for Hilo Hattie.

Because of that, Kramer said, Hilo Hattie has been focusing more on the local market, developing Christmas prints and sending brochures on corporate gifts to 1,000 companies.

Spending by West Coast visitors has dropped steadily since 2000. In August of that year, they spent $1,425 per trip.

In August 2001 they spent $1,274, and this August they spent $1,201.

"It would be great if everybody ate at Roy's and Nick's Fish Market and dropped $50 a meal, but that's not realistic anymore," said Jerry Agrusa, associate professor in travel industry management at Hawai'i Pacific University.

Given this backdrop, the Hawai'i Tourism Authority is taking hard looks at its strategy for luring visitors to Hawai'i. One of the authority's top priorities since its founding in 1998 has been to increase visitor spending per person per day, which targeted high-spending Japanese visitors.

But Japanese travel is so far off its peak, falling for years even before the terrorist attacks, that some say the strategy is increasingly obsolete.

"We want high-spending, short-stay customers, but they're not going to fill all of Waikiki," Outrigger's Carey said.

Pleasant Holiday's Krueger says Hawai'i needs instead to concentrate on head-on rate competition with other destinations, including Mexico and the Caribbean, which recently have blitzed mainland markets with advertisements of steep discounts.

Hawai'i risks losing market share if it fails to counter the 35-percent-off south-of-the-border airfares now dominating travel sections in newspapers like the Los Angeles Times, Krueger said.

"Hawai'i has really a lot to sell, but it does need to be in the public's mind," he said. "If it's not there at all, and a lot of the competition is there, they could lose some of the market."

Some argue that Hawai'i should not stray from its high-end marketing emphasis, because too many businesses depend heavily on big spenders.

"You've got to look at your return on investment at some point," said Sharon Weiner, Hawai'i group vice president for retailer DFS, which has suffered heavily from the fall-off in Japanese visitors. "People coming from the U.S. on cheaper packages spend less per day. For retail and attractions, international visitors are just far more productive."

But the authority's budgetary decisions suggest it's taking a different approach. Forced to deal with budget cuts caused by a drop in tax revenues, the authority cut $1.25 million from the 2003 budget of the Hawai'i Visitors & Convention Bureau, which is in charge of marketing the state as a tourism destination.

Most of the cuts came out of HVCB's international marketing budget, reflecting the drop in those visitors.

The only major market to see an increase was Canada — whose visitors are known for spending little money per day. Rex Johnson, executive director of the HTA, says Canadians are a good target because they take relatively long trips, and thus end up spending more while they're here.

"When you really boil it down, it's both of those that you want: A higher-spending visitor and longer stays," Johnson said.

Visitors like Ron Mierau may thus become more important to Hawai'i.

Mierau, a French Canadian who was visiting Hawai'i recently for the twelfth time, said he always keeps himself to a budget.

Sitting on a Kalakaua Avenue bench Thursday night, he said he spends about $80 per day on his trips here.

While his purchasing power has been hurt by weakness in the Canadian dollar, he says the recent discounts are making Hawai'i affordable for many travelers.

"It's OK," he said, "As long as there's good deals for people coming here."