Posted on: Sunday, September 8, 2002

ONE YEAR, ONE NATION
New types of visitors altering state's tourism industry

By Kelly Yamanouchi
Advertiser Staff Writer

Carlos Cook, left, his sister Libra and brother Reginald take in the Waikiki sights. Carlos is stationed at Hickam; Libra and Reginald, from Dallas, are part of the westbound travel trend helping Hawai'i. Richard Ambo • The Honolulu Advertiser

In the months since Sept. 11, Hawai'i's $10 billion tourism industry has proven its resiliency, slowly and gradually drawing visitors back to its shores.

Passenger arrivals have recovered, hotel occupancy rates have climbed, and the dramatic fallout of business closures and widespread job cuts that some had forecast never materialized.

But below the surface some longer-lasting and fundamental changes to the state's biggest industry appear to have taken hold — changes that hold the power to reshape hundreds of businesses and, ultimately, the economic future of the Islands.

"We knew after 9/11 this was not a cyclical event. ... This was going to change the nature of travel," said Keith Vieira, senior vice president and director of operations in Hawai'i and French Polynesia for Starwood Hotel & Resorts Worldwide Inc.

While visitors have returned to Hawai'i, who they are, how long they stay and how much they spend has shifted, biting into state tax revenues and income for companies from hotels and restaurants to airlines, retailers and attractions.

And the changes, which had been gradually appearing even before last year's terrorist attacks, now appear to be more than temporary. If there was any doubt that Hawai'i could no longer count on an unrelenting stream of high-spending Japanese visitors to fuel business for airlines, hotels, retailers and attractions, that doubt was swept away a year ago.

Year-to-date through July, only 805,228 Japanese visitors came to Hawai'i — down 21.5 percent from 1.03 million the same period last year. And those that did come didn't stay as long, with the number of visitor days dropping 20.7 percent.

Meanwhile, more than 1.43 million visitors from the West Coast arrived during that same time — up 2.1 percent. And they stayed longer, for a 2.2 percent growth in the number of visitor days.

To cope, businesses have changed marketing, advertising, staffing and product mix. They've cut budgets, lowered prices, and are rethinking their future operations. But there have been some mistakes in the past year.

Competing destinations have gained considerable ground in attracting Japanese visitors since Sept. 11, and many retailers, airlines, hotels and attractions are finding trouble making do with the Japanese travelers who are coming to the Islands. Some who haven't successfully navigated the changes have closed.

Experts say that how the tourism industry survives and adapts is key for Hawai'i's overall economic health because it remains — even after the attacks and talks of diversification — the state's biggest employer, touching virtually every resident's life in some way. If the industry can rise to the new realities of changed travel, it offers Hawai'i a chance to make its tourism industry smarter and stronger in the long run.

Heavy discounts for tours

The drop in Japanese visitors to the Islands — still off as much as 20 percent — is not the only thing different about that market.

After Sept. 11, Japanese wholesalers who were already committed to fill airline seats and hotel rooms began deeply discounting tour packages.

Yujiro Kuwabara, general manager for tour planning and marketing for Japanese tour wholesaler JTB, said what has been pushing prices down since early this year is a tendency toward later bookings.

"Customers don't make a decision until the very last minute," Kuwabara said, adding that some are buying tour packages less than a month before their trip. "They are maybe waiting for a better deal."

For retailers such as DFS, who have long catered to Japanese visitors, what that means is discovering new markets.

"We tapped a market we never thought of before — people who never thought they could afford to come to Hawai'i," said Sharon Weiner, group vice president of the DFS Pacific Group.

But it is having a cost: Although it brings in more people to the Islands, "now the consequence of that is we have a lower-spending Japanese visitor," Weiner said.

In the wake of the problems of fewer and lower-spending visitors from Japan, progress for tourism officials so far has been more in asking new questions than in having the right answers.

"The question is which segments will be easiest to go after," said Frank Haas, director of tourism marketing for the Hawai'i Tourism Authority. "The competitive market is much more intense than it ever has been."

Mike McCartney, chairman of the authority, said the agency and other tourism leaders are learning that the same formulas that always worked before in the industry do not necessarily apply anymore.

"Rather than make assumptions, we need to go look at the facts," he said. "This time we need to pay a little more attention to what's happening out there. I think it's time to regroup and to get a new strategy."

But what that strategy should be is less clear. And what still remains to be answered is exactly whom to target to fill those hotel rooms, airline seats and stores.

More market research

Some, like Tony Vericella, president and chief executive of the Hawai'i Visitors & Convention Bureau, say that the first step is to do more research about consumers and market segments. "We need to try to reach them in more receptive ways," he said.

Others, like Chuck Gee, former dean of the University of Hawai'i School of Travel Industry Management and an international tourism consultant, said it's also increasingly important to listen to Japanese economists. "We really need to keep our ears tuned to that marketplace," he said.

Yuichi Yokoyama, president of Kintetsu International Hawaii Co., agrees. Their business is down about 35 percent in the last year from the year-earlier period, and China and other Southeast Asian destinations are more popular. Japanese travel to Hawai'i may not recover before April, and Yokoyama thinks the tourism authority should spend more to attract them.

But the numbers show it won't be easy. The federal Office of Travel & Tourism Industries projects that between 2001 and 2005, travel from Japan to the United States will have the smallest increase compared with South Korea, Australia, China and Hong Kong, Taiwan, the Philippines, New Zealand and Thailand.

Still others say now is the time to increase Hawai'i's efforts to broaden its visitor base.

"We cannot just rely on one market," McCartney said. "The lesson is balance ... to have a healthy balance of east- and westbound visitors and business travel and conventions. And I don't know what the balance is, but I think that's one of the goals."

Already, there's been at least a temporary substitute for some of the lost Japanese business.

"Certainly the westbound visitor is rediscovering Waikiki,," said Aston Hotels & Resorts president Kelvin Bloom. "I'm not certain if the level of Japanese visitors will return to the heyday ... it's difficult to say if that will ever come back. What Aston and other hoteliers and others in the travel industry are doing is to go after new markets."

Others agree with that strategy.

"You need to go and find visitors to replace them — China and Korea," as well as the East Coast market, said Hawai'i Hotel Association president Murray Towill. "A real focus on who the customers are going to be tomorrow — that becomes a real challenge."

And that focus on attracting the new visitors of tomorrow is already driving changes in retailers, attractions, hotels and marketing.

"You have people adapting and trying to figure out what the customers today want, and what they think the customers of tomorrow want," Towill said. "I suspect there are people spending a lot of time and effort trying to figure that out precisely."

But it can be difficult for those that depended on the Japanese for 50 percent to 60 percent of their market to switch gears. "That takes a while, to redo your marketing efforts," said Lori Lum, who leads the Hawaii Attractions Association.

Retailing changes worldwide

Regardless of which strategy is chosen, the path to recovery is difficult.

"After 9/11 the whole world of retailing changed everywhere, but more especially for those targeting the Japanese," Weiner said.

So although Hawai'i may be ready for more tourists, the rest of the world may not.

Weiner said manufacturers whose products DFS sells cut back production. "Then things come back pretty quickly ... and you don't know when they're going to come back. ... At the Handbags Inc. level you've laid off some people. There's just a lag."

And even just retaining customers who have increasing control over their travel decisions — through the Internet and with the availability of more information on travel options — is difficult.

At the upscale Halekulani, popular among the Japanese visitors, the hotel's bookings are still down some 20 percent compared with last year. But one area on the rise in direct bookings through the Internet or direct mailings with marketing partners."

The increase in travel information also means Hawai'i has to work harder to bring people here. Since Sept. 11, Hawai'i is facing fierce competition from Mexico, China and other destinations.

"Our competitors also know the nature of a political incident and how they can benefit from it as well," Gee said. "We are dealing with a lot of very smart people who know a lot about tourism and a lot about competing. "

Japanese tourism leaders have told U.S. officials that competition for Japanese visitors has been ramping up, in part, because of investments by governments of competing destinations. The Washington-based Travel Industry Association has been working on legislation to establish a national tourism office to boost marketing efforts.

"A lot of people think, well, Disney markets overseas and Universal markets overseas and Hilton, what have you," said Travel Industry Association spokeswoman Cathy Keefe. "But when you consider more than 95 percent of businesses in the tourism industry are small businesses — they can't market overseas. ... Now as tourism starts to recover, if we're not marketing ourselves these other countries are stepping into our place and we don't want to lose our marketshare."

But the continuing economic travails of Japan are not making Hawai'i's transition any easier.

The yen exchange rate, which has put a squeeze on the value gained of buying gifts in Hawai'i, has also lessened the shopping factor as an incentive for Japanese to vacation here.

"All of this does not help Hawai'i tourism," Kuwabara said. "The future is not too bright."