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The Honolulu Advertiser

Posted on: Sunday, August 24, 2003

Making a comeback

By Deborah Adamson and Kelly Yamanouchi
Advertiser Staff Writers

Kids learn to hula at the Outrigger Reef Hotel. Waikiki businesses, which for years focused on shopping-centric Japanese travelers, are adjusting to a clientele now dominated by arrivals from North America.

Jeff Widener • The Honolulu Advertiser

The sight of Miles Needham's yellow-and-green amphibious World War II vehicles lumbering through the streets of Waikiki cannot help but bring smiles to onlookers.

But it's hardly been a joy ride for the Englishman since he founded Duck Tours in 1999, transporting tourists on the boats on wheels, DUKWs, that can travel on land and sea.

Legal problems, 9-11, a major client's bankruptcy and then the Iraq War and SARS have made the tourist trade nerve-wracking.

"I'm waiting for the next disaster to happen," Needham said half jokingly. "Are we going to have a hurricane this year?"

Let's hope not. Instead, as the industry moves into the final months of the year, clearer, even sunny skies are in the making.

Those who measure tourism's up and down cycles say Hawai'i is at the cusp of an upswing again. The travel market is showing tangible signs of recovery as the geo-economic effects of 9-11, the war in Iraq and SARS have receded, boosting prospects for the rest of 2003.

"Since that situation has stabilized, there's reason to be optimistic," said Byron Gangnes, an economist at the University of Hawai'i Economic Research Organization. "The greatest risk is on the domestic side and the possibility the U.S. economy is going to stagnate."

For now, the U.S. economic engine seems to be chugging along nicely. In the second quarter, the gross domestic product rose by a stronger-than-expected 2.4 percent.

"Economic growth was somewhat of a pleasant surprise," said Sung Won Sohn, chief economist of San Francisco-based Wells Fargo and Co. "The second half should grow more rapidly."

The optimistic forecast for the country as a whole bodes well for travel to Hawai'i.

Saving the day

Mainland visitors, who account for two-thirds of all tourists to the Islands, have been the saviors of the tourism industry, making up a good portion — although not all — of the traffic lost by the slump in Japanese tourism.

Still, the drop in high-spending visitors from Japan can't be overlooked. The first half of the year was a disaster for those who depend on Japanese arrivals. In May, weekly international arrivals were down by as much as 40 percent from the year before.

As concern about the Iraq War and fear of SARS receded, the numbers began to improve. As of last week, international arrivals were only off by 10 percent from a year ago.

The Japanese GDP grew at an annual pace of 2.3 percent in the second quarter in real terms. Consumer spending was up 0.3 percent in the second quarter, and the jobless rate fell to 5.3 percent in June from 5.4 percent in May.

A stronger yen and more flights from Japan could temporarily lift visitor numbers, but the fundamental economic factors that can spark a sustained revival of Japan's economy needs vast improvement, Gangnes said.

Visitor forecasts for the second half are mostly upbeat because of the healthy rebound in Mainland visitors, and particularly West Coast residents who have shown themselves more willing to hop on an airplane despite travel-dampening world events.

DBEDT projects the number of U.S. tourists arriving in the Islands rising by 5 percent for July to December, compared to 2.8 percent for January to June.

For the whole year, DBEDT expects the number of U.S. visitors to rise by 4 percent to 4.2 million, the largest number since 1989.

O'ahu still hurting

The Mainland visitor surge is especially beneficial for the Neighbor Islands. O'ahu, given its historic reliance on Japanese tourists, continues to scrape by in the downturn.

"Americans, for the last decade, have been disenchanted with how built up Waikiki has been," said Gangnes. "They're not as interested in shopping as Japanese tourists, who see it as part of their vacation."

Even the Japanese are beginning to look to other destinations as Waikiki becomes a little too familiar.

Competition from places such as China has siphoned off visitors, said Eugene Tian, head of DBEDT's tourism research branch.

For the entire year, DBEDT estimates the number of Japanese visitors will decrease by nearly 11 percent to 1.3 million, the lowest level in 14 years.

Overall, total arrivals should rise by 0.5 percent to 6.45 million this year, with strength in the second half offsetting earlier weakness.

While the total visitor count for the year shows anemic growth, spending is expected to increase by 3 percent as tourists are staying longer in the Islands. Tian said sporting events, such as a soccer tournament earlier this year, encouraged lengthier stays.

The average visitor stay for this year is expected to reach 9.86 days, up 7.2 percent from 2002. Total spending is expected to hit $10 billion, up from last year's $9.8 billion and higher by 10 percent from 2001.

Hotels upbeat

David Carey, president and chief executive of Outrigger Hotels, said business was robust in July, and August looks favorable as well. Initial indications for September are positive, but it's tough to be more definite, he said.

"My tummy tells me we'll have a decent second half of the year," he said.

But only if there are no terrorist attacks, the stock market stays on an up trend and further global and economic complications do not arise, Carey said.

Outrigger's Maui properties have performed the best, followed by Kaua'i. O'ahu and the Big Island run neck and neck for third.

The trailing performance of O'ahu is especially troublesome because Waikiki remains the core of the industry.

But adjusting to the decline in Japanese tourists is under way. Carey said Waikiki hotels have begun to replace dwindling numbers of Japanese visitors with American tourists.

At the Marriott hotels, occupancy hit the high 80 percent and 90 percent levels for July and August on the Neighbor Islands and at Ko Olina, said Stan Brown, Marriott vice president of Pacific island operations.

Waikiki was softer, in the high 70s, again reflecting weakness in Japanese tourism.

"In general, the fall looks a bit better than last year, and inquiries are increasing," he said.

Beyond 2003

The key to forecasting the health of the travel market for next year is not what happens in the second half but whether January will be strong, said Joseph Toy, president and CEO of consulting firm Hospitality Advisors.

January is the start of the high travel season for all tourists, but especially Americans and Canadians, he said.

Businesses may lament the slump in visitor arrivals from Japan, but the expansion of that market is a relatively recent phenomenon of the past decade. In the last 50 years, growth in U.S. visitors was prevalent.

This year, Tian sees a return to half-century trends, with domestic visitors making up a projected 75 percent of total arrivals, up from 68 percent in 2002.

The era of free-spending Japanese mobbing luxury boutiques in Waikiki "is over," Gangnes said.

Who will replace the Japanese and their 25-percent share of the visitor market? Visits from other foreign tourists fell in the past decade, with the exception of people from China. But development of China as a source of major tourism is a long-term project.

Outrigger's Carey sees sports tourism as one area of growth that Hawai'i needs to go after.

"We're in the order-taking mode and not 'sell it and go get it' mode," he said.

"There's a big market for youth sports tournaments. There are very few places with the tourist facilities to do it. We have the weather, and there is lots for them to do."

This year's U.S. National Veteran's Cup soccer tournament brought in $3.4 million in revenues from Mainland teams, their families and friends, said Jack Sullivan, vice president of the Hawai'i Soccer Association. About 1,100 people from the Mainland came to play at the world-class Waipi'o Peninsula Soccer Complex from Aug. 6 to 10.

"Our (soccer) stadium is beyond belief. It is a gem," Sullivan said.

Hawai'i also should develop its harbors to attract more sailing sports, Carey said. Auckland, New Zealand, spent millions developing its harbors and got the America's Cup race series. Hawai'i has to lure tourists with more than just its beaches and mountains.

"Give people a reason to come here," he said.

But whatever happens to tourism this year, Gangnes would remind residents that Hawai'i's economy has continued to move ahead despite national and global setbacks. Low-interest rates have kept financial and real estate sectors buoyant.

"We tend to get myopic in Hawai'i. We tend to think tourism is the economy," Gangnes said. "Clearly, it is not."

Reach Deborah Adamson at dadamson@honoluluadvertiser.com or 525-8088 and Kelly Yamanouchi at kyamanouchi@honoluluadvertiser.com or 535-2470.