Outrigger repositions itself to serve global market
By Kelly Yamanouchi
Advertiser Staff Writer
More than a decade has passed since Hawai'i hotelier Outrigger got a big wake-up call courtesy of Hurricane 'Iniki. The message was clear: there were serious risks in locating nearly all of the company's multimillion-dollar hotel properties in Waikiki.
Deborah Booker • The Honolulu Advertiser
That jarring realization drove Outrigger's decision to spread its business beyond O'ahu's south shore. Since then, Outrigger has taken its well-recognized canoe emblem outside the state, opening properties in New Zealand, Australia, Fiji, Guam and the Marshall Islands where it often manages properties for different owners.
Outrigger CEO David Carey, left, talks with chairman Richard Kelley at the Outrigger Trade Show at the Hawai'i Convention Center.
When 'Iniki devastated Kaua'i and parts of Leeward O'ahu in 1992, "we suddenly realized that if that storm were to hit 100 miles east, we'd have been wiped out because we had all of our eggs in one basket," said Bill Henderson, Outrigger's vice president of business development.
From that point on, the goal was "to have the Outrigger flag in all of the major resort areas in the Pacific."
Since 1994, Outrigger has more than doubled the number of properties it owns or manages to 49. At the same time, the company decreased its Waikiki holdings from 20 to 16. Rooms under Outrigger's control increased to 12,166 in nine years. While 90 percent of its rooms in 1994 were in Waikiki, only 53 percent are there today. Nor is the company exclusively a hotel chain.
In the past year alone, Outrigger announced a time-share alliance with Fairfield Properties Inc. and two time-share properties in Kona. Outrigger executives expect the arrangements to help stabilize the company's performance as they provide a predictable stream of customers.
Outrigger also struck a partnership with Marriott to co-brand two of its hotels and several new properties in Australia.
In a departure from its image as a manager of sunny beach resorts, the company announced last month it would be managing its first property in New Zealand i in an area popular for skiing.
Hospitality Advisors LLC president Joseph Toy said Outrigger's partnerships and overseas ventures are part of a growing trend in the travel industry. As Outrigger has discovered, it has become increasingly difficult to remain an independent hotel operation, especially one that is geographically restricted.
"While change is often difficult, in today's environment of global competition and travel uncertainty, we recognize we have to combine our strengths with the strengths of other companies to ensure we continue to grow and prosper," Outrigger chief executive David Carey told employees in a company newsletter.
Always a local company
Outrigger's far-flung operations have their roots in a $10,000 Waikiki apartment house started by Roy and Estelle Kelley in 1932.
In a move to hedge its risk, the company has expanded in size and geographic reach. Since 1994, it has: • Doubled the number of the properties it owns or manages from 22 to 49. • Increased the rooms it controls from 8,456 to 12,166 today, including some rooms marketed under the Ohana brand, a budget line that Outrigger spun off in 1999. • Decreased its Waikiki properties from 20 to 16. Nine years ago, 90 percent of its rooms were in Waikiki compared to only 53 percent today. • Increased its Neighbor Island properties from two to 14.
"Back in my father's day it was a much smaller industry, a little more informal. A couple of guys would get together and make some plans," said chairman Richard Kelley, son of Outrigger's founders.
Outrigger strategy
While Outrigger still considers itself a local, family-run business with its heart in Hawai'i, its diversification and industry partnerships have helped turn it into a major international hospitality operation.
Today, Outrigger employs more than 2,600 in Hawai'i and another 1,000 outside the state. Unlike other hotel operations including Starwood and Hilton, Outrigger has no unionized employees in Waikiki — a point of pride and, some would say, competitive advantage for the company.
Outrigger takes with it the lessons it learned in Hawai'i when it goes overseas.
"Wherever we go we want to be a local company," Henderson said. "If we're in Australia, we want to be an Australian company. We're looking for people who know as much about their place as we know about our place. I'd argue that nobody knows more about (Hawai'i) than we do."
The company leverages its relationships with Japanese and Mainland travel agencies, tour wholesalers and customers by focusing on vacation destinations in the Pacific.
"We understand the Pacific. It's a natural extension," Kelley said. "Running a hotel in the Pacific is not like running a hotel in Chicago, and I think I would be the last one to say I knew how to run a hotel in Chicago or New York City. But we have over 50 years of experience in running island resorts in the Pacific."
Undaunted by disaster
But that doesn't mean there aren't huge risks.
For the past 15 months, Outrigger has struggled in Hawai'i's sluggish visitor market to keep occupancy levels high and it hasn't necessarily been easier outside of the state.
Among the disasters for Outrigger in the last three years were a coup in Fiji, the dissolving of property agreements in Tahiti over differences with the owner and a typhoon in Guam last month. Henderson said the company has faced so many disasters that it has become an expert in recovery efforts.
Despite the challenges, Outrigger executives say the company expansion is far from complete. In the next year, Outrigger aims to have a contract signed for a property in the Sydney area and open one or more in Queenstown, Australia.
The company also plans to take over management of existing properties in Australia and New Zealand, and Henderson said he would also like to run an Outrigger and a Ohana budget hotel on Kaua'i.
But Outrigger, like the rest of the travel industry, is looking ahead at what may be a difficult year. A war in Iraq could have a devastating effect on travel. Low-priced Internet bookings are depressing hotel revenues, and the faltering airline industry can potentially cripple Hawai'i's tourism industry.
Outrigger's hope is that growing bigger is the answer.
"One way or another you've got to put yourself in a position of size," said Kelley.
Even while it expands out of state, Outrigger is poised to become increasingly influential at home as it assumes a major role in the ongoing revitalization of Waikiki.
Its plans for a $300 million retail, entertainment and hotel project on Lewers Street is scheduled for first phase construction next year.
Kelley said the project is a gamble. "Even though Outrigger is diversifying geographically, we are betting a lot on Waikiki," he said.
Carey expects to seek investor financing for the project next month and may hire an investment bank.
Executives are concerned it may be difficult to secure financing in the current economic environment, but Fairfield is one of the investors that has expressed interest.
Beyond improvements for its own properties, Outrigger may need to play a larger role in Waikiki's future than executives intended. Among the conditions of the City Council's permit approvals for the development is the requirement that Outrigger contribute to building a beach promenade in front of one of the new hotels and a transit station. The stipulation displeased Outrigger executives.
"We believe the city should help us as opposed to us helping them," Carey said.
Broad influence
Carey, whose influence includes a seat on the Hawai'i Tourism Authority that controls state money for the visitor industry, faces an unclear future on the policy-setting board. Former Gov. Ben Cayetano refused to reappoint Carey last year, and left the new governor the task of filling the position.
House Speaker Calvin Say, who gets to propose candidates for the post, said he has not yet decided which names he will submit to Gov. Linda Lingle, but that he plans to suggest Carey and at least one other person who does not work for Outrigger.
Regardless of the outcome of the authority position, Outrigger's standing as a major hotelier will be unaffected, and its influence will likely spread as it takes its island-grown expertise beyond the reef.
Hawai'i Visitors & Convention Bureau president Tony Vericella said that's good news for the state.
"They realize that they need to evolve to stay ahead of the curve. As more companies and more organizations invest in those changes, then that obviously is helpful to Hawai'i," Vericella said.
