Anti-travel messages bring gloom to Hawai'i's inns

By Kelly Yamanouchi
Advertiser Staff Writer

Many in Hawai'i's hotel industry worry that fundamental changes in the travel habits of visitors are taking place, and they do not bode well for the state's tourism-dependent economy.

Keith Furukawa, a front-desk clerk at the Aston Waikiki, takes a reservation for Los Angeles resident Jeff Gann. Deborah Booker • The Honolulu Advertiser

Although Hawai'i hotels have seen some recovery from the travel-dampening effects of Sept. 11, the terrorist attacks were the first unsettling notes in a symphony of anti-travel messages. These have played out in the form of terrorism threats, federal alerts and, perhaps the most pervasive of all, a stubbornly uncertain economy.

The result: Hotels have yet to see the level of occupancy they enjoyed before Sept. 11.

Hoteliers say they can no longer depend on a steady stream of visitors to fill rooms and pay the bills. Instead, it has been a daily struggle to stimulate business for the past 18 months, with few signs of predictable relief.

"The uncertainty is contributing to the pall that's cast over the entire industry," said Kelvin Bloom, president of Aston Hotels & Resorts, which manages the Aston Waikiki Beach Hotel.

With the United States poised for war, the situation will likely get worse before it gets better.

"It is much harder to come by business than it used to be," said David Carey, chief executive of Outrigger Enterprises Inc. "I just have to show up every day and smile and dream about a short conflict in Iraq."

According to consulting firm PricewaterhouseCoopers, changes in travel nationwide, along with lower consumer confidence and personal wealth because of stock market declines, "will result in a permanent structural resetting of demand that has not occurred since the Great Depression."

Hawai'i hoteliers say they are experiencing the effects of the changes acutely.

Visitors' perception that it is increasingly difficult to fly and the uncertainty in the aviation industry may be the biggest factors affecting the hotel industry and, more broadly, tourism.

"One of the things that we really enjoyed was the freedom that we had in air travel," said Joseph Toy, president of Hospitality Advisors LLC.

"The plane ride to Hawai'i was really part of the experience," Toy said. "Is it just going to be a means to get here? That takes away some of the romance and takes away some of the unique experience that comes with travel."

An even larger concern is the possibility of a dramatic decrease in flights to Hawai'i. As United Airlines restructures under bankruptcy protection and American Airlines edges toward insolvency, diminished seat capacity is emerging as a real and troubling issue.

Hawaiian Airlines is facing its own financial problems and may undertake major reductions in operations that could further reduce the number of available flights.

According to the International Air Transport Association, a war in Iraq could cause a drop in passenger-traffic levels by 15 percent to 20 percent. Airlines have said they would be forced to cut flights if they could not attract enough passengers.

"I've spoken to a prospective guest who was wondering, 'Should I book United? Should I book American?'" Bloom said. While many believe the airlines will emerge from bankruptcy successfully, the hesitation of travelers "certainly doesn't help our situation," he said.

The continuing impact of terrorism and war fears is clear in data showing occupancy levels in Hawai'i hotels.

"We were actually making some very nice increases, then all of a sudden at the end of January, beginning of February, (room occupancy) plunged to minus 5 percent," compared with the year earlier, Toy said.

The drop followed U.S. statements in January that Iraqi President Saddam Hussein had failed to comply with U.N. resolutions calling on him to disarm.

"What that shows is there's hyper-sensitivity in terms of war and terrorism," Toy said.

Spring bookings weak

While January and February hotel bookings were strong for Marriott hotels in Hawai'i, bookings for March and April are unusually weak, said Stan Brown, Marriott vice president in the Pacific Islands.

"What a lot of folks are doing is waiting to see what happens over the next month," Brown said. "Some may not take a trip in April and May but go in June and July instead. That's our hope."

Many local hotels are still running with fewer workers than they employed in the pre-Sept. 11 era, a troublesome development for the jobless in Hawai'i.

"It's not back to the level it was before. There's some talk it may not be back," Carey said.

Although Hawai'i's unemployment rate of 3.8 percent last month is lower than the national rate of 5.7 percent, some economists suspect that job seekers have dropped out of the local market or have gone back to school.

Long-term staffing cuts are just one measure of the new way hotels are doing business. Operating with lower revenues may be another.

Much of the hotel industry has yet to hit "revenue per available room" levels seen in 2000. That measure reflects the amount a hotel can charge for rooms along with the business it can attract.

Average revenue per available room in December 2002, a notably good month for Hawai'i tourism, was about $102.14, compared with $85.36 in 2001 and $104.38 in 2000, unadjusted for inflation, according to the latest figures available from Hospitality Advisors.

Room revenues are not expected to fully recover this year, and it is unclear whether they will improve by 2004. The decline is putting pressure on hotel operators to cut costs.

Broader use of the Internet to compare prices has also forced hoteliers to lower their rates to remain competitive. In what is expected to be a long-term shift in hotel pricing, consumers have gained more control over the rates they are willing to pay.

New business model

"The environment out there is much more of a challenge to operate profitably," Brown said. "It's terrain that nobody's been through before, and it's a completely new business model."

Hotels say they may need to cut their room rates further if there is a war to attract visitors who can be persuaded to travel.

"That's going to be a decision for the hotels to make — whether they should discount their rates, if that would help the situation," said Daisy Aio, director of tourism consulting at PKF Hawaii. On the other hand they may find that charging $10 less won't help anyway, Aio said.

That's because no amount of discounting will persuade some travelers to leave home while the world situation remains unsettled.

Some in the tourism industry hope that if war breaks out and ends quickly, pent-up demand will spur a quicker recovery.

"If it's going to occur, the sooner the better and the quicker the better," Brown said. "Then people can make decisions with their lives and vacations and move on."

But there is no guarantee consumers will resume traveling, particularly if concerns about terrorism and air travel persist.

After the Persian Gulf War, hotel occupancy plummeted 19 percentage points in the first month, and hotels struggled for another two months. The war also caused the state's visitor arrivals to plunge 22 percent in the month following the start of the conflict compared with the year before.

With tremendous challenges to overcome before stability returns to the industry, hotels are bracing for the war by watching costs, planning contingencies and pushing for marketing campaigns that can kick in quickly.

If there is one silver lining in all of this, it is that Hawai'i survived one Persian Gulf war and proved itself more resilient than many had dared hope. The same could be true of another conflict with Iraq.

"People have been anticipating this. There's been saber rattling now for months," Bloom said. "We've all been through this before ... we've learned a few things."

The Advertiser's David Butts contributed to this report. Reach Kelly Yamanouchi at 535-2470, or at kyamanouchi@honoluluadvertiser.com.