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The Honolulu Advertiser
Posted on: Sunday, February 21, 2010

Cutting tourism marketing 'suicidal'

By david carey

Hawaii news photo - The Honolulu Advertiser

The sparse sidewalk along Kalākaua Avenue in Waikīkī reflects the downturn in Hawai'i's tourism industry.

MAY 2009 | Advertiser library photo

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The grim results of the 2009 hotel revenue performance have hit the front pages. The industry is clearly hurting. What has led to this situation, and what does it mean for Hawai'i's visitor industry and economy as a whole?

When people feel economically secure, many will invest in a Hawai'i vacation. But when the economy turns down, vacation travel shrinks, especially big expensive trips.

In the past couple of years, several negative economic events have hit at the same time. Housing prices have fallen dramatically, particularly in California, Hawai'i's No. 1 market. When home values fall below the amount of the mortgage, any sense of a personal wealth cushion is gone.

To make matters worse, the big drop in the stock market caused the value of retirement accounts and personal savings to plummet. Job losses around the country are sizable. And in the 24/7 news world, we are reminded every hour of how bad things have become.

So with "underwater" mortgages, declining investment wealth, job losses, rising unemployment, and state and local governments lacking sufficient revenue to cover expenses, it's no wonder travel to Hawai'i has been hurt.

The visitor industry has also been hurt by the massive decline in the group and meetings market, which, until recently, accounted for up to 20 percent of hotel business.

It all started with the government bailout of AIG, when senior AIG executives scheduled a retreat at a fancy resort. The outrage was predictable and appropriate. The broader impact, however, was not.

Administration officials spoke disapprovingly about travel meetings by bailout recipients. Many meetings at hotels were canceled. Even companies unaffected by the bailout that didn't want to invite negative public perception also canceled trips especially to "luxury" destinations like Hawai'i and Las Vegas.

The rationale for criticizing such trips was understandable: How can you spend taxpayer or shareholder money on fun? What the politicians didn't understand was the impact on visitor industry workers and vendors, the people who most need a boost. When a group cancels, taxi drivers, doormen, bellmen, housekeepers, food suppliers, liquor vendors, audio-visual suppliers and many others are hurt.

To respond to the challenges of the group market loss on top of the national economic downturn, the resort industry's only effective tool is to lower prices enough so that people will travel despite everything else. This is precisely what has happened in Hawai'i.

At least on O'ahu, this has helped maintain occupancy, which is essential to keep hotel employees working and give restaurants, shops and attractions enough customers to remain open.

But the impact on hotel and condominium owners has been devastating. As occupancies stay relatively high, so do costs. But with room rates slashed, profitability plummets. While some owners and operators can sustain losses for a short period, the situation cannot continue for long or properties will go out of business. When they do, many will lose their jobs.

With little or no profit, reinvestment in renovation will also stop. If we are not careful, the quality of Hawai'i's product will decline, hampering long-term recovery.

Hawai'i's resorts are also facing mounting cost increases. Our Legislature and county governments are considering tax hikes and increasing unemployment insurance; health care costs are climbing; several big hotel labor agreements are to be renegotiated this year; and energy costs keep rising.

I wish there were some good news in the near term, but I don't see any yet. We need the U.S. and Japanese economies to recover. Until there is real job growth, it will be a very tough environment for Hawai'i's largest industry. And without growth in visitor industry revenues, tax receipts will continue downward, exacerbating the government shortfall.

One thing we can do is aggressively market Hawai'i to maintain our share of business in the brutally competitive travel marketplace.

To reduce tourism marketing at this point would be suicidal. The travel pie may have shrunk, but with aggressive marketing we can earn a bigger slice. Destination marketing is the only state expenditure that actually bolsters the economy and boosts tax revenue.

Finally, we need President Obama and his administration to stop discouraging group travel. We must also hope our Legislature does not impose higher taxes and costs on our severely stressed industry.

Tourism is really everyone's business.