The number of Japanese tourists visiting Hawai'i is expected to grow moderately this year, but not without some challenges.

Japanese travelers' desire to visit Hawai'i remains strong and Japan's economic recovery is on track, tourism industry officials say.

But a decrease in scheduled Japan flights to Hawai'i and a tighter hotel room inventory are among the potential barriers that have carried over from last year. Hawai'i vacations also are becoming more expensive, and Japanese tour operators say the Islands face much stronger competition this year from other destinations like Asia and Europe.

Japanese visitors are important to the state's No. 1 industry, as about one in five tourists come from Japan. They typically spend more money daily than other visitors, and many shops and businesses in Hawai'i are geared toward the Japan market.

Hawai'i's visitor industry has enjoyed a rebound in the Japanese market, which had suffered from events such as SARS, the Iraq war and the Sept. 11 terrorist attacks. Arrivals have increased the past two years following six years of decline.

Despite a few months of declining Japanese arrivals, the number of Japanese tourists to Hawai'i last year rose 2.7 percent from 2004, according to preliminary data from the state Department of Business, Economic Development and Tourism.

OUTLOOK MOSTLY SUNNY

State economists project Japanese arrivals will grow 2.9 percent this year to about 1.56 million visitors. At least some Japanese travel agencies also are expecting minimal to moderate growth in business over last year.

"While we need to work to maintain the health of that sector of the business, it's not in dire straits," said Frank Haas, tourism marketing director for the Hawai'i Tourism Authority. "It's definitely challenged by the conditions it's facing, but it's had two years of increase, which speaks to the quality of the experience and demand."

Positive factors include a stronger Japan economy and healthy demand for trips to Hawai'i, industry officials say.

But the reduction in scheduled air seats from Japan to Hawai'i remains a concern. Japan Airlines suspended two of its eight daily flights to Hawai'i last October, although the airline also has supplemented its scheduled flights with charters.

Another negative factor is airline fuel surcharges, which raise the cost of flying, said Ryokichi Tamaki, senior vice president of JALPAK International Hawaii Inc.

Industry officials also are closely monitoring movements in the dollar/yen exchange rate, which affects how much Japanese tourists spend here.

There also will be higher competition from other tourist destinations. Destinations such as the Caribbean, Mexico, Thailand and Malaysia are spending more money to promote tourism, Tamaki said.

"So watch out, those guys are serious to promote themselves," he said.

Europe will get a lot of media coverage this year with next month's Winter Olympics in Turin, Italy, as well as the World Cup in Germany, said Hidehiko Hayashi, marketing and purchasing division manager for JTB-Hawaii. Political conflict in China and the Korean Peninsula, which stifled Japanese travel to those areas last year, also has subsided, he said.

TIGHTER HOTELS

Many in the industry also are keeping an eye on the number of hotel rooms in Hawai'i. A smaller hotel room supply — in part because hotels closed down for projects such as Outrigger Enterprises Inc.'s Waikiki Beach Walk redevelopment — and higher demand from both Mainland and international tourists have made it tougher for Japanese to find hotel rooms, particularly during peak travel seasons.

With fewer large conventions scheduled this year, however, the hotel room inventory situation should ease in 2006, wholesalers said.

It would be nice if there was more room inventory, especially on O'ahu, said Leon Yoshida, president of Sawayaka Hawaii Inc., a Japanese in-bound tour operator.

"It's tough," he said. "But if the hotels are filled, that means Hawai'i's economy is doing well."

DFS Hawaii, however, is bracing for an "absolutely dreadful" February because of a lack of available rooms, said Sharon Weiner, DFS Hawaii group vice president. About 95 percent of DFS' sales are from Japanese customers.

"February is a big concern for us," Weiner said. "It's below what we expected when we did our forecasting in October last year."

Weiner said hotel room inventory is tight because of conventions, including the American Geophysical Union 2006 Ocean Sciences Meeting and the Club Managers Association of America 2006 Annual Meeting. Both meetings combined are expected to attract a total of 7,500 attendees next month.

"We know the demand for the destination is very high," she said. "The Japanese want to come here. That's not a problem. The service levels here are very good. That's not a problem. The real problem is the lack of hotel room accommodations."

Higher price worth it?

State tourism liaison Marsha Wienert said rooms have been available, including on the Neighbor Islands, but they may not be at a price that some want to pay. The lower supply and high demand for rooms have driven up room rates.

"It is a mindset change that needs to happen where the Japanese travelers are concerned, that Hawai'i is worth a little bit more because the destination has improved," Wienert said.

"There's no question that once the renovations get done and the rooms open back up, that you're going to see a lot more availability. But the price point is not going to be at the level it once was. That's the reality of the destination today. And it's not a bad reality."

If demand for travel to Hawai'i remains strong, hotel rooms may still be tight even after redevelopment projects and renovations are done.

Outrigger's Waikiki Beach Walk project, for example, includes not only renovating the company's hotels, but consolidating rooms and converting some to time-shares and luxury condominiums.

In the meantime, Hawai'i marketers are working with Japan's travel industry to encourage customers to book vacations earlier and plan around major events and conventions. They also are explaining why Hawai'i vacations can command a higher price.

Japanese usually book their trips up to three months in advance, while Mainland visitors tend to book at least six months to a year ahead, said Kiyoko Tanji, general manager of Hawaii Tourism Japan, the state's marketing contractor for Japan.

"We keep hearing how tight the inventory is and how difficult the situation is for Japanese tourists," Tanji said. "It's a big concern. However, as you know, the state of Hawai'i and Hawaii Tourism Japan, in our strategy we are focusing more on the quality of visitors rather than quantity.

"There are so many physical limitations because of the limited air seats and the inventory and there are only so many visitors that we can bring from Japan. And so rather than to go after greater number of visitors, we are trying to, for one, bring more upscale visitors and those visitors who would actively participate in various activities that Hawai'i has to offer."

ATTRACT BIG SPENDERS

Ultimately, higher prices appear to be in line with the state's mission to attract tourists who will spend more here.

"In the big picture, our goal is to get higher-spending visitors here, those that are willing to pay more for the rooms, willing to pay more in the restaurants, and willing to pay more in shopping and activities," Wienert said. "So then the question would be ... for that person that doesn't want to pay that, ... is that the best customer for our business?

"We're approaching a very mature destination on all the islands, and we have to be more centered and more strategic in the visitors that we attract."

Osaka resident Chie Okumura, here last week with her family to visit her sister, said she likes the weather in Hawai'i and planned to go shopping, sightseeing and swimming. This trip — her fifth to Hawai'i — was "very expensive," she said. When asked if she would return at the same prices, the 35-year-old answered: "Maybe."

Kyoko Takeda, visiting Hawai'i with her husband last week, said she enjoys Hawai'i's warm weather and appreciates that many shops have Japanese-speaking employees. The 27-year-old Kobe resident said hotel rooms are expensive, but that she would return.

"Of course," Takeda said. "Hawai'i people are very kind."

Reach Lynda Arakawa at larakawa@honoluluadvertiser.com.