In the current economy, few indeed are the brave (or foolhardy) souls who will venture to make definitive predictions about the outlook for travel anywhere in the year ahead. In this, Hawaii tourism interests are as cautious as others, with one difference: Their caution is sharply mitigated by their confidence in the enduring appeal of the destination.
"History says a lot of people want to come to Hawaii," said Rob Solomon, senior vice president of sales and marketing for Outrigger Enterprises Group.
The point was echoed by Jay Talwar, senior vice president of marketing for the Hawaii Visitors and Convention Bureau. "The measures we have show that demand for Hawaii remains incredibly high," he said. "From across the country, there seems to be a real solid connection with Hawaii."
Still, officials are anything but complacent. "It looks like, short-term, we are going to have some challenges," Talwar said.
Although there are developments unique to Hawaii fueling those challenges, the underlying concerns are shared by everyone everywhere: a slowing economy and costlier oil.
"The price of oil is driving a lot of travel-related issues," Talwar said. "Hawaii was impacted first because of Aloha and ATA airlines. Prior to their closing operations we were having an incredible start of the year."
Aloha Airlines discontinued service March 31, and ATA followed suit April 2. Both filed for Chapter 11 protection.
It was an unfortunate endpoint to what proved to be an upbeat first quarter for Hawaii. Visits from the U.S. mainland increased 4.1% in January over the same month in 2007, and visitor spending was up 8.3%.
Arrivals stayed strong in February, boosting statewide hotel occupancy by 3.1%, to 83.5%, according to Hospitality Advisors. The average daily rate was up, too, hitting $214, a record for the month.
Though the official numbers for March were not available at press time, anecdotally it, too, was a good month. This was in part because Easter and spring break came early this year. "The first quarter came in better than everybody expected back in October and November," Solomon said. However, he predicted that the numbers for April would "not look pretty."
Even so, Solomon suggested, alarm is misguided. He observed that the dust was still settling in the wake of the Aloha and ATA bankruptcies, and their impact on airlift and air fares is not yet fully known. "I don't think it's as bad as people have painted it. The systems are not stabilized yet."
The decision by Norwegian Cruise Line to pull two of its three ships out of Hawaii, while a negative in terms of visitor numbers, does alleviate constraints on airlift, adding about 250,000 seats. "There will be adequate seats in the market, just not as many as a year ago," Solomon said.
Already, Hawaiian Airlines and Alaska Airlines have added service.
Talwar predicted that airlift would be an issue through the end of the summer. By the fall, continued high demand for Hawaii would allow the airlines to increase yields to the point where they see the wisdom of adding lift, he said.
In the meantime, "the traveler really needs to work with a travel professional. It's a good time for the agent population to raise their visibility."
Jack Richards, president and CEO of Pleasant Holidays in Westlake Village, Calif., said his firm was seeing "strong bookings for Hawaii going forward. Although it's down overall, it still remains very robust."
His firm is "just now seeing some dents in the armor of the luxury market. They're holding back and waiting to see. ... They're going to go. But they spend their money wisely. They will come back."
As for bookings at the lower end, they have "disappeared," he said.
One factor that will help in the short term, said Richards, is the tax rebate reaching consumers this month courtesy of the federal government's economic stimulus plan. He cited two studies indicating that a significant share of consumers would spend their rebates on travel.
Visitor numbers down in 2007
Last year, Hawaii saw its first weakening in visits since 2003. Arrivals fell 1.2%, from a peak of 7.4 million in 2005-2006, and the average length of stay fell, too. While visitor spending was up by 1%, it did not keep pace with last year's 4.5% inflation rate.
Given the record returns Hawaii had been enjoying previously, these dips were hardly cause for alarm, said Les Enderton, executive director of the Oahu Visitors Bureau. "We're going to do OK, but it is a little shaky," he said. "We've had an extremely good run here for past three or four years. We all know from experience that things run in cycles. We'll look back five years from now and call it a correction."
The big caveat is the economy, especially the price of oil. As Solomon said, "If fuel goes to $140 [a barrel], that's not good."
Because Hawaii is a long-haul destination, its fortunes are inextricably linked to airlines and the price of fuel. Richards said he saw Hawaii as vulnerable to heightened competition from beach destinations and, in particular, Mexico, where high-end product development has been aggressive.
Solomon said he was "more concerned with the big things out there than with any particular rap for Hawaii, including ATA."
"In 30 years it's never been that people don't want to come to Hawaii," he said. "It's a little different right now, but we've been through this before. We're not alone. I don't think it's an easy time for anybody."
One factor favoring Hawaii is investment in product, both new and ongoing. For example, on Oahu, the revitalization of Waikiki is a "big plus in weathering this economic storm," Enderton said. "The multibillion-dollar transformation of Waikiki is something to behold."
Investments in accommodations are extensive and ongoing. Outrigger pumped hundreds of thousands of dollars into the product and guest experience, Solomon said. "For many of us right now, this is a time to reinvest," he said. "We're speeding it up and putting more into improvements and renovations."
Investments in lodging product statewide have buoyed hotel rates and strengthened the state's appeal. "From a marketer's perspective, that's great to see," Talwar said. "When the private side is investing in product, that allows them to charge a higher rate. The value increases, so visitor satisfaction stays high."
Except for an uptick in January and February and presumably March, hotel occupancies in Hawaii have been off. December marked the 20th straight month that hotel occupancy fell on a year-over-year basis.
The decline in occupancy mirrors the decline in arrivals but also reflects the fact that hotel units that were pulled from the market to undergo renovations are returning to the lodging pool. Moreover, Hawaii hotels lost stays to timeshares, condos and cruise ships in 2007, according to Hawaii's Department of Business, Economic Development and Tourism.
Yet average daily rate and revenue per available room reached new highs in December and again in February when, according to statistics provided by Hospitality Advisors, the statewide average daily rate grew by 5.3% to $214, representing a new record high for the month.
Overall, statewide hotel revenue per available room, or RevPAR, increased by 9.3% to $178.37, another all-time high for the month.
In 2007, Hawaii's hotel industry generated over $3.1 billion, tying the record set in 2006. Statewide, hotels reported new highs in average daily rate, or ADR, and RevPAR for the fourth consecutive year. A 6.8% increase in ADR more than offset a 4.2% decline in occupancy, to 75.3% from 79.5% a year earlier.
"The 2007 results were very close to projections we made at the beginning of last year," said Joseph Toy, president and CEO of Hospitality Advisors. "The ADR growth was slightly stronger than we predicted as falling supply combined with reintroduction of renovated and repositioned hotel product helped support stronger room rates last year despite a softer market.
"Although rates have increased, Hawaii's product base continues to improve to strengthen [its] positioning over the long term, the current market notwithstanding."
Hawaii continues to maintain high standings among the top 25 U.S. lodging destinations, ranking second only to New York in occupancy, ADR and RevPAR, according to Smith Travel Research, a data provider for the lodging industry.
Current market conditions make it imperative that lodging companies maintain high standards, Solomon said. "The market is pretty good at figuring out who actually improved their product and who just raised their rates. You have to earn the rate. If the rate is up and there's any weakness in your product, you get punished pretty badly."
China and South Korea have been cited as bright spots in Hawaii's tourism future, possibly offsetting declines in arrivals from the all-important Japanese market.
Chinese travel to Hawaii was up 27.7% in 2006, and China now rivals Japan as Hawaii's No. 1 source country in Asia, according to Hawaii Tourism Asia, a marketing partner of the Hawaii Tourism Authority. Chinese arrivals doubled from 2003 to 2006 and are projected to double again in the next two to three years.
This bodes well for Hawaii's coffers. China ranks seventh in the world in tourism expenditures. Within eight years, it's projected to rise to No. 2, behind the U.S., said Hawaii Tourism Asia. In fact, Chinese are already the No. 1 per-capita spenders among visitors to many U.S. destinations.
Much depends on whether China gains Approved Destination status. Momentum is growing between the U.S. and China, said Hawaii Tourism Asia, and some expect a breakthrough by the 2008 Olympics.
Korean arrivals to Hawaii numbered 37,777 in 2006. The industry anticipates South Korea will obtain visa waiver status in mid-2008, with implementation by year's end. If South Korea secures visa waiver status, the HTA projects an 80% increase in Korean arrivals to Hawaii within the next 12 months.
In anticipation of growth in the Chinese and Korean visitor market, the tourism authority intends to launch a cultural training program this year to familiarize hospitality workers with the countries' cultures.
But in the short term, China and South Korea will not be significant, Enderton said. "Both are growing at low double-digit levels," he said. But the numbers are not that large. "Greater Los Angeles brings in many more people than Korea and China combined."
"As we move into the second decade of the 21st century, I see China [tourism] continuing to grow," he added. "As the visa situation improves [and] as more Chinese travel, Hawaii will see its share of [those travelers]."
But Japan will remain Hawaii's pre-eminent Asian market, Enderton said.
"The Japan outbound international market is relatively flat right now. Hawaii just owned that market for years. Now so many other destinations have come on line [but] we're holding our own. We experience about 1.25 million Japanese a year to Hawaii. That's out of 7 million visitors."
Long before the additional challenges that were heaped on Hawaii this spring, the state had fine-tuned marketing efforts, focusing on high-spending experiential travelers. That strategy has not changed, said Talwar, who noted that the state visitors bureau coordinates efforts closely with island chapters to make sure there's no overlap. "We've targeted really tightly, and we've separated roles. With the price of oil, we do look at the segment that is more likely to travel and then target them."
Enderton said that Oahu, for its part, is "going to market harder."
"We need to intensify our marketing efforts and focus on those segments that pay the best dividends," he said. "From Oahu, we look at romance: wedding, honeymoon, people celebrating an anniversary. These trips are planned further out, and people are less apt to cancel. Another important market to us is the family vacation market. We'll continue to focus on those markets."
Solomon said it will be important for Hawaii to invest in more promotion: "We can't let up on the marketing."