In wake of crises, industry focuses on long term

Travel Weekly invited executives from leading airlines, hotel chains, tour operators and other tourism suppliers to gather with Hawaiian government officials for a roundtable discussion at the Waikiki Beach Marriott Resort and Spa to discuss travel and tourism trends in the Hawaiian Islands.

Moderated by Travel Weekly Destinations Editor Kenneth Kiesnoski, the roundtable took place as the Hawaii Tourism Authority committed $3 million in emergency marketing funds for promotion in North America. (Editor's note: The original transcript has been edited for length and flow.)

Travel Weekly: Hawaii has been making headlines, whether it's volcanic smog hanging over the Islands or the demise of Aloha Airlines. Let's talk about the state of Hawaiian travel and tourism. 

Marsha Weinert, tourism liaison, Hawaii Department of Business, Economic Development and Tourism: For all intents and purposes, 2007 ended up being definitely better than we had projected. Visitor spending was up. Arrivals were down slightly, but '07 ended up being fairly good. And thanks to a lot of additional effort by the Hawaii Visitors and Convention Bureau late last year, the first quarter of this year actually was very good. Visitor arrivals were up 2.6%; spending was up 6%.

That was through March. The problems didn't start until after the first quarter. We knew last year that the first quarter of this year looked soft. The HVCB got into the market early with their campaigns, and they were able to turn that tide a little bit. As we went through the first quarter, we realized that the second quarter [would be] soft. And that was prior to Aloha Airlines and ATA Airlines ceasing passenger service.

John Monahan, president and CEO, Hawaii Visitors and Convention Bureau: Talking to our industry partners last year. We realized that we'd have some issues. They were gearing up to be a little more aggressive. We actually moved 2008 dollars back into 2007, so we were ready to launch our campaigns Jan. 1. But of course, no one foresaw the price of oil and what it's doing to the airline industry. Clearly, Hawaii got it in the teeth, probably first, because of home-based airline Aloha and the big schedule that ATA flew here. But this is a total airline issue; this is not just Hawaii. There's a crisis in the airline industry in the U.S., which is going to affect tourism across the country.

TW: If oil had stayed below $100 a barrel, might Aloha still be in business?

Monahan: I don't know. There appears to be a point where the straw broke the camel's back; it seemed to be about $115, $117 [a barrel] at the time they went out of business. And there's been a rash of airline closures, bankruptcy filings, since Jan. 1. It appears that when oil got over $100, particularly some of the low-fare airlines began to have trouble.

TW: How effective is promotion against market forces such as the price of oil? Are you at the mercy of some of these things, no matter how much money you pump into marketing?

Monahan: The price of oil ... affects the airlines dramatically. What they are doing now is obviously chasing yield. With some of the low-fare carriers going away, legacy carriers don't have to play the market-share game anymore; it's all about demand. The airlines will put aircraft where there's demand. Our issue as a destination is to continue to create demand.

We still have extremely strong demand for Hawaii. ATA and Aloha are out of business, but it still is beautiful every morning here. There's still all of the activities. The hotels are as good as they were, and getting better with the billions of dollars that have been spent across the state over the last few years. The product is getting better.

TW: After Aloha and ATA folded, was there an effect on visitors fearing to come here, perhaps afraid of getting stranded?

Jack Richards, president and CEO, Pleasant Holidays: We had thousands of people affected by Aloha and ATA, and we moved everybody over. We had less than 1% cancel their trips. Their confidence has been shaken, obviously, but if there were huge concern, they would cancel their flights. They didn't. They're ready to go.

Weinert: We also had a lot of room for growth in the existing capacity to this state. In February, we lost two cruise ships, so that's 2,000 seats a week. We lost another [in May]; that's another 2,000 seats a week. The airlines are sitting back and watching to see what happens in regard to load factors and yield before they make commitments, because it's risky to add additional service to the Islands. Our job is to create the demand so existing capacity is full and yield is good. Then we can start talking about the new seats into the marketplace.

Beth Churchill, vice president of marketing and guest services, Aqua Hotels & Resorts: We didn't see concern from people that they would get stuck here as we offered free nights. And we didn't lose much from our wholesale partners. But with our consumer direct business, we got a lot of cancellations because they couldn't rebook -- because airfares had skyrocketed. They had gone from $300 or $500 to $1,000 overnight. And they're not coming down.

TW: How does this longhaul airlift situation affect Mesa Airlines' Go!? I imagine there's a benefit to you, on the inter-island front, from Aloha's demise.

Ed Gomes, vice president of customer service, Mesa Airlines: We definitely benefited in the first week or so as people were scrambling to catch flights and [rebook] to get out of Hawaii. This is kind of an exciting time to be in Hawaii, because the truth is going to be told once the summer season ends. Almost all the airlines have ramped up for seasonal service. It's just traditional. Once September comes, it's going to be interesting to see how many leave those seats into the market. I think we've got a couple months to figure it out.

Jay Talwar, vice president of marketing, HVCB: When there was that calamity with airlift into Hawaii ... I think what you saw is something you wouldn't see in most places in the world. A couple of airlines went down, a lot of people were stranded and private business stepped up.

They took it on the chin, and they took care of the customers -- lodging, wholesalers, different airlines. And the state put aside $5 million to say, hey, let's take care of our visitors. That aloha spirit isn't just coming from the marketing guy; it's a part of the fabric of the community here. Visitors see that when they come here, and that's why demand remains so strong. It's also a benefit to the travel agent community. When your customers come here, you know they're going to be taken care of.

Keith Vieira, senior vice president, operations, Starwood Hotels & Resorts Hawaii & French Polynesia: The issues we face go beyond air, and has been public and in place long before the first quarter. Usually it's one or two things that create a crisis or a downturn here. We face a lot of unique challenges; [for example,] the Japanese market is half of what it used to be. From a group standpoint, we are not booking anywhere near the number of groups we need to. You add the concerns people have about air travel in general. You add Mexico and other destinations that do a good job saying, "Come here; we're easy, we're close." Our higher labor costs, operating costs [and] hotel energy costs, [are] up about 30% on top of what we anticipated they would be. You add all those things [and] we have a pretty significant destination challenge.

We, like others, moved as much of our marketing dollars up front. If you miss the first quarter, generally, you miss the year. And now you have the crisis of the lost air seats. Even though TAT has increased by, I think, $20 million over the last four years, marketing dollars have been relatively flat. Now we're going to catch up with an emergency fund? No. It's got to be ongoing. Some of these things are short-term [but] some are long-term structural [issues] that needs to be addressed.

Richards: There is not an air seat problem. I have all the seats I want for Hawaii. It's the cost of the seat, because of the fuel.

Weinert: The message out there is that air fares to Hawaii have increased. Well, they have everywhere. Airlines ... cannot afford to fly at fares they were getting three months ago.

Vieira: Hawaii, though, is the only pure leisure destination in all of our competitive set. When you look at Las Vegas, Los Angeles, Miami, they do a fair amount of business travel. In North America, people are tacking on vacations to their business trips. While every [destination] faces this air fare challenge ... Hawaii, that's a whole separate [matter]. Start multiplying summer business by four; that's a challenge we face henceforth -- a desire to keep on stepping up the market.

But ... the concerns we have are more long-term. Can we sustain higher rates over a longer period of time? People seem to have accepted paying more for hotel rooms. Good for us. Airlines have always felt the opposite; a few dollars makes a huge difference. And then, how do we maintain the level of marketing needed to compete with other states or countries, being a little island state? We don't spend anywhere near what some major competitors spend.

Talwar: It's a fundamental change to the marketplace in terms of pricing structure. That mean we've got to target our message. There's an audience out there that values the product. If we look at our satisfaction surveys, it's extremely high, in the 90's. We get a high percentage of repeat visitors. It comes down to targeting and working with the channel, to make sure we're putting all of our efforts against the audience that's most likely going to be able to travel, given the new dynamics of the marketplace.

TW: Who comprise that audience?

Talwar: It's who we call, in our language, the avid traveler. Someone who believes travel is a birthright. They're going to travel, no matter what. Every two years, based on the numbers we see, they take a foreign leisure trip. They take a couple of flying leisure trips, domestically, a year. They [live] across the country [although] there are pockets that are a little higher, in terms of indexes, than others. The good news for Hawaii is there's a high percentage of people who fit that profile who have yet to come here. And so we're putting an emphasis on targeting those folks who fit the profile. And then, working with island chapters to go after repeat visitors.

TW: When you refer to higher indexes, do you mean salaries or net worth?

Talwar: No. It's the value of a vacation to these people. It comes across income strata. Income is not the primary focus at all.

TW: At Pleasant Holidays, has the lower end of the market to Hawaii dried up? 

Richards: People greatly impacted by the credit crunch and other things in the U.S. economy are holding. We think the [federal] stimulus package is going to put about $108 billion back into the market. We're all developing messages around that, and price points at $599, $899, and $1,299. Those people are going to travel. Research will tell you that not only will they travel, they'll spend more than they actually receive. [But for] all of us who are trying to forecast in these volatile times, it becomes increasingly inaccurate.

TW: Does Aqua have a range of product that is more budget-oriented?

Churchill: The thing that we are noticing is that individuals who used to get the $300 or $500 round-trip airfare on the West Coast were fine paying a little bit more for hotels. However, now that airfares have gone up, they're looking for better prices in the products. And so I think that the hotel sector will probably feel it more than we have in the past with prices. I'm seeing on-beach hotels dumping rates, and kind of playing in our sandbox now. Most of our hotels are off-beach. We're starting to see rates in Waikiki decrease to the level of where our mid-priced, off-beach properties used to be.

TW: A group of native Hawaiian activists recently occupied Iolani Palace in Honolulu. We've discussed the aloha spirit. How are relations between Hawaii's visitor industry and the host population? 

Talwar: We have a host culture that's alive, breathing, living, coming into its own and maintaining itself. That's a unique attribute to a vacation destination that more and more people want to experience. The palace was closed down for several hours to visitors. These people were expressing their beliefs and their rights but it was in a very peaceful manner. I think the beauty of it was that it reflects the fact that we do have a host culture. [Visitors] want to engage with that culture. They feel that aloha spirit.

Weinert: We also have to take it into perspective. There was immediate coverage on the supposed takeover of the palace -- there were 20 people. They finally agreed to seek a permit to be able to demonstrate. They're very cooperative and they have the right. But it's 20 people. It is not indicative to society overall.

Churchill: I was actually in Bangkok, watching CNN International, and that story came on, right next to the volcanic smog, or "vog," in Waikiki story. It was amazing to see the way that the media spun it. Because you didn't know that it was only 20 people. You think that it's a lot because you're seeing it next to the Burmese unrest, and then the cyclone. The way that they compared Hawaii... to these other destinations that have regimes and coups; that was what was a bit of a concern to me. It's unfortunate.

TW: John, does the HVCB address directly any sort of specific events like that in your official statements, or anything? Or do you take a broader, longer-term view?

Monahan: This one, we didn't, because to be honest, it was a blip. But I think what Beth says is indicative of what the media does with a story. And particularly, Hawaii is kind of always big news. I happened to be in Canada when the earthquake hit a few years ago, and I'm talking on my cell phone to people in Hawaii, and kind of understanding what's really going on, and watching CNN, and realizing there were two different stories going on, here.

TW: Yet Hawaii, in a way, is almost like a Teflon destination when it comes to that, right? Would you agree or disagree that any news, in a way, is good news?

Monahan: I think it's good because Hawaii is such a special place and people think of it as paradise. So it's big news when something is a little bit amiss. If [media] get the story accurate, fine. You mentioned vog. There's a lot of vog on the Big Island. But we just came back from doing a ton of focus groups across the country, and without a doubt, the No. 1 fascinating thing to people who have been to Hawaii, and even those who have not been to Hawaii, is the volcano, without a doubt. In fact, we came away saying, "every island needs a volcano." But, seriously, you can see nature at work in Hawaii. And that's a tremendous draw.

Richards: [Clients] call [Pleasant Holidays] and say they want to be as close to the volcano as possible. It is an attraction now. It all depends on how it's spun in the media. It can be spun well or it can be spun as a negative.

TW: The native Hawaiian and vog issues are a nice segue into eco-sensitivity and green and sustainable tourism. Hawaii Superferry has had certainly faced challenges in those areas, right, John? 

John Garibaldi, vice chairman, Hawaii Superferry: Things are going great [with our] consistent, reliable daily service between Honolulu and Maui. We're attracting not only residents and an increasing number of businesses, but, amazingly enough, a lot of visitors from different parts of the world. People see this as a new attraction of Hawaii. We talk about the environmental issues; I don't think anybody can stand muster to everything that we have gone through, and the care that we take, in caring for the environment, here in Hawaii.

We're seeing a lot of demand from tour groups [and] independent travelers. It's just very exciting times. [And] I'm glad to see a lot of other stories in the front page of the newspapers here.

TW: Has the airlines' demise had an effect on Superferry business? 

Garibaldi: Being an old airline guy myself, we always figured there's about 1.7 airlines' worth [of business] here in Hawaii. It was really never more than a two-airline market. The demise of Aloha somewhat accelerated [our] amount of freight traffic. That's stabilizing now as Aloha's getting its cargo business up. But "Maui News" [ran an article] about some farmers who had to try Hawaii Superferry and they saw what a great opportunity it was to have refrigerated product being taken from island to island without any other exposure to the elements. It improved their product, lowered costs and the like. We have a lot of things that are much more fuel-efficient vs. air. Our carbon footprint is more favorable to others. It's that just here in Hawaii, we haven't had [ferry traffic] for decades. And we're excited about bringing it back.

TW: Have the dynamics of inter-island travel changed in any way? More of it, less of it, how travelers are going about it?

Weinert: It's gone down. That's a result of more of the trans-Pacific flights going direct to the Neighbor Islands. It's starting to come up ... probably because of fare wars in the marketplace. But the airlines are telling us they're continuing that [trans-Pacific] model because customers are asking for that point-to-point kind of delivery.

Gomes: From our perspective, we've only seen an increase in traffic. We've not seen a drop in inter-island traffic at all.

TW: What percentage of business is local traffic vs. visitors?

Gomes: We don't necessarily look at it like that. It would be pretty hard to break out.

TW: Are you looking at partnerships with the long-haul intercontinental carriers?

Gomes: Yes. We are looking at codeshares and partnerships with any [airline] that can get passengers back to the U.S. mainland.

Garibaldi: [Superferry] is teaming up with any inter-island carrier; fly one way and take the ferry back. It's a great way of bringing back the one-day tour. I think it will really complement the existing airlines, and give our residents, but more importantly, our visitors a new chance to go out and see Hawaii's Neighbor Islands.

TW: Is your Big Island service on track? And how about Kauai? 

Garibaldi: Our vessel's down in Mobile, Ala. We'll be starting [Big Island service] in mid-2009. There's a lot of interest already. Kauai -- we're still monitoring the situation. We're really reaching out to the community, sensing what they want us to do. Kauai has always been in our business plan but there's no set date to resume service.

TW: The other news on the seas around Hawaii has been the slow withdrawal of Norwegian Cruise Line from the market. Any thoughts?

Richards: It's a capacity issue. Frankly, three ships were too many. And too quickly.

Vieira: Demand has got to be absorbed into that market, so they can get their prices where it needs to be, so you can bring in the next ship. From a hotel standpoint, it's a help to us. I know some people did some pre- and post-cruise, and we want to keep all different viable travel options for people in Hawaii. But some of the pain of [NCL] leaving is helped by the fact we now have a lot more air seats on Saturdays.

TW: Do you find that booking windows are shortening for Hawaii hotels?

Churchill: Absolutely; it just depends on where the business is coming from. Wholesale business tends to book a little bit further out. Web-direct business is a whole different area. Some of it's kind of proprietary, so I don't really go into those details. Every channel of distribution is slightly different, so we monitor it very closely.

Something that's been very interesting for us, as of late, has been our Web-direct. We have the same number of people coming to our Web site -- but fewer bookings. That tells us something about the consumer-direct business model vs. going through the traditional wholesale partner. I think a lot of has to do with the air. We're seeing movement away from packaging now, and more towards booking air separately from hotel. If they can't find the right air, they're not booking the hotel.

Vieira: The markets have shifted for us. The loss of the significant Japanese business was picked up by North America, luckily. And that growth came both from wholesale channels and also direct bookings. As the market shifted, the direct booking channels do book a little closer in. Many of direct bookings are coming through travel agents. Whereas we used to "mass-blast" travel agents, now we know which ones supports us, either directly, or through wholesale bookings. The travel agent, we find, is still the most knowledgeable person about Hawaii. Our bookings through travel agents have gone up tremendously. Not the number of travel agents booking, but the bookings per agent.

Talwar: We've got new and improved, and certainly more than sufficient, inter-island options for visitors when they get here. That's why we're working so hard with travel agents. In uncertain times, people want more counsel. People are looking for experts, for someone who understands the market, someone who understands the destination, and someone they can trust. The opportunity for the travel agent community, right now, is to make sure they're educated on the Hawaii products.

We'll plug our Agents.gohawaii.com Web site, where they can go in for training, online, free, at any time of the day or night. We've upped it now, with specific 201-level courses, provided by each island chapter. So there's a lot of information there that's up to date. So they can continue to be that expert, and kind of lead their customers through some uncertain times.

TW: There's been a lot of investment in condominium and condotel product, and Waikiki has been undergoing a beautification and upscaling program. Given the economy, might there be a sort of plateauing of these types of investments?

Vieira: We cannot survive unless we continue to grow revenue. We need to have some visitor growth, but [visitor] spending should outpace that. How do you improve product? Outrigger did a great job ... putting life and energy back into ... [Waikiki Beach Walk on Lewers Street].Starwood will spend $750 million on our beachfront hotels that we'll complete by the end of next year. And then $400 million on the Princess Kaiulani.

TW: What are hot markets in Hawaii?

Richards: Weddings. Pleasant Holidays did 200 weddings in Hawaii last year. We have increased our staff, and our focus on this market, to increase the business in 2008-2009. We're going to be working very closely with a Hawaii wedding specialist to do this. I think that that market is coming of age, and that's an opportunity for growth.

TW: Competing destinations see a lot of weddings and honeymoon traffic at all-inclusive resorts, a business model not really present in Hawaii. Does that present challenges?

Richards: Sure. You're talking the difference between the fixed-budget vacation and a non-fixed budget vacation. The Caribbean and Mexico know that Hawaii does not have this model [and] use that as a key differentiator in their marketing programs. Going forward, we need to figure out how Hawaii can capitalize on its assets.

Vieira: I think you're going to see a lot more sophistication in the family market. Families, at one time, were cheaper travelers; four people in one room. That's not what we're seeing now. You'll see Hawaii take a jump [to] the high-end family market, [visitors] who are willing to pay whatever it costs.

TW: Aqua's condotel units with kitchenettes seems ideal for the family market.

Churchill: Actually, we're targeting what we call recession-proof markets right now. Our properties don't appeal as much to families as to destination weddings. We have a program called No Commitments, specifically targeted towards individuals looking for accommodations, but unable to afford to stay at the Halekulani. We don't require contracts; the bride and groom are free to be able to sign up, get a code on the website, and people in the wedding party can go online and do whatever they need to 24-7, booking any time.

And then, of course, your gay-lesbian market. That's a big market for us, as well. We're looking at some of the markets where we know that people are still spending money, and willing to come to Waikiki.

TW: Does the HVCB target the gay-lesbian market directly? 

Talwar: We just don't have a budget to do everything. We've been working with a core group of target audiences that we get from the HTA. We focus on those and it doesn't include that market specifically, at this point.

Richards: We [at Pleasant Holidays] do. Absolutely. We have close to 26 full-time salespeople in the field. They target specific travel agents that specialize in [gay-lesbian travel] so it's a specialty market for us. Frankly, it's held up very well.

TW: Jack, has anything surprised you since taking over as president and CEO at Pleasant Holidays? 

Richards: I really didn't think the economy was this bad. It has required us to really target our marketing and promotional efforts to keep the demand where it should be. That's been probably the hardest job that I've had. I feel like I'm treading water. We're constantly putting out fires, and that's not the way to run a business. There have been so many extraordinary events happen that have negatively impacted travel business that I think all of us are ready for a little stability. And I don't see any end in sight. I do think the oil is going to get worse before it gets better. Every time we think we have a strategy on what to do about it, the next day it changes. I think we're actually managing through this volatility. It has been the greatest challenge for me.

TW: Will this economy have as big an impact on travel as, say, 9/11? 

Vieira: I think that was obviously a short-term ridiculous hit. And the biggest thing we saw [then] is that people were saying, I've got to bond with my family; I don't know what life's about; I've got to take a special vacation. That feeling everybody felt after that about how important their life was has benefited a place like Hawaii.

But I don't think you can compare this situation. There's so many fundamental economies and macro-issues here that, we're so small, we can't affect any of them. We just take the results of it as hopefully this beautiful, wonderful demand, aloha spirit; everything else that we have going for us can overcome that.

Monahan: We're a strategic marketing arm of the Hawaii Tourism Authority. But with the changes that really began mid-last year, the softening of the economy, followed by the heightening airline crisis, our job has become much more tactical. We've gotten closer to the conversion; more money is being allocated to partner with the industry. So that's really been the major change that we've seen.

 

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