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Tourism Carries "Sub-Par" Hawaii Economy

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Visitor industry, especially Waikiki, carries Hawaii economy. Now it’s time to get the Neighbor Island numbers up.

It’s simple, really: Everyone in Hawaii needs to give a hearty round of applause to tourism for lifting us out of the recession.

Thank you for an estimated $13.9 billion in visitor spending during 2012 (that’s a record) from 7.8 million tourists.

Those numbers carried the state economy through an otherwise lackluster year, says UHERO, the University of Hawaii Economic Research Organization. “Outside of tourism, economic growth continues to be sub-par. Since the beginning of the year, there has been a net increase of 6,500 jobs statewide; 2,900 of these are in the accommodation and food-service sector,” UHERO said in its year-end update and 2013 forecast.

A special thanks should go to Waikiki, for accommodating one-third of all Hawaii tourists. “Waikiki is carrying this recovery,” says Rick Egged, president of the Waikiki Improvement Association. “What I usually tell people is: ‘Where would Waikiki be today if we hadn’t gotten that $3 billion of reinvestment by the property owners?’ ”

Add to that another $100 million in improvements by government, including sewer infrastructure and roads.

Over the next 10 years, there’s a further investment of $2.2 billion in renovations planned by private owners, says Joseph Toy, president of Hospitality Advisors, a consulting firm whose clients include some of the world’s largest hotel chains. “I have never seen a destination transform so rapidly.”

Of course, it’s not all good news: There are concerns about how many more tourists Hawaii can absorb, friction between residents and tourists in nontraditional visitor areas, and how to attract more visitors to the Neighbor Islands, where the tourism recovery lags behind Oahu.

“Tourism is at an all-time high, but more sobering is looking at it from a long-term perspective,” notes Richard Lim, director of the state Department of Business, Economic Development and Tourism. “In 1988, tourism produced 30 percent of the state’s gross domestic product. In 2012, it produced 17 percent. It’s not growing as much as the rest of the economy.”

Waikiki is running low on available units, so tourism agencies are focused on generating Neighbor Island growth, especially on Hawaii Island and Kauai. As of June 2012, the average statewide room occupancy was 77.1 percent. But the variation from island to island was huge: Oahu was above average at 84 percent, but Maui was 74.1 percent, Kauai 69.3 percent and Hawaii Island at the bottom with 62.7 percent.

“Most of our (Waikiki) hotels are operating at capacity now,” says Egged. “Usually, you consider capacity to be in the low 90 percent.

“If Waikiki is operating near capacity, you’re trying to market the places where you still have space. So, if they’re going to grow, they have to fill in space on the Neighbor Islands.”

David Uchiyama, VP of tourism marketing for the Hawaii Tourism Authority, agrees. “In terms of carrying capacity for the state, we’re well below our capacity,” he says. “At 84 percent on Oahu we’re getting up there, and that’s why we place so much emphasis on distribution to the Neighbor Islands. In pushing flights directly out to the Neighbor Islands, we’ve started to make some headway in again giving people the access direct to their vacation experience, wherever it is.”

Egged says economics will naturally prevent an overload of tourists because there just aren’t enough hotel rooms.

“There’s just a natural law of economics involved,” he says. “As properties get fuller the prices will go up and, as that happens, the numbers of tourists will drop. … It’s always going to find an equilibrium.”

Total visitor spending during 2013 is projected to top $15.3 billion, according to DBEDT’s forecast, a 5.2 percent increase over estimated spending in 2012. “International markets are the new growth engines,” says Lim. “We’ve grown through diversification. But when one side grows, the other shrinks. And there’s a decline projected in domestic visitors.”

Surprisingly, if you account for inflation, the cost of a hotel room today in Waikiki – an average of $175 a night – is cheaper than 10 years ago, says Lim. That’s even though there are 4,000 fewer hotel rooms in Waikiki today than in 2001, when the number peaked at 32,000.

“Waikiki has the lowest room rates in the state,” says Lim. “That’s certainly part of what’s driving the surge of tourists there. On a daily basis, they outnumber residents more than three to one. The current resident population is about 23,000, compared to (average) daily visitors of about 72,000.”

With all those people, Waikiki needs more improvements, says Egged. “We still need to do more work on our sidewalks and our pedestrian infrastructure to make it easier to get around Waikiki as a pedestrian. That’s something we’re working on now.”

He says the issues that diminish the average visitor’s impression of Waikiki include street vendors on the sidewalks and the homeless.

“People are paying good money to come here. We have to make sure we provide a good experience.”

Some Hotels Hurting as Tourists Go Local

Despite a record year for the state in tourism, many hotels on Hawaii Island and Kauai are suffering from low occupancy rates. Among the reasons for that are two acronyms, IVU and VRBO, that are becoming bigger players in local tourism.

Individual Vacation Units include condos and homes available as short-term rentals to tourists, plus bed-and-breakfast locations, and they are often advertised on Vacation Rental by Owner websites.

Tourists often stay at IVUs to save money, both on the rent and because they can often cook their own meals. IVUs can also offer tourists a different experience from resorts and allow them to live like locals during their vacations. Though the units often break county laws, those rules are rarely enforced.

The 2011 Visitor Plant Inventory report by the Hawaii Tourism Authority tracks the “growing trend of self-managed/self-marketed lodging” in Hawaii. The report notes that hotels supply 55.1 percent of the lodging units in the state, but just 7 percent of “lodging operations.” By comparison, IVUs account for 71.1 percent of the lodging operations, though many of them are just a single unit.

On Kauai, “The overall number of IVU operations increased in 2011, reflecting the growing trend of rental management companies with units spread over many condominium buildings and VRBO operations,” according to the report.

On Hawaii Island, the IVU phenomenon has grown substantially, says Christof Luedi, regional VP and general manager of the Fairmont Orchid Hotel, and chairperson of the Big Island chapter of the Hawaii Hotel and Lodging Association.

“This certainly has become bigger as subdivisions have been built and owners decided they want to rent out their condos or homes for income,” he says.

During the recession years of 2008 and 2009, Luedi says, some former guests of luxury hotels chose to rent condos, presumably at a cheaper price. Now that tourism has rebounded all along the Kohala Coast, Luedi believes, there is a segment of visitors who have not returned to hotels.

“Certainly there is an element that’s going away,” he says. “But we notice many of them do visit our restaurants because they’re missing the services in the resorts.”

To hold their market, Luedi says, hotels have to make sure they’re marketing the services that set them apart from IVUs. “We just have to make sure we’re out there and everyone knows what we have to offer,” he says.

Hawaii Accommodations

Each year, the Hawaii Tourism Authority inventories the state’s visitor accommodations. Occasionally, increases in some categories are due to the identification of units that existed before but were not counted. All categories showed more units in 2011 except for condo-hotels and hostels.

Hawaii Business magazine invites you to comment on our articles and the issues they raise. Comments are moderated for offensive language, commercial messages and off-topic posts and may be deleted. Some comments may be chosen for inclusion in the magazine on the Feedback page.

Jan 22, 2013 10:00 am
 Posted by  Aaron808

Regarding the Marathon:

Dr. Barahal is a hero for Hawaii running and tourism.

Last year's had better aid stations than in past years. Plenty of ice and the option to fill one's own bottle were welcome.

Low cost of entry for locals is great.

BUT, if he really thinks, “We changed the ‘cheap guys with poor food’ image," he needs to think again.
"A malasada at the end of the race” is almost inedible. Other than that was bananas, bagels and water.
Pretty poor selection.

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