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Waikiki: Present and Future - Extended Version

Six tourism leaders gather for a Hawaii Business forum to discuss Waikiki’s strengths and weaknesses, and how to keep it a robust engine of Hawaii’s economy.

(page 4 of 4)

Uchiyama: There’s not going to be another downturn (laughter). We see the meetings, incentives and conventions market as being a problem already in 2016, ’17 and ’18. We see the rates of hotels going up, which is a concern. I think hotels are not going to be able to do away with some of these services because of the global customer that we are going to be attracting. Our seat inventory went up by 24 percent from 2011 to 2012 and that was all the international markets.

The growth is in the international markets and they’re used to certain standards of service.

Nishizaki: I think ultimately the customer will dictate what services they are going to have and that’s why in our portfolio we have hotels at various levels. We’re able to service the high-end customers whose expectation is here and they are going to pay at this level and therefore the service has to be at that level. That means there will be full turndown service at the Royal Hawaiian, but, at another hotel, such as the Princess Kaiulani, there is no turndown service at night because the price is different. The customer who pays $100 a night, one would hope, knows the quality of the product and the services are going to be on a different level.

Egged: Basically, we’re all saying the same thing, and I think Eric is right. In order for Waikiki to continue to be successful in a competitive environment, we have to have good service and good service means that we can’t be operating on a skeleton crew. For a long time, we went through a rough period. A lot of the properties tried to hold off as long as they could to add people because they were trying to cover a lot of red ink in Waikiki. But we can’t keep operating properties with less than full staffing. You’re going to have to add the staff that customers demand and provide the services customers demand. So, in the long pull, the higher-end product serves Eric’s purposes as well, because to maintain a higher-end product you have to have better service and more staff.

Gill: Obviously there are these points of divergence. I don’t expect, for example, Outrigger to express the same concern for the bank investors that I do. But we have an opportunity in the next few years. We have a contract now going forward to 2018, which is the first time since I took office. We don’t have a contract dispute with the Hilton or the Sheratons, the Starwoods. Hyatt is now resolved. Marriott is about to ratify the agreement. So, we have an opportunity to do something we’ve had little opportunity to do in the last 10 years, which is to find areas of common interest. In fact, the interests of workers and the interests of the company in most cases are alike.

Egged: Another major concern for Waikiki is energy, it’s our second-biggest operating cost (after labor), and we’re seeing interesting opportunities on the energy front. The state completed a study last December that said if we switched from oil to liquified natural gas we could save 40 percent on (generating electricity). LNG is not a Waikiki issue. That’s an issue for the entire island, the whole state. It’s important that we follow through on investigating it. We’re also looking at the idea of creating a seawater air-conditioning unit to bring cold ocean water to help us with our air; our biggest electric cost is air conditioning.

Nishizaki: Let me add on to something Eric said about training employees: It’s not just training new employees, but also retraining current employees. As customers’ needs and expectations change, we need to continue to upgrade the training levels of current employees.  What the customer goes away with is the experience they get from our associates at the hotel. That is something we will work on together to see if we can accelerate it. At the end of the day, what we want is a good employee because, frankly, a bad employee ends up becoming a problem between some union representative and our management team.

Gill: Do you have any bad employees, Ernie? (laughter)

Nishizaki: We have no bad employees.

Gill: I don’t get your point. (more laughter)

Petranik: David, are there new markets that you or the hotels are reaching out to that seem particularly suited to Waikiki?

Uchiyama: I think Latin America is of interest to us as well as expanding Southeast Asia.

Petranik: Which countries in Southeast Asia?

Carey: Hong Kong, Singapore, and we are seeing some of that captured with the new routing. China Airlines has a pretty good overall route structure within Southeast Asia and coming through Taiwan as a gateway and then on to Hawaii.

Carey: But that’s not good enough. We need a direct flight from Hong Kong. I fly this two, three times a year and it’s painful to get to Southeast Asia and back.

China will soon be the largest outbound country in the world. For us to get our fair share of that will require adjustment to the visa processing. Right now, it is very difficult for an average Chinese tourist to get a visa to travel to the United States. Over time, markets ebb and flow and the lesson of the early ’90s, when Japan and the U.S. went down, we had nowhere else. Right now, we’ve got Australia, Japan, North America, and we’ve got some burgeoning broad business out of Korea, some potential out of Taiwan, nascent business out of China. Ideally, you have a little bit out of a lot of markets so that as the economy slacks a little bit we always have a steady flow of regular visitors. But Australia doesn’t have a (similar visa requirement for Chinese visitors), Thailand doesn’t have it, Bali doesn’t have it. These are our competitors.

Uchiyama: We’ve created a lot of headway. It used to be three months (for Chinese to get a visa to America). It’s down to two weeks. As we see the new airlift coming to the China market – Air China starting in January and then Hawaiian follows in April – then we’ll have service from both Shanghai and Beijing. I think it will start to pick up, but getting further into Southeast Asia is something we need to do as well.

Egged: Just to be blunt about it: You want to be in places where the income demographics are higher so they can travel here, and they are in Singapore and they are in Hong Kong, and there is enough of the population in China to do that.

Certainly there is in Japan and there is enough of the population in Korea. We are an expensive destination but, I always say to our people, it’s worth it. The quality that you get here in terms of the number of the resorts, the quality of climate, the cleanliness of the air, the friendliness of the people. You can’t buy that. I go all over the place and there is no place like Hawaii.

Petranik: Is India a potential market or are the plane rides too long?

Uchiyama: India is a potential market. In fact, we just met with Emirates (airline) at our last World Routes Conference. Very interesting developments. They have fifth world freedom rights, which allows Emirates to go into other markets and transport people within the United States. They are looking at a code-share agreement with Korean Air right now, which might be the first phase of them considering running the route themselves. So, India is a possibility with the new generation of aircraft, the Airbus 350s coming on. Some (other markets) can be reached with a 787 and those all start to come into the mix.

We’re looking at Latin America right now because there is a merger of two Latin American airlines that have already acquired 787s (Boeing Dreamliners) and we think that’s an opportunity for direct services. Right now, they are gatewaying through Houston or Dallas, and we see that potentially as a direct service.

Europe becomes a possibility as well with the 787. We’ve talked about possible charters to start. Our European business has grown. We were pretty much right about 114,000 arrivals every year and that has grown to 134,000 and it looks like we are going to exceed that this year, so that may become another opportunity for us. So, the globe is becoming smaller and we just had the international airlines symposium here with a lot of different carriers. This really becomes the gateway for everyone to come through, so, hopefully, we’ll see more and more diversification because that is what we need to have a more sustainable industry.

Nishizaki: Are those markets using the Neighbor Islands, because Waikiki is already running at a very high clip?

Carey: That’s a legitimate challenge, for us to change that dynamic.

Uchiyama: We didn’t realize it but we were marketing ourselves as Hawaii. We went and did some research and the perception of Hawaii is Waikiki, so we changed that and now are marketing the Hawaiian Islands, so right out of the gate they know it is multiple islands. Before, we didn’t push the contractor or offices in Japan to distribute business. Now, we’ve got goals for each island out of each market, so that there’s a conscious effort to push business into the Neighbor Islands.

Carey: We must be careful about activity availability on the Neighbor Islands. Now, if we rank the Neighbor Islands by activities, Maui is No. 1, next is Kauai and the Big Island is further down the list. Those islands used to drive a lot more energy in the MICE business. When I first started, you could go up and down the coast and every insurance company, car company and bank were doing their incentive business there, and now because of the stigma of doing business here, it has declined significantly.

Having said that, talking with AEG guys, they believe the incentive  business out of Asia is still in the beginning stages and we’ll see more of that because Asians don’t have the same issues.

Gill: If you hold a convention in Denver and hold the same convention in Hawaii, you’re going to get twice as many people show up in Hawaii because it is a popular destination, and we’re not Denver, Phoenix, Albuquerque or these other places. Hawaii, unless we screw it up, should always be a draw.

If you go to hotels in China or in Japan, you’re going to have good service and you’re not going to want to come here and get nothing. So, I think that is good for us if we maintain it. There are other issues that we’re going to have to sort through. If we get a lot more Chinese, a lot more Koreans, how do we talk to them? We had 20 years or 30 years of arguments over linguists for the Japanese groups and they took a while to resolve. That creates issues in terms of who you retire for what jobs and so on. We’re going to have to address that through training as well. If you’ve got to put five linguists at the top of the seniority list, we’re going to have a problem with local people who don’t speak (an Asian language) losing opportunities to junior people. But we are training people in Chinese and we have a trust fund for that.

I’m very optimistic.

Szegeti: I’ve heard it from some Chinese groups: They love Hawaii, but they felt like they were in Japan. We ought to look at it from a marketing standpoint. If you go to any of our restaurants, the food and drink menus are in English and Japanese because it is the right thing to do. They have been our bread and butter. But, if we get that big influx from China, they will look at it as, “OK, where’s mine?”

Egged: We have the beginnings of that. I was just in PF Chang’s and they have their menus in Korean and Chinese, too, so I think that’s coming. We had a great presentation at our 2020 Conference on the Chinese market and the point was made that there are a million millionaires in China and all of them can fly whenever they want. They do not have to get a visa if they want to come and visit Hawaii as they have already got their 10-year visa to the U.S. We want to make it even easier to get a visa from China, but there is no question that today China is a strong market. About how many in 2013?

Uchiyama: About 160,000.

Egged: Another strength of Hawaii is that we are such a safe destination. In the Waikiki 2020 conference, we were looking 20 years back and 20 years forward. The incidences of crime are 40 percent less than they were 10 to 15 years ago, and a lot of that is due to a great police force but also because of improvements in the community.

Gill: I think it is related directly to the perception of the local people that these are good jobs. If you go to Cancun, you have armed guards keeping the local people out of the place. My nephew is in Jamaica for a year with the Peace Corps and he got carjacked four times. If you drive in a taxi there, you are going to get carjacked, but that’s a function of the surrounding community being dirt poor looking at this fabulous wealth on the beaches walking around with pieces of it falling out of their pockets. The key to keeping Hawaii attractive in that sense is to make sure this industry pays for the local people and they know it. That’s when everybody’s aunties work in hotels and make good money and are able to raise families, that’s when they appreciate the job. Our mission is to increase that compensation. There may be disputes about what that compensation is, but overall I think it’s in everybody’s interest to ensure this industry produces for the people so the people don’t turn on the industry and on the visitors. Right now a visitor can drive out of Waikiki, go to Haleiwa or Waianae or Waimanalo and have a meal and drive back. If that changes, we’re dead.

Petranik: You guys have been very generous with your time. Thank you for answering my questions. Final thoughts? Ernie, you’re our host, thank you very much.

Nishizaki: This has been a great session. I appreciate the time that all of you have spent and I can see that the partnership with Local 5 is going to be even greater in the future (laughter).

Gill: The next few years is going to make a big difference and it is very important for us to take a deep breath and take a look at the long-term viability of this industry as it relates to our community’s prosperity or lack thereof and make sure that we collectively move forward on things we agree on. We have an opportunity and I don’t want to botch it, but we’re also in a very dangerous place. (Turns to Nishizaki), I don’t know how you guys are going to come up with the money for that extra $500 million on your debt. I don’t know where that money’s going to come from. Ernie’s my friend and Kyo-ya has been a good employer and my employer. I’m very worried about the challenge in the ownership pattern, in essence, from hoteliers to bankers and real estate people, which creates a divergence of interest that we have to address as a community. We have to lock in the long-term benefit for this industry for Hawaii’s people.

Petranik: David?

Uchiyama: I want to mention the importance of emphasizing our identity and differentiating ourselves from the rest of the world. From HTA’s standpoint, we have lots to work on. The meetings and incentives business is something, short term, we need to get right; we need to get air access and grow that into other markets so we can diversify a lot more, because that will give us more stability and we will lose the (up and down) cycles we’ve seen in the past.

Petranik: David?

Carey: We’re enjoying a moment in the bright sun right now and you always worry about, “When will the other shoe drop?” and “What might it be?” From my perspective, it is continued marketing and market diversification and attention to product. We’re fortunate, there’s been a lot of investment by the city, a lot of investment by private owners. There has been a lot of support from government for making this a safe and nice destination. If we blink on any of those things, our risks increase.

A 200- or 300-basis-points rise in interest rates could change the whole dynamic. The problem with being a leisure destination in an island place like Hawaii is there are a lot of things we don’t control that can affect our business viability – whether it is SARS or a terrorist incident or an economic slide or other problems – so we need to work together to fix the things we do control.

Gill: We have conditioned the public to travel during wars. I remember during the first Gulf War, the whole place was very quiet. In the second one, it seemed like nobody noticed it. They just kept traveling.

Petranik: George?

Szigeti: I appreciate you having us. It is important that we brainstorm together and work strongly with our policymakers. I think it is really important that there are no new taxes and we maintain the status quo, because things are going well right now. But it’s just like everything, it’s going to go the other way. We know it. It’s just a matter of time. I know, David, you would like to keep things going well if we can, but the reality is that a lot of times the market is out of our control. So just keeping strong ties with our policymakers, working with them as great partners and working with some of the local issues like homelessness, graffiti, crime, keeping an eye on them, because they can diminish some of the visitor experience. As much as you want to pump money into it and do all the marketing and everything we do, if the visitor experience at the street level is not good also, then that is what they take away.  

Egged: I would like to reinforce a couple of things. David’s point about the relationship with the host culture is actually one of the reasons the WIA was created in 1968. It is in our original purpose statement and we need to continue to work to build that relationship to a fine community and community in general. It used to be the residents in Honolulu took great pride in saying, “I don’t go to Waikiki anymore, that’s just for tourists.” We’ve done a lot to turn that around but a lot more needs to be done and that relationship has improved tremendously over the last 10 years. Waikiki is now a place the community can be proud of, but we still have to work on that relationship. It is like a marriage: You have to work on it every day and so we appreciate the partnership with HTA.

The second thing is that we have a rare confluence where all the basic policymakers on Oahu are on the same page in terms of the importance of tourism. We have a mayor who is very supportive of tourism, the Legislature is very supportive, the City Council is very supportive. The governor is sort of supportive (laughter), but the state has been a good partner to us in a number of ways, for example beach-erosion issues and things like that. So it is critical to build on our success rather than sit back and say we did a great job and our job is finished. It is never finished.

Carey: There is one thing I would like to point out about culture. Our employees started a Hawaiian values education program in the mid-’90s and we spent a lot of time on Hawaiian culture and the host culture, and it is very interesting that we got an amazing pushback from our employees, who said, “Yes, we live in Hawaii and, yes, Hawaiian culture is very important, but our culture is very important, too. I’m Filipino, I’m Chinese, I’m Caucasian, I’m a Polynesian mix. We evolved our thinking to say it is the culture of Hawaii, not just the Hawaiian culture wrapped in the Hawaiian cultural values.  We try to celebrate those different cultures because they are what make up our workforce.

Egged: Which should help us market in Asia.

Carey: Exactly. One of the attraction points of this is there is a little touch of home for lots of those countries.

Gill: One of the problems I have seen is that, when I started work here in ’76, there were a lot more Native Hawaiian employees. There are a lot less now. How many do we have left in housekeeping? Two? And they are senior. If you want the host culture to be evident to guests, we have to hire people who will talk to guests. We have a provision in our project that we haven’t figured how to use in terms of encouraging Native Hawaiian hiring, without trying to cut anyone else out. We’re selling a Hawaii experience, we should have Hawaiians meeting guests and not just as cab drivers.

For example, in Vegas, our union runs an academy. Among other things it does, it takes at-risk high school kids, in essence people referred by the school system, and puts them through leadership training, which amounts to responsibility training – such as how to wake up on time – and, from there, the skills that actually get them jobs in the industry. This is a multiemployer partnership with the union there and I’m hoping we can establish a similar thing. We need the industry to be perceived by the Hawaiian people as something good. Not just good in general, but good for me, and I think we can do that.

(This transcript was edited for clarity and conciseness.)

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