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The Resilient Island

After the Sept. 11 tragedy, Hawaii-based companies on Guam continue to survive.

For as long as four decades, the island of Guam has been a beacon for Hawaii-based companies wanting to expand into the Western Pacific. Five-star hotels and tourist amenities are state-of-the-art on this U.S. territory. Visitor arrivals to Guam in the year 2000 (1.28 million) climbed 10.9 percent over arrivals in 1999 (1.16 million). Japanese tourists last year comprised 90 percent of the mix and were followed by visitors from Korea (47.3 percent increase) and Taiwan (a -4.8 percent decrease). Based on August year-to-date arrivals (up 5.5 percent at 909,475), the industry was fairly optimistic that tourist arrivals in 2001 would climb over the previous year.

However on Sept. 11, terrorists attacked the U.S. mainland, and Guam’s tourism industry took a hit. For many Hawaii-based firms, staying alive became a matter of survival, not profit margins.

Prior to Sept. 11, tourism leaders had anticipated more than 90,000 Japanese tourists would visit Guam in September. However, by Sept. 24, more than 25,000 Japanese tourists canceled travel plans to Guam. Hotel occupancy across the board fell between 20 to 30 percent one week after the incident. Continental Airlines, which positioned Guam as its Pacific hub years ago, also announced that on Oct. 1, it would lay off about 100 Guam-based.

Tumon Bay, Guam USA: The island of Guam hosted 1.28 million visitors last year.

“Layoffs in the industry are being considered as a last resort,” says David Tydingco, president of the Guam Hotel & Restaurant Association, an organization that injects 96 percent into the island’s $3 billion economy each year. “Reduced working hours are being implemented by hotels to keep as many people working. Remember, though, many of these businesses were operating pretty lean prior to the attacks, because of the general business conditions.”

Guam is a resilient island. It is not new to catastrophes. Consider these events in 1997: Asian currencies fell against the U.S. dollar, discouraging tourists from traveling to Guam for more than a year; Korean Air Flight 801 crashed into a Guam hillside on Aug. 6; then on Dec. 17, Supertyphoon Paka swept through the island, bearing winds of up to 200 miles per hour. The U.S. government as a result of the destruction declared the island a federal emergency disaster area.

This time, Guam business leaders and their Hawaii-based companies face a different kind of disaster. “The current crisis poses greater challenges for Guam than the Korean Air crash and Asian economic crisis that followed shortly,” Tydingco says. “Today, we’re dealing with not only an economic crisis in Asia and America that existed before the terrorist attacks, but the possibility of war, the fear of flying and a general sentiment of uncertainty in the marketplace.”

In response to the attacks, the government of Guam immediately formed the Guam Economic Recovery Council to address the areas of security, community needs and tourism. Tydingco, Guam Gov. Carl Gutierrez and a delegation of about 15 other Guam leaders were scheduled to travel to Japan from Oct. 8-13. Their No. 1 mission: to remind travelers that Guam still is a safe destination. The delegation visited Tokyo and Osaka and met with tourism officials. In addition, new promotional materials bearing the messages “Beautiful, Wonderful Guam” and “Guam: the First Choice for Overseas Travel” were created for about $600,000. Guam Visitors Bureau spent a total of about $1.2 million for the October mission.

Meanwhile on Guam, hotels responded to the decline in tourism. One of them is Hawaii-based Aston Hotel Management Co. Inc. It already had been downsizing operations prior to the Sept. 11 incident. Aston since 1997 had managed the condominium and hotel property Ladera Tower but on Aug. 31, 2001, announced it would no longer be affiliated with the property. The company continues to manage the Aston Holiday Plaza, located in the heart of the Guam’s Tumon Bay hotel district. To cut expenses, Aston outsources local maintenance companies like Advance Management Inc. for housekeeping and other general maintenance.

Aston also continues to operate Aston Inn at the Bay in southern Guam, close to the sprawling U.S. Naval Base. The long-term prospects for this property, which mainly caters to military personnel, are positive. The Navy earlier this year had announced it would homeport three nuclear powered Los Angeles-class submarines in the year 2002. Regular port visits by the Japan-based aircraft carrier USS Kitty Hawk and her escort ships also continue to boost the economy. While Aston has had to reposition itself, another Hawaii firm has decided to leave Guam. Hilo Hattie, which was the anchor tenant at The Plaza shopping center, closed its doors earlier this year after less than two years on the island. “We felt that they would fill an important niche,” says Michael Z. Ysrael of Tanota Partners, which owns The Plaza shopping center, home to other upscale retailers. “ Duty Free Shoppers concentrated on the high-end retail products, ABC stores picked up the lower end, and Hilo Hattie seemed to fit right in between.”

Ysrael adds: “From what we observed in Hawaii, Hilo Hattie had good management, similar to ABC stores, in that they carefully watched what customers wanted and sold it to them. Unfortunately, at the same time Hilo Hattie also expanded into the U.S. mainland.” Ysrael says Hilo Hattie pushed forward with its mainland operations, a philosophy that no longer justified its existence on Guam.

The Plaza shopping center is part of the “Pleasure Island” complex. Housed in the complex are Outrigger Guam Resort, an ABC Store, DFS Galleria, Hard Rock Café, Planet Hollywood and the virtual-reality park Guam GameWorks. Other Hawaii-based companies located in the Pleasure Island complex are Waikiki Traders, Honolua Surf Co., and Body & Soul. All tenants say they could be doing better but are surviving by keeping up with trendy Japanese tourists.

Clifford E. Olson, Outrigger Guam Resort’s vice president for operations in the Pacific region, says, “If times are down, we work harder to improve and hopefully reverse the trend. This, of course, means spending money at a time when revenues are declining.” In addition to operating the 600-room Outrigger property, Outrigger on Oct. 1 assumed the management of the Regency Guam Hotel and the Hotel Sunroute Guam. Both properties came under Outrigger’s new brand, Ohana Hotels.

On the retail side, Hawaii company Liberty House is the anchor tenant at Guam’s Micronesia Mall, the largest indoor shopping center in the Western Pacific. It is scheduled to come under the name Macy’s, after Federated Department Store completes its purchase of Liberty House. General Store Manager Ryan Torres reports there will be renovations to the facility and is encouraged by what he sees in terms of market opportunities. Management officials say that employee changes will be minimal.

Hawaii-based companies on Guam are not only involved in tourism. Construction, particularly for the military, is booming. One such project is the new Army National Guard Center, an $8.2 million project by Hawaii-operated Dillingham Construction Pacific Basin Ltd. Under the supervision of General Manager John Robertson, Dilllingham completed the two-story building to house readiness assets of the 1st-294th Infantry Battalion. The building has a total area of 46, 500 square feet and is equipped with a modern communications system, climate-controlled storage spaces and weapons vault.

“The only jobs available are very small and the competition is too intense,” Robertson says. “Some contractors are bidding at or below cost in order to just keep crews busy. It is therefore not worth the substantial expense to try to develop new business at this time.

Another Hawaiian construction company, Dick Pacific Inc., has two military contracts in progress. This is the same company that won the construction bids for Guam and Saipan projects, mainly Planet Hollywood, TGI Friday’s, FootLocker and Hard Rock. Dick Pacific recently completed the $40 million Department of Defense elementary and middle schools at Andersen Air Force Base, along with other minor remodeling and other major construction projects on Guam. The company also has started the site grading and infrastructure of utilities for the new $15 million Army Reserve Center Phase II, at the Radio Barrigada depot location.

This is a design-build project that was awarded to Dick Pacific last year, says General Manager Keith Farrell. He says the company also has started construction of the $1.2 million Pet Quarantine Facility at Andersen Air Force Base and is due for completion in March 2002. “We are focusing our business towards the U.S. military as we see them being our primary client for the next few years,” Farrell says.

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