Tourism: Survival of the Fittest

May, 2003

After the United States declared war on Iraq in March, Hawaii’s tourism industry launched a battle of its own, an internal fight against declining visitor arrivals. The timing could not have been worse. Hawaii had finally recovered from Sept. 11, 2001. Visitor arrivals last January and February jumped by 11.6 percent, compared with the same months in 2002. In February, the average length of stay per visitor increased by 5 percent. These four executives anticipate a soft market, however they still are optimistic about the future of tourism. The following interviews explain why.

 

Tony S. Vericella
President and Chief Executive Officer
Hawaii Visitors & Convention Bureau

FOCUS: Hawaii as a travel destination represents family values, peace and simplicity. To promote the Islands, local businesses need to be flexible.

How should Hawaii position itself, in light of ongoing terrorism and the war that began in Iraq last March?
In North America, you can’t assume that everybody has the same reaction. There clearly still is this post-911 environment, a percentage of the population that is resistant to travel. They still have certain fears, as well as in the Japan market. Those people are really not our targets. Even though there are surveys that say lots of people are still afraid, there are a lot of people traveling. The people that tend to in the North American market have middle- to upper-level incomes and college educations.

Those who travel frequently by air already, those are the people, after 911, who will likely travel the soonest. They just feel that life is something you have to go on with. They’re not going to change their ideals, values and let terrorism win. All of those people are looking for genuine authentic experiences. They’re looking for a place that really rejuvenates them, that’s peaceful. This really describes Hawaii.

After 9-11, there have been more people staying at home, closer to home, people in the U.S. staying within the U.S. and not traveling to international destinations. There has been a greater gravitation to Hawaii. That happened after 9-11, which is why the U.S. side quickly recovered for us. It continues to be strong. Depending on what happens after the [Iraqi] conflicts is the issue. Is there going to be retaliatory acts against U.S. citizens abroad and here, or U.S. icons, symbols of American capitalism?

What was the travel industry’s reaction to the rumor that terrorists had plotted an attack on Pearl Harbor?
We knew the sensitivity to that would be greatest in Japan. Our Japan division immediately was able to track the reporting of that in 14 different [Japanese] newspapers and media outlets. The story was rampant. The first thing we did was make sure that we contacted the Hawaii Tourism Authority and the governor’ office, letting them know what had occurred, in terms of the reaction from Japan. We encouraged them to provide us with a letter that we could send to Japan. This wasn’t a letter focused on the rumor itself relative to Pearl Harbor but more a letter in sync with a lot of things she was telling people in the previous week in her Fox News reports about Hawaii’s positioning and security issues.

We got an impactful letter from the governor, and we immediately made sure that it got into the hands of all the media outlets in Japan, not just the ones that wrote the negative story. Key travel industry people in Japan, including up to 4,000 travel agents, all had the benefit of this letter from the governor.

There wasn’t a continuation of other negative stories, after the first Pearl Harbor one. Some of the papers subsequently reported information relative to the governor’s letter. That’s especially important in Japan, where people are generally more cautious. They don’t like uncertainty. They want to make sure that they’re being respectful and not traveling to your area, if you’re in a war conflict. What they need is reassurance that you’re normal it’s okay, that all these other things that are happening elsewhere aren’t happening here.

How should Hawaii handle Japan travelers? 
On the Japan side, the first thing that happens in any kind of conflict is that groups start postponing their trips. It’s because they have a deeper sense of third-party responsibility. School excursion groups were doing quite well prior to 911 and disappeared after 911, then started back up in the middle of spring 2002 and were growing again. They’re the first to start postponing. The next are the company-paid groups, incentive trips. They would take very personal responsibility, and that is not something they feel comfortable in doing.

The booking time for people in the U.S. and Japan in the past decade has gotten continuously shorter. People on the West Coast have the shortest booking window, within a week to two weeks.

Also in Japan, depending on their work and livelihood, people who are more seasoned travelers are more repeat-type travelers. Their booking curve is going to be much closer in. Those coming to Hawaii for the first time, or those from the regional areas of Japan, outside of the Tokyo and Osaka areas, might book a little further out. It’s not a matter of months, but weeks.

What marketing advice do you have for local tourism-related businesses?
I think that all business owners, anytime there is a period of uncertainly, should always remain as flexible as possible in terms of what and how they are doing things with their resources, especially marketing resources. There should be a lot more attention to newspaper advertising; it can reach a broader cross of people, and it’s very flexible in terms of timing. You can adjust to the reaction of the marketplace. Obviously, the Web is a superior tool for all of us. More newspaper, more Web-type uses. Magazines, which are great vehicles for targeted audiences, have longer lead times. There’s a tendency to not go down that path, depending on how you anticipate the length of the condition. TV and cable, you can get in and out of fairly quickly.

There will be a much greater effort on all public relations and communications efforts. They offer you lots of benefits, and you can reach a lot of people yourself or through third-party sources. Video news releases, satellite tours, things you can do from Hawaii very quickly. The benefit is that you can be showing people what is happening in Hawaii in real tine. It has added value and benefit, particularly for those who will always tap into real time and typically also tap into interviewing different types of Japanese people who are here already and enjoying themselves.

Where do kamaaina customers fit in the general scheme of things?
Hawaii had a strong momentum in part of the 1990s to August 2001. Hawaii has recovered as a state better than any state or territory in the post-911 environment and had a lot of momentum going through 2002 and, in 2003, things were getting better. People shouldn’t abandon their businesses. They always have to be more flexible. They have to be willing to listen and learn from all the information that’s going to be out there and be shared. They have to focus on why people should do business with them and not try to chase everything. After 911, a lot more business in Hawaii learned they needed to be more diversified. There was a big push after 911 for kaamaaina retailing and kamaaina travel. We’ve always encouraged the travel suppliers here in Hawaii to always have a kamaaina travel program. One that is always available, even though it may be activated at higher levels, whether you are a smaller retail shop or a very large travel company.

You may have more programs available at some times than others, but you should have some available at all times. You’ll see a lot of push on kamaaina retailing, where people are encouraging others around Hawaii to buy from retailers within the states, as opposed to buying outside the state, through the Web and so on.

Other thoughts? The competition for tourism is global. Hawaii and all the islands need to be tighter, going out and really competing against the whole world. This has certainly gotten a lot stronger in the past five or six years, because it has pulled together more to compete against the world. What you realize is, especially after Sept. 11, Hawaii’s brand and what is stands for became much more relevant, everything that we are. Truly being a peaceful, harmonious place, multicultural and accepting, genuine and welcoming. Those are the things everybody is looking for in their experiences after 911. They have a heightened level of desire for them. Everybody wants to gravitate toward things that deliver those things to them.


Patricia Tam
Vice President
Halekulani Corp.

FOCUS: High-end travelers are the first to retreat in times of crisis. But they also are the first to return.

How many does the Halekulani employ, and who are its clientele?
We have about 750 at the Halekulani Resort and 196 employees at the Waikiki Parc Hotel. Our guests are 50 percent Japanese. About 50 percent are U.S. domestic and international guests.

What war-related concerns are you hearing from your wholesale customers and hotel guests?
In both segments, we’re looking at an overall softness in business. At the end of the day, when you talk about wholesale vs. our own retail guests, it’s the same person that’s fearful of the impending situation of terrorist attacks or the slowdown in economic stability. Across the board, I think there are pocket niches of people that still will travel, such as leisure guests.

Even after Sept. 11, we did have some people staying in the hotel. That, to me, was very interesting. There were individual guests who pretty much wanted to still have a leisure activity in their lives, considering the general malaise. In the leisure market, it’s interesting to see the resilience of the upscale, high-end traveler. It can be argued that the luxury market gets affected first when the downturn happens. Or, it can be argued, too, that it is the most resilient market. It’s my opinion that they react quickly to any kind of negative impact in the environment. But they also are most resilient in bouncing back to business as usual. I’m not sure what that component is, other than that particular class of traveler would like to have some sort of normalcy to their general activities. It’s interesting to see that segment of the traveling market, which is what we’re in and what we put a lot of effort into.

What did your company learn after Sept. 11, and how does that impact the way you do business today, in light of the war in Iraq?
After Sept. 11, we took care of our customers first. We took care of the people who were with us, who selected to come after that period. We really appreciated it, that segment of the population that still traveled. So we made a conscious decision to make sure that we took avid care of the people who had selected us, because they put a lot of stake in the fact that we would provide the services we always projected to do. We made sure we maintained the product quality and service quality we’re known for.

After 9-11, the situation evolved naturally, because that was the start period of 2002. It was almost like, “Okay, let’s try to leave that tragedy behind in terms of the traveling public.” In this case, it’s in the middle of the year. We’ve come out of the first-quarter season, traditionally one of the higher occupancy-level seasons for the industry. The occupancy from the end of March to mid-June, before the summer hits, we have anywhere from 5 percent to 10 percent below the winter months, usually.

Up until about a few years ago, you could pretty much predict that. But today, with all the competition and air capacity, in addition to people’s work schedules, that has pretty much changed. In other words, they were bound by the vacation periods. It was an open book on when people traveled for leisure. It’s becoming more important to determine, to try and project, anyway, and get a steady stream of travel. In the old days, it was the winter season, the middle of summer and into the first week of September. Now, 10 years later, that has dissolved into a more even pattern of traffic. Now, after 9-11, it’s quite interesting to see the patterns of traffic actually increasing rather surprisingly well. With this new war situation, it may prove to be more challenging. There are a lot more scenarios that come into play. It’s easy to say that the wholesale market will come back, or that retail customer will come back during this period of time. It’s more challenging to predict. [There are] so many avenues and ways that people can make decisions now, not even to suggest the importance of the Internet, where there is a lot more information for consumers to compare. That’s playing a part in how we get business done, luxury or not.

Where does the kamaaina customer fit in all of this?
Our major markets are still domestic United States and Japan. It would be prejudiced to think that the war won’t impact [kamaaina] spending and the way people choose and select where they spend their disposable dollars for special occasions, planned weddings and planned birthdays. I would probably tell you that it’s just been our pattern that you can see people spending dollars more discretely, following any kind of negative downturn in the economic environment. It’s still surprising to me what people will spend money on. That special-occasion dinner and fine-dining restaurant, which could become very fragile with any kind of economic environmental change. But the resilience of what people believe they should see in term of value to their dollar becomes more focused, so you are going to celebrate special occasions.

I’m not a retailer by any stretch of the imagination, but it’s my understanding that certain high-end consumers will still buy that one luxury item. Curiously, I use that scenario as having a luxury property and being able to market that special occasion, having business volume still come into the hotel during a downturn. We are not immune to trends and normal consumer spending, as people would love to believe. We are not isolated from those patterns. At the end of the day, with such a huge impact through all areas of the economy, it’s very challenging. But people still want to see value for their spending dollars. We’re always reminded to make sure that what we provide is valuable to that guest or customer.


Gary G. Hogan
President
Pleasant Holidays LLC

FOCUS: To attract travelers, do not slash prices. Instead, add value and incentives to existing products.

How has this war in Iraq affected your customers’ travel and booking patterns?
Things haven’t changed, and we’re pleasantly surprised. We’re up 14 percent for April over last year. We’re looking really good. During spring break several weeks ago, travelers didn’t cancel, but there were not a lot of new bookings. We’ve also started a direct [air] service from Los Angeles to Kauai. The approval ratings are skyrocketing with President Bush and the war effort, and the war mission is going real smooth. People see that.

What feedback have you heard from your U.S. Mainland market, regarding SARS (Severe Acute Respiratory Syndrome)?
With the concerns of SARS, they think that a lot of Japanese and Asians are coming in [traveling to Hawaii]. We’re telling people that the Asian business is way, way down. We get people who call and ask. We’re saying it’s safe.

The Japan visitor market is down from last year. How has that impacted local companies, such as yours, that primarily cater to U.S. Mainland travelers?
Typically, anytime you get the Asian market, it drives higher room rates than the westbound market. The cycle has always been that if the Asian market is down, the westbound market is up. They [Japan-focused companies] have to reposition themselves. The hotels are in the business of filling rooms and keeping price integrity. They’ll bring prices down a bit, to try to fill the rooms, but they won’t ruin the integrity of their pricing. Our [Pleasant Holidays] pricing has always been competitive. We dropped our prices a couple of weeks ago, because we needed a bit of help. But we don’t drop everything across the board. We add value instead.

What is your forecast for the upcoming summer travel season?
The summer will come in real good. By the trends that are going the way they are now, I think that things are looking pretty good. That’s a good thing. With the westbound U.S. market, travelers are very resilient. There is a lot of pride and patronage. They’re not going to let terrorism stop them from living their lives. And they feel good about what was accomplished [the outcome of the war in Iraq]. Everyone is pleasantly surprised.


Colin Veitch
President and Chief Executive Officer
Norwegian Cruise Line

FOCUS: Passengers continue to travel on cruise ships, which are like “floating hotels” that can be rerouted in times of crisis. Passengers also are choosing cruise destinations that are closer to home.

What feedback have you heard from tour agents and cruise passengers, regarding the war in Iraq and the global threat of terrorism? 
The focus is still on taking vacations but taking them closer to home. Travel agents recognize that people want to travel, but they’re asking for different options than they’re used to. They don’t want to go somewhere exotic. They don’t want to take a long flight. They’re saying, “Where can I go within the United States?”

People can drive to the ship if they wish. There’s no need to fly to the ports anymore. There will be a ship near you, if you live anywhere near the coast. What we are seeing in this summer’s program, where we do have a couple of ships in Europe, is the reluctance to travel long distances and the reluctance to travel abroad. There’s less demand than there was years ago.

What is the status of the Project America ships? [see footnote]
The federal legislation enacted recently allows us to complete the two Project America ships and to complete them in a foreign shipyard and bring them back as U.S. flagships. The first one is contracted to and under construction in Germany. The second one we have not yet contracted. In between those two, there can be a reflagging of an existing vessel in our fleet. The first one is in Germany under construction. It is making fast progress. We’ll have that ship in service in Hawaii by the beginning of July next year.

We’re going to take it around the coast on various introductory, inaugural activities and make sure we go to every single place along the way. We’ll eventually get here to carry our first revenue passengers in Hawaii in the beginning of July. This will be the first ship. The second ship will be a reflag ship. With that one, we are thinking of doing a three- or four-day cruise. With the first ship, we’ll do a seven-day cruise. In other words, two cruises in one week. Monday to Friday and then Friday to Monday. That will open up new markets. Not only will the shorter cruise be appealing to the local market, but it’ll be oriented toward tour packages and wholesalers on the Mainland and the Japanese market, too, who are very keen to have cruise products in Hawaii. But the seven-day and 10-day cruises are too long for the packages they put together. They want a hotel, one or two islands and a short cruise and then home again.

Other plans? 
That’s not enough? [laughs] That seven-day ship, plus the three- and four- day ship, plus we continue running our Fanning Island service. Those three ships will carry nearly 400,000 passengers by 2005. That’s twice as many as last year. It’s a great deal more than anyone else carries. It’s a huge expansion in the market. It’ll be good for Hawaii. Imagine the support services and activities needed. Passengers will typically stay in a hotel two or three nights before they take a trip. The jobs on the ship have to be 100 percent American crew, which is not the case with any of the existing ships. Not the Norwegian Star, which has an international crew. But a U.S. flagship is the only type of ship allowed to sail purely interisland without going to a foreign port. To run a U.S. flagship, you have to have a 100 percent American crew. Our intention is to recruit that crew from Hawaii. We’re in the right place to get friendly and service-oriented people.

FOOTNOTE: 
Under the Project America program, American Hawaii Cruises had been commissioned to construct two, U.S.-flagged ships with federal loan guarantees. Norwegian Cruise Line bought the half-built ships from American Hawaii Cruises (the parent company is American Classic Voyages), which filed for bankruptcy in November 2001.

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