More consolidation As the new year dawns, corporate crystal balls are cloudier than usual from the fallout from the events of Sept. 11.
expected this year
Low interest rates
are a bright spotBy Lyn Danninger
ldanninger@starbulletin.comCaution and uncertainty will continue to replace business as usual -- at least in the short term, said those willing to speculate on the future.
"I think caution is the moniker for 2002," said Constance Lau, president and chief executive officer at American Savings Bank.
"When you have a major event like that it makes everyone cautious because it breaks all the trends. So while all of us were watching data continuously, it got interrupted. With visibility now so low, it's difficult to predict," she said.
If there is a bright spot for Lau, it's been the continuation of low interest rates, especially for home buyers and people wanting to refinance homes.
But the upcoming quarter will probably be the last opportunity in a while where people can refinance at such low rates, she said. And Lau worries about what she called a "double whammy" effect.
That's where the national economy starts moving late in the first half of the year and interest rates begin to rise as inflationary fears rise. When that happens, the cost for businesses, already hard hit, will go up.
Moreover, if the Hawaii economy lags, as it did after the Gulf War, and people still have a fear of flying, the state's economy could stay down even as the mainland economy recovers, she said.
Consolidation, merger
But some say the events of Sept. 11 only exacerbated an already deteriorating economic situation in Hawaii.
"We were still recovering from the excesses of the 1980s," said Andres Albano, vice president at commercial real estate firm, CB Richard Ellis.
"Take Japanese tourism for example, the dip wouldn't have been as great had it not been for Sept. 11, but with their financial situation being what it is, it was bound to happen," he said.
Still, Albano is hopeful a turnaround will occur in the second half of next year and predicts visible evidence of growth at that time. "All (Sept. 11) has really done is postponed growth for maybe six months or a year," he said.
But Albano predicts the urge to merge, such as the recent announcement by Hawaiian and Aloha Airlines, is likely to continue.
"To me that's the natural pruning process that business goes through when things are difficult. I suspect a lot of these were being planned even before 9/11," he said.
Research consultant Marty Plotnick of Creative Resources Inc. agrees mergers and business consolidations are likely to continue.
"In the good old days, the bottom line just came because you had volume. Now everything you do has to focus on making the bottom line and in the case of larger companies, especially in lodging and transportation, it's making sure you get your debt serviced," he said.
Tourism recovery
Just what the potential merger between Hawaiian and Aloha Airlines will mean to Hawaii tourism drew varying responses. But almost all agree on one point: Fares will increase.
"I think we better get used to the idea that higher fares are here to stay for a while," said Chuck Gee, dean emeritus of the University of Hawaii's School of Travel Industry Management.
"I'm very cautious about what fares are going to be and I'm concerned," added Creative Resources' Plotnick.
Fears about lack of competition were also raised. But equally important was the desire to have a stable air carrier serving the islands.
"If you don't have strong carriers that can service the islands, that creates a huge risk for the economy so if you take the long term view, that's the most important thing," "I think it's very important for Hawaii to have a stable carrier," said American Savings' Lau.
"It's better to have one strong carrier still operating -- even at higher fares," added Gee.
He predicts while initially fares may be capped to ensure public confidence, in the end, economics will prevail.
Gee also believes the neighbor islands stand to gain in visitor arrivals as the new Hawaiian-Aloha entity adds more profitable direct flights from the mainland.
"In some ways, the more long haul traffic would be good for the neighbor islands so there will be gains from the destination standpoint," he said.
But more direct services to the neighbor islands from larger, profit-oriented airlines could also leave Hawaii vulnerable in the long run, Gee warns.
"The majors have no loyalty to anyone and they shouldn't have since they are public corporations directly responsible to stockholders. But we need to remember that the moment we become unprofitable they could pull out and leave an untenable situation," he said.
But for a lesser-known inter-island airline, Kahului-based Pacific Wings, the Hawaiian-Aloha move with likely higher fares and fewer inter-island flights represents greater opportunity to capture the local market.
"You'll see prices go up at certain times of day and there'll be less choice. That will be hard on commuters," said the president of the airline, Greg Kahlstorf on the impact of the merger.
"You'll also see most visitors going directly where they want to be. That will create a niche for Pacific Wings or any other airline coming in to pick up slack in the interisland market," he said.
Creative Resources Plotnick predicts the state will continue to tread water for the short term and should use the time to develop new approaches to beefing up tourism instead of recycling the same old ideas. "A casino or another monster resort is not a bold idea," he said.
The University of Hawaii's Chuck Gee agreed.
"Times have changed. If we don't think out of the box history could repeat itself with a decade of stagnant tourism," he said.
Like the others, Gee doesn't expect much improvement in the first half of the year. "I wouldn't be overly optimistic for the first six months but we need to think ahead for the Christmas season to try to salvage what is likely to be a tough 2002," he said.
Gee favors the idea of continuing to cultivate niche markets, creating traditions with the idea of building up to an international event in the future.
"We've got to give people reasons to come. We are well positioned as a destination but that won't be enough.
"Why not put some muscle behind looking to do a world class event in a few years time. Just the process itself gets you thinking about the future and how to reach it," he said.
Real estate, construction
In spite of concerns about fallout from the events of 9/11, consumer sentiment when it comes to real estate investment in Hawaii has continued to stay positive, helped along in large measure by attractive mortgage rates, say those familiar with the market.
A dwindling inventory, especially in urban Honolulu, also played a part in continued investment.
Mike Sklarz, vice president of real estate market research and data for Fidelity National Information Solutions, expects strong real estate activity to continue into next year. Even if there is some upward movement of interest rates, he doubts that will dampen local enthusiasm for home buying.
"We won't suddenly see thousands of new units built in the next year so there will still be a tight market and that encourages people to move forward," he said.
The tightness of the market, especially in areas like urban and east Honolulu and the Windward side, will likely lead to some upward movement in prices, particularly in the condominium market, Sklarz said.
"There are good opportunities in condominium prices island-wide but I think they'll finally move up to single family home prices and finally spread out to the west side," he said.
Likewise, Sklarz, who is also the chairman of the state Council on Revenues, is optimistic about economic conditions in the state as a whole next year.
"The somewhat encouraging thing is that tax revenues and the overall economy has held up much better than people might have thought. That tells us that the visitor component may not be as big a sector as we though -- perhaps 20 to 25 percent and the numbers seem to bear that out."
Like others, Sklarz believes it will take some more time for tourism to get back on track. "I think tourism will finally start getting back by mid-year to reasonably good numbers but I think only by year end or early 2003 will we get back to where we were prior to 9/11," he said.
