Higher spending offsets decline in visitor arrivals

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More spending by visitors to Hawaii in July allowed the state to register a scanty revenue gain, even as visitor arrivals continued to decline.

Arrivals from Japan increased by 2.1 percent in July; however arrivals from all other source markets fell.

Arrivals from the U.S. West, Hawaii's largest market, dropped 2.9 percent and arrivals from the coveted higher-spending U.S. East dropped 7.4 percent. Arrivals from Canada, a longer-stay market, declined 0.2 percent.

Isle visitors may have spent slightly more to come to Hawaii last month, but the higher costs that they had to pay for renovated and upgraded rooms could be driving them away.

A decline in availability for budget accommodations has sent some potential consumers to cheaper destinations like Mexico and the Caribbean.

However, hope is on the horizon. Group travel is expected to be robust in 2008 and 2009 and softened conditions could work to the advantage of the visitor industry, which needs to prepare for the coming resurgence.

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Isle visitors may have spent slightly more in Hawaii last month, but it also appears that higher costs could be driving them away.

Hawaii's visitor industry has been struggling for some time to overcome falling demand amid rising vacation costs -- an imbalance that has influenced choices for tourists.

The state's visitor industry is touting a 0.6 percent spending increase by visitors to Hawaii in July as positive market repositioning in keeping with the state's push to measure visitor industry growth in terms of revenues rather than arrivals.

But while the state has realized some economic growth for tourism, those gains have been offset by declines in visitor arrivals.

Last month, the state reported a 2.5 percent drop in total visitor arrivals. Arrivals declined from all source markets except Japan, which increased by 2.1 percent. Officials attributed the uptick in Japanese travel to a Toyota Motor Corp. convention in July.

Arrivals from the U.S. West, Hawaii's largest market, fell 2.9 percent, and arrivals from the coveted higher-spending U.S. East dropped 7.4 percent.

Arrivals from Canada, a longer-stay market, declined a scant 0.2 percent.

As early as February and March of this year, Hawaii ho-teliers were already reporting price sensitivity in the market. Consumers and potential consumers of the Hawaii product had responded to a decline in availability of budget accommodations by choosing not to visit, to stay with friends or family, or to curb spending habits.

"Earlier in the year, I said that if we reached a certain level of pricing, that we would hit resistance and people would stop spending," said retail analyst Stephany Sofos. "We're at that point."

Hawaii's general market, especially on Oahu, slowed down Jan. 1 and it hasn't picked back up, said Barry Wallace, executive vice president of hospitality services for Outrigger Enterprises Group.

"We've had a great run, but things are back to normal," he said. "Prices have leveled off and settled."

Smith Travel has reported that Hawaii is the No. 2 market behind New York for RevPar or the amount of revenue a hotel is earning per available room. However, Hawaii is the next to the last market -- behind only New Orleans -- in the U.S. for industry growth, Wallace said.

"It's kind of ironic. We're still the envy of most major markets even though we aren't experiencing robust growth," he said.

Most of the increase in average daily room rates at Hawaii hotels has more to do with the upward shift property mix that has occurred as a result of renovation rather than actual increases, Wallace said.

"Our cheap hotels have closed and the visitors that want budget and economy vacations are going to places like the Caribbean and Mexico," he said.

Looking ahead, the real estate crisis on the mainland could impact visitor demand for destinations like Hawaii, said Jack Richards, president and chief executive officer of Hawaii's largest domestic wholesaler, Pleasant Holidays.

"We were ahead of last year until the subprime lending crisis hit and bookings slowed down, Richards said. "We are very nervous about that."

But while some might mourn the loss of travelers to Hawaii, others see the slight softening in arrivals and occupancy as a needed opportunity for renewal.

"We had been running close to 90 percent occupancy," Wallace said. "That's too crowded and it doesn't allow time for proper training and maintenance."

In the longer term, the outlook for Hawaii's visitor industry is brighter. Industry experts expect a strong group market to pump up the second half of 2008 and create robust growth in tourism by 2009.

The Hawaii Convention Center has more than 450,000 room nights on the books as of July 2008, and well more than 800,000 as of July 2009, according to data from the University of Hawaii's TIM School.

"It will be an exceptionally strong couple of years," said Joe Davis, general manager of the Hawaii Convention Center.