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Hawaii’s tourism recovery could take years, experts say

  • CINDY ELLEN RUSSELL / APRIL 13
                                Hotel occupancy in Hawaii has dropped a staggering amount and will financially affect all facets of Hawaii’s economy. Waikiki has seen less car and foot traffic since the lockdown in March.

    CINDY ELLEN RUSSELL / APRIL 13

    Hotel occupancy in Hawaii has dropped a staggering amount and will financially affect all facets of Hawaii’s economy. Waikiki has seen less car and foot traffic since the lockdown in March.

Occupancy at Hawaii hotels plummeted to about 10% statewide for several weeks in April as COVID-19 fears and lockdowns ravaged the state’s tourist- driven economy.

That statistic provided by the Hawaii Tourism Authority on its COVID-19 alerts page is a sneak peak to a horror show that is yet unfolding.

Hawaii hotels statewide were at nearly 85% occupancy in February and nearly 45% occupancy in March. The decline in that industry and others has been accelerating since late January when the United States confirmed its first case of the new coronavirus. Hawaii confirmed its first COVID-19 case March 6, and shortly after began implementing strict stay-in-place and social distancing policies. On March 26 it became the first state to require incoming tourists to complete a mandatory 14-day self-quarantine.

HTA reported that only 233 visitors came to Hawaii on Wednesday. From March 26 to April 30, HTA said, only 4,508 out-of-state visitors arrived. Normally, at this time of year, some 30,000 passengers would have come to Hawaii daily.

It’s not surprising that hotel revenue per available room was at $263.73 for February and by the week ended April 25 had fallen 95% to $13.25. Revenue per available room, considered by many in the hotel industry as the best measure of performance, is the amount that a hotelier gets for each room regardless of its occupancy status.

“This is catastrophic for our economy,” said Erik Kloninger of Kloninger & Sims Consulting, who spoke Thursday during a Hawaii Economic Association briefing on the impact of COVID-19 on Hawaii’s economy. “Even after 9/11 when the planes stopped flying, people were stuck here, so the hotels still had guests.”

9/11’s impact

Kloninger said the Sept. 11, 2001, terror attacks caused a 27% drop in monthly arrivals and that it took Hawaii 29 months to return to the pre-event level. The 1990 to 1991 Gulf War caused a 26% monthly decrease in arrivals that took 11 months to undo. The 2008 financial crisis caused a 19% decrease in monthly arrivals that didn’t come back for another 41 months.

How long will it take for tourism to come back this time?

“Maybe never, if that’s what we want. Maybe never despite our best efforts. Maybe three to four years if all the stars align,” Kloninger said. “This is a public health crisis, and that’s the first thing that will need to be addressed. The rest of it will happen according to the time frame that we can accommodate and to the extent that demand is there.”

State Chief Economist Eugene Tian, who also spoke at the HEA event, which drew more than 700 registrants, said he assumes the economy will follow the 2009 recovery path.

Tian said it might take two years for Hawaii’s nontourism sector to return to 2019 levels and another five or six years for the tourism sector to get there.

“Even after the virus crisis is finished, then the next one is coming from the economic recession,” said Tian of the Department of Business, Economic Development and Tourism.

In the near term, Tian envisions that Hawaii’s GDP could fall by more than 12% year over year to $85 billion. He anticipates year-over-year spending for tourism might fall 57% to $9 billion.

Speaker Paul Brewbaker, principal with TZ Economics, said that’s not the worst GDP decline Hawaii has seen. It actually fell 35% in 1947 during the post-WWII period, Brewbaker said. The 1936 to 1937 San Francisco Bay Area maritime industry strikes also took tourism to zero for about six months, he said. Then there was the impact on Kauai tourism from Hurricanes Dot, Iwi and Iniki, Brewbaker added.

“These outsized and fat-tailed event risks are rare,” he said. “But we do have a history of getting over them. We can still learn from some of these experiences.”

In this case, Brewbaker said the decrease “shouldn’t unduly frame the way that we think about the future from this point forward and the more aggressively we approach the recovery of tourism as an export activity.”

Road to recovery

Screening, testing, tracing, isolation, tracking or a combination of those options will depend on how quickly and safely Hawaii recovers tourism, he said.

But the interim is sure to be painful. Tian’s GDP illustration assumes visitor arrivals will decline 99% in the second quarter and drop by 60% in the third and fourth quarters combined.

HTA reported in March that 434,856 visitors had traveled to Hawaii — some 54% fewer than March 2019. HTA also reported that visitor spending fell to $720 million, a roughly 52% drop from the $1.5 billion or so generated in March 2019.

Sean Dee, executive vice president and chief marketing officer for Outrigger Hospitality Group, said March results were worse than expected.

“The restrictions and 14-day quarantine enacted by the governor have accomplished their objectives with a decrease of over 99% in visitor arrivals over the past six weeks. Of course, April results will be devastating, and we have had to temporarily suspend operations at many of our properties,” Dee said. “Obviously, as long as the quarantine is in effect, we will not be able to reopen our properties.”

The tourism collapse will have a trickle-down impact on all facets of Hawaii’s economy, including state revenue, which is highly dependent on tourism spending.

Seth Colby, a tax research and planning officer for the state Department of Taxation who spoke at the HEA event, said the tourism industry accounts for 30% to 35% of state tax revenue, accounting for indirect effects. It contributes 17.5% directly to state revenue, Colby said.

“Tax revenues are correlated with economic growth,” he said. “General fund collections have been robust year to date but are expected to decline significantly.”

Hawaii hotel performance by… by Honolulu Star-Advertiser on Scribd

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