Hawaii Tourism Authority spent ‘exorbitant’ amounts marketing to visitors as lockdowns dropped demand

It cost the Hawaii Tourism Authority more than $381 in marketing dollars for every visitor from Japan who came to the isles in November.

Think that was a bad return on investment? It was actually worse in April when the complete collapse of Hawaii tourism resulted in HTA spending roughly $15,614 on marketing for every visitor from Japan who flew into the state.

Japan is just one example of how the constantly fluctuating travel demand to Hawaii and changing COVID-19 restrictions have made it difficult for HTA, the state’s lead marketing agency, to optimize its investment in marketing.

The Hawaii Visitors and Convention Bureau, which handles marketing for the state’s core U.S market, also spent more in April, when its return on investment hit $111.26 per arrival, but the cost per arrival dropped back down to $3.12 in November.

HTA President and CEO John De Fries, who joined the agency in September, said he isn’t going to second guess the decisions his predecessors made earlier in the pandemic. De Fries said HTA has spent months trying to adjust to constant changes in government regulations and various COVID-19 surges across the globe.

“If there’s no flow of visitors, the systems that we’ve created to deliver the visitor experience are all financially at risk and experiencing exorbitant costs,” De Fries told the Honolulu Star-Advertiser. “Everybody was just trying to do what they thought was best for Hawaii. And what was best for Hawaii at that time was to keep the markets active. Unfortunately it went from April, May, all the way to Oct. 15, and even Oct. 15 to today, it’s not flowing at scale. We still have some financial stress throughout the industry certainly here at HTA and throughout the state of Hawaii.”

HTA’s marketing woes are exacerbated by the fact that transient accommodations tax distributions, the agency’s only funding source, have been shut down since May. De Fries said the halt in TAT support was a key reason HTA started budget reductions during the summer, going from a budget of $86 million in June, then to $48 million and $41 million.

As a result, changes in HTA’s 2020 full-year marketing ROI wasn’t nearly as dramatic, albeit it was still up over fiscal year 2019.

For the 2020 fiscal year, HTA estimated the cost per arrival for every U.S. visitor was $7.13, up more than 118% from the prior year. The cost per arrival for Japan during fiscal year 2020 was significantly higher at $17.17, a nearly 201% increase.

The cost to bring visitors from Canada was $2.01, a nearly 36% rise. HTA spent $15.33 on Oceania, a more than 193% increase. It cost HTA $10.13, a nearly 66% increase, per arrival from Korea.

State Sen. Glenn Wakai, chairman of the Senate Committee on Energy, Economic Development and Tourism, along with other members of his committee, has asked Gov. David Ige to consider restoring at least partial funding to HTA.

At the same time, Wakai has expressed concern over how HTA has spent and continues to spend its dwindling resources, especially during its worst months.

“These (monthly) ROI figures reinforce my criticisms about HTA’s spending. We might as well buy airline tickets for our visitors from Asia,” Wakai said. “They should just dump marketing for the moment and save their dollars for the rebound. Japan is dead. Why toss $200,000 per month into that market?”

Dr. Jim Barahal, president and CEO of the Honolulu Marathon, said he sees it differently and that even in the midst of a downturn it’s important to maintain marketing and relationships.

“It’s been pretty cost- effective. Also, you can’t just break contracts. Not only do you run legal risks there, but you damage relationships and, in some cases, irreparably,” said Barahal, who does not receive funding from HTA or HTA’s Japan marketing contractor, Hawaii Tourism Japan. “I think you have to take a broader view. I get it, ‘Why pay money when you are not getting an immediate return on investment,’ but that view is from the ground level and I think you have to look at this one from 30,000 feet.”

Eric Takahata, managing director of HTJ, said HTA cut its budget from $10 million to $4 million last year, and it’s projected to rise to just $4.5 million this year. Takahata said the cuts, while significant, leave just enough in the budget to keep Hawaii top of mind with Japanese visitors and allow for destination management services.

“Japan is Hawaii’s biggest international market. You have to retain positioning,” Takahata said. “We also have to be ready when they come. We worked swiftly to set up the Safe Travels Hawaii program in Japan and also used our government and private- sector networks to assist with the resort bubble concept. We view it as removing roadblocks to returning tourism from Japan.”

Takahata said HTJ also conducted educational and government outreach, including keeping up with all of Hawaii’s changing travel entry requirements on the Japanese-language website allhawaii.jp.

Marketing ROI can’t be measured in the way it was before HTA’s pivot from a primarily marketing and branding role to an organization with a destination management purpose, he said.

The Hawaii Visitors and Convention Bureau, HTA’s U.S.-focused marketing contractor, also saw a rise in marketing expenditures per visitor.

“We had challenges in 2020, but our private- industry partners had even greater challenges because cash stopped flowing into their properties, into their attractions, into their activities, their restaurants and their retail outlets,” said Jay Talwar, HVCB chief marketing officer.

He said while longer-term branding efforts in 2020 remained focused on appropriately recovering tourism, short- term goals often were not about immediately increasing visitor arrivals.

“The biggest challenge was the maintaining the health and safety of our community. We asked visitors not to visit. For a visitor bureau to do that, that’s a first,” Talwar said. “We did it with our voice, with aloha. We said, ‘When the time is right, we’ll welcome you back.’”

That time is coming. Despite a 40% budget cut, Talwar said HVCB is gearing up to launch a multifaceted marketing campaign called Malama Hawaii, which is an evolution of HVCB’s earlier kuleana and rooted campaigns. The campaign will launch “no sooner than the end of the second quarter” to allow COVID-19 vaccinations to have made a difference, he said.

“We’re asking visitors to ‘Malama Hawaii’ and we’ve got about 70 hotels across the state that will let visitors know that if they book a Malama Hawaii package and participate in a volunteer activity that they’ll be gifted with a free night,” Talwar said. “The campaign, which is really a new way of welcoming visitors to Hawaii, is designed to share our community’s values.”

From a long-term branding perspective, Talwar said the success of the campaign should be judged not only by bookings, but also by how effectively it shapes people’s minds so that when they are here they behave in a way that supports the community, culture and natural resources.

Wakai characterized HVCB’s marketing return on investment as more “reasonable.” But he said the marketing money that went to HTJ especially should have been cut more significantly when arrivals started falling and it became clear there were significant impediments to recovering them.

“HTJ is contracted to do marketing for Hawaii. HTA could have engaged another entity that focuses on that type of business development, probably for a lot less money,” he said. “I’ve sternly conveyed to John De Fries that he needs to cut wasteful spending. The board members aren’t paying attention either. It’s so frustrating; these are real dollars, not Monopoly money.”

De Fries said uncertainty continues to exacerbate HTA’s challenges, as effective marketing requires pushing ahead of trends. For instance, he said HTA’s marketing contractors have to start planning now to take advantage of the expectation that travel demand to Hawaii will improve in the third quarter as consumers gain more confidence following wider COVID-19 vaccine distribution. But the approach has to be measured given COVID-19 spikes in various markets.

“We aren’t seeing any mass marketing aimed at a shotgun approach. We have to be really careful about how much we are spending in each market given the circumstances that that market is experiencing,” De Fries said. “But we think it’s important to generate immediate momentum going into fiscal year 2022.”