From the summit of Diamond Head, a view of Waikiki Beach and the city
Hawaii has had a rough time of it this past year, and that is borne out by figures from the Hawaii Tourism Authority. Daily spending by visitors in July dropped, by double digits, from the same month in 2008. Still, tour operators see an opportunity to negotiate the islands’ usually high hotel and restaurant prices, with cheaper flights helping their cause.
At MLT Vacations, President and Chief Marketing Officer Ken Pomerantz puts it bluntly: “Consumer confidence and spending is down. Travel in almost all market segments is taking a hit. And travel companies, airlines, hotel companies, tour operators and travel agents are feeling the revenue impact. Everyone needs to understand that what we are seeing is a channel shift, and not a market/demand stimulation.”
In other words, destinations that have garnered less interest and volume from tour operators will, understandably, get less support (i.e., marketing and promotion) from those tour operators. Instead, energy and resources will be focused on destinations with stronger promotion and support.
Changing and Shifting
“We’ve seen that shift in the U.S. market from Hawaii to Mexico over the last four or five years,” he adds. “And in the next five, we see emerging markets in the South Pacific, Caribbean and Central and South America.” MLT has almost eight times more 2010 business booked to both Mexico and the Caribbean than to Hawaii, because, he says, Hawaii waits longer to put its best-selling rates in the market.
|Lanikai Beach near Kailua on the island of Oahu|
Specifically, he says, the traffic is shifting to online channels—primarily hotel supplier sites and online travel agencies. “Because these channels have historically been [less expensive], it makes sense on the surface,” he says. “But there are some real business implications [of this] shift.”
First, he observes, this channel shift has accelerated in the current economic environment in which travelers are booking much closer to departure. “But demand is not very predictive, and hotels have not been able to adjust to [this] new demand curve,” he says. “Because of that, there has been a fire-sale approach evidenced by numerous and dramatic price discounts and specials introduced into the market. Supplier sites and OTAs have a greater ability than traditional channels to deliver these prices and specials.”
To maintain Hawaii’s popularity, Pomerantz believes that pricing and promotions need to be simplified so that distribution partners and travelers can understand exactly what they’re getting. “The tendency in good times is to get very segmented and clever,” he says. “You have to dial back in challenging times.” He suggests investing more in traditional channels for marketing, branding and retail advertising. “Budgets should not be allocated proportionally to sales, because the value of the customer and the business models of the different distributors are not the same.”
Pomerantz recognizes the role of educated travel agents in generating more travel. “The personal expertise and experience of the agent will generate upsell and deliver a more valuable client to the hotel,” he says. He has some numbers to back up his statements: “Travel agents book with us 31 days in advance of the consumers, and they spend 8.5 percent more on land components.” With numbers like that, he says, “we need travel agents in order to build a strong base of business early in the booking curve, and we need them in order to sell the higher price-point products.”
Not all the news from Hawaii is gloom and doom. As of July, more people were flying to the islands than in July 2008 (up 1.3 percent, the first increase since February last year) and staying longer (up 2.8 percent). Among the top four visitor markets, air arrivals from the U.S. West rose for the third consecutive month, up 7.7 percent from last July. Clearly, people are eager to visit Hawaii; they just don’t want to spend a fortune to go there.
“Hawaii is a better value destination than ever before. It’s on everybody’s top-10 lists,” says Nancy Davids, Collette Vacations’ senior product manager for Hawaii. She acknowledges that Hawaii can be expensive, and good prices on airfare and hotels may be undermined by expensive restaurants and activities.
The downturn, however, has allowed tour operators to negotiate better prices with suppliers to keep people visiting. Luxury options are now more affordable, and people can spend more time on islands that were earlier out of their price range. “Hotel rates on Maui were exceedingly expensive,” she says. “Now, we can renegotiate.”
Jack Richards, president and CEO of Pleasant Holidays, sees signs of recovery in travel to Hawaii, especially from the West Coast. “We have seen an increase in bookings for 2009 and 2010 in the past few weeks, which correlates to the improvement in the U.S. economy,” he says. “We are forecasting an increase in travelers to Hawaii in 2010 as consumer spending improves and air and hotel rates show modest increases next year. The package prices are down approximately 12 percent in 2009, and travelers are responding to the reduced prices and value-adds from [the islands’] hotel partners.”
Additional airline seat capacity to Hawaii and lower fuel costs are also boosting sales, Richards notes. “Jet fuel is approximately 50 percent less [expensive] than last year, resulting in the removal of airline fuel surcharges to Hawaii in late May.” Several airlines have announced new service to Hawaii for late 2009 and 2010. Hawaiian Airlines is adding two daily nonstop flights between Oakland and Maui, as well as an additional Los Angeles-Honolulu flight in June 2010. American Airlines will resume Chicago-Honolulu flights in summer 2010 and US Airways will begin Charlotte-Honolulu flights in December this year. In 2010, Alaska Airlines will fly to Oahu, Maui, Kauai and the Big Island from Seattle, which, Richards says, will become the third-largest market for Hawaii.