Hawaii Tourism Adjusts to Loss of Airlift

Soaring oil prices, rising airfares and the recent shutdowns of two airlines that flew between the U.S. mainland and the islands have all rocked Hawaii’s tourism industry. In March, Aloha Airlines shocked the travel world with the announcement that it would halt all passenger operations. Then, within a week of that news, ATA stopped service. With both carriers going down, Hawaii lost 850,000 seats per year—about 15 percent of its total airlift from the mainland.

Jack Richards, president and CEO of Pleasant Holidays, emphatically says that there isn’t an air-seat issue to Hawaii. “What we have is an air-price issue,” says Richards. “ATA was the only low-cost carrier serving the Hawaii market. Oil hit $126 a barrel this morning and prices are going up.”

Richards makes the case that the fuel surcharge issue is affecting all destinations, not just Hawaii. In Richards’ view, the media has overblown the supposed dearth of air seats to Hawaii and hasn’t done the research to properly assess the situation.

Even so, the Hawaii Tourism Authority (HTA) is reacting as though there was a crisis to manage. The HTA allocated an additional $3 million from an emergency fund to bolster its North American promotions budget. Another $1.5 million in marketing funds is expected to come in from Hawaii hotels. The last time Hawaii responded in a similar degree to a crisis was in the aftermath of 9/11, when discretionary travel nosedived.

HTA officials estimate the Aloha and ATA shutdowns could result in a reduction of 839,000 visitors in 2008; Hawaii attracted 7.4 million tourists in 2007.

Dean Johnson, senior vice president, sales, Creative Leisure International, says he’s received feedback from a few agents that some clients are deferring Hawaii trips due to higher costs. “Creative Leisure’s luxury Hawaii travelers continue to book, but with some difficulty finding available seats on key travel dates,” says Johnson.

Johnson notes that coupled with the escalating cost of fuel, the closings of Aloha and ATA have driven up fares from the mainland to Hawaii. “With the exception of the new Oakland-Honolulu flight on Hawaiian Airlines, the lost seats have not yet been replaced,” he says, referring to Hawaiian Airlines’ new daily, nonstop service between Honolulu and Oakland, CA, which will provide an estimated 95,000 air seats annually.

Silver Lining
On the plus side, Johnson notes that Hawaii has not seen better vacation values for many years, and aggressive value-added campaigns are being implemented across all sectors. Although the summer season is traditionally a busy period for Hawaii, look for hotels to be adding free nights and other promotional incentives to lure vacationers.

“We are getting an increasing number of last-minute Hawaii bookings,” says Johnson. “Some of these are from customers who were waiting for airfares to decline and who now realize that if they wait any longer, they will climb even higher.”

While it’s true that airfares have risen for the summer months, Tim MacDonald, president of Classic Vacations, is seeing very competitive airfares for the fall. “We’re seeing airfares in the $400 range,” he says.

“What we’re seeing, even among our affluent clients, is more sensitivity to price,” adds MacDonald. “Although we find that our ultra-affluent customers are not scaling back at all.”

MacDonald observes that airfares rose 22 to 28 percent when the closures of Aloha and ATA took capacity out of the market. “With an average increase of $150 for each visitor, it is expensive—but is it a deal breaker?” says MacDonald. “We don’t know yet.”

MacDonald notes that the Aloha and ATA closures had the biggest impact on travel suppliers who allowed their customers to change their travel plans. “Our brand was built on customer service and we were able to accommodate our customers in other ways,” says MacDonald. “We had only a handful of cancellations.”

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