In May, the Hawaii State Legislature increased Hawaii's transient occupancy tax by 1 percent from 7.25 percent to 8.25 percent for travel to Hawaii after July 1. On July 1, 2010, the transient occupancy tax will go up another 1 percent, costing travelers nearly 10 percent of their total hotel bill to stay on the islands.
"All states are facing a budgetary crisis because of the global economic situation," acknowledges Mike McCartney, president of the Hawaii Tourism Authority. Looking for ways to reduce costs and bring in additional revenue, the Legislature put together a six-year financial plan that included the two tax increases on Hawaii's biggest industry. "It was viewed as a hurdle to jump over," McCartney says, adding that the summer is a "tough time" for an increase to happen. "It would have been better if it happened at the end of the year rather than June or July," he says, speaking on behalf of tour operators and hotels throughout the islands. "But we’ve moved on. We've jumped the hurdle. We're focusing on the new economy, and where we go from here."
What many people may not realize, McCartney continues, is that because the financial plan was for six years, the tax increases will go back down again. "It drops dead and goes back to 7.25 percent on June 30, 2015," he says. "That’s an easily overlooked fact. You hear people say taxes won’t go down, but this drops dead. If the Legislature wanted to extend it, they would have to go through the debate, public hearings and vote again."
In addition to the recession that has impacted travel overall, Hawaii has been particularly hard-hit in recent months. The H1N1 flu scare kept visitors from Japan away (a drop of 32.8 percent), and the tourism industry throughout Hawaii saw major cancellations in bookings. "We're seeing that come back now," McCartney says. In response to the crisis facing the visitor industry, the Hawaii Tourism Authority allocated 86 percent of its budget to support new and aggressive marketing-related programs beginning in July, especially in the western U.S. and in Japan. The efforts—and expenses—are paying off: Air arrivals from the U.S. West increased for the second consecutive month, up 4.9 percent from last June. In Japan, 23 extra flights to Hawaii were added for July and August and eight additional flights added during "silver week" in September to accommodate demand.
As an added incentive for visitors, Hawaiian hotels and resorts throughout the islands have been offering discounts and increased value options. (For example, Aston Hotels and Resorts are offering up to 45 percent off of their usual fall rates.) "Different properties have handled things differently to work out the impact," McCartney says.
Ultimately, McCartney says, tourism to Hawaii will continue despite the hurdles of flus and tax increases. "The market has found a way to adjust and deal with variables," he believes. "Everybody in the industry has found a way to adjust. Everybody’s looking ahead to where we go from here, rather than crying, 'woe is us!'"