Hawaii's upscale strategy aims at big spenders

By , Staff writer of The Christian Science Monitor

IN THE next three or four years, about 6,500 new hotel rooms will be added to the more than 67,000 rooms that already crowd many of Hawaii's beaches and resort areas. If you want to stay in one of those new hotels, you'd better bring plenty of money as well as your camera, suntan oil, and aloha shirt. That's because the price of every one of those new rooms will be at least $300 a day.

After decades of being known as a tropical resort for middle-class Americans, where low prices on hotel rooms made up for the high cost of getting here, Hawaii is moving upscale and trying to attract visitors who can afford to stay longer, spend more money while they're here, or both.

That includes affluent Westerners and middle-class Japanese, for whom the strong yen makes Hawaii a cheap vacation.

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In Hawaii, number-crunchers put visitors into two main groups: westbound and eastbound. The great bulk of the westbound visitors come from the mainland United States and Canada, with many also from Latin America and Europe.

Most of the eastbound visitors are from Japan. Streaming in at a rate of more than a million a year, the Japanese make up the fastest-growing portion, or nearly 20 percent, of all tourists.

Their importance can be seen by a number of things, the most noticeable of which are the signs.

From elevators to exits, from buses to beaches, Japanese and English instructions share space on signs. Menus are printed in both languages, as are travel brochures, maps, and instructions for checking out posted on the back of hotel doors.

The visitor industry - including tourists and a growing convention business - is now Hawaii's leading engine for economic growth.

``Tourism is far and away the most important industry in the islands today and it will continue to be,'' says Stanley Hong, president of the Hawaii Visitors Bureau.

Last year, tourists spent about $5.6 billion on the islands, putting that business far ahead of the No. 2 industry, construction, at $2.1 billion; and defense, which accounted for $2 billion. Tourism gets much of the credit for construction spending, too, since a great deal of it is for hotels and resorts like the vast Hyatt Waikoloa resort on the ``Big Island'' of Hawaii, which will add $400 million or so to the state's economy during the course of its construction.

But as the engines in today's automobiles are much more complex than a decade ago, Hawaii's economic engine of tourism is much more complex than just a couple of years ago.

In 1986, a record 5.6 million visitors came to Hawaii, a 14.8 percent increase over 1985. When the numbers for 1987 come in, however, they may show a very small increase, if any. In the first half of this year, the total visitor count was just about the same as the first half of last year.

There is a difference, however, in where those visitors are coming from. While the number of westbound visitors has been down 4.4 percent this year, eastbound traffic saw a 15 percent increase.

The falling dollar gets most of the credit for the increase in Japanese visitors. The yen now has twice the dollar-buying power it had two years ago, making it much cheaper for the Japanese to pay for hotel rooms, tour buses, souvenirs, and film. Also, many of the hotels in Hawaii - including all but two in Honolulu's Waikiki area - are owned by Japanese investors.

Through those investors, some of whom also own companies in Japan, many Japanese workers, including the hundreds of honeymooning couples who arrive daily, receive cut-rate vacations in Hawaii as an additional benefit of employment.

As if the bargains of a cheap dollar weren't enough of an incentive, many Japanese also receive frequent urgings from their government to travel overseas.

``Traveling abroad has almost become part of the Japanese citizen's patriotic duty to help redress the international trade imbalance,'' says Paul H. Brewbaker, associate economist at the Bank of Hawaii. ``Japanese tour packagers tell stories about the Ministry of International Trade and Industry ... exhorting Japanese to travel abroad.''

The Japanese and other Asians are, of course, welcome, Mr. Brewbaker says. Not only do they make up a growing share of the overall tourist business, they spend more. The ordinary middle-class American tourist spends about $100 to $150 per person each day. Japanese visitors average almost $300 a day, and Japanese honeymooners are even higher, at $340 a day.

``In all likelihood we will get more visitors from Asia, especially as people get more awareness of Hawaii and more affluence,'' Mr. Hong says.

Meanwhile, Hawaii is trying to build on its traditional base of tourists from the US mainland, a base that received an artificial boost in 1986.

``When you go back to '86, there was the international terrorism scare,'' one tourism official recalls. ``People have forgotten about that, but nobody was going to Europe. Also, there was very aggressive air-fare discounting. There were discount air carriers in the market in '86 that have since gone bankrupt or have been merged.

``The configuration of air carriers serving Hawaii from the mainland today is almost identical to what it was before deregulation. All of the aggressive competitors that appeared during the last decade have withered away. Now we're left with just about the same old carriers - United, Continental, American - all the giants that were there to begin with. As a result, there's been less fare competition in 1987.''

A risk of depending on a few carriers was seen last month as United Airlines negotiated a new contract with its ground service workers. While the talks in faraway Chicago received moderate play in newspapers on the mainland, they were front-page news every day in the Honolulu papers.

United brings about half of the visitors from the mainland, and memories of a 1985 United strike that stranded thousands of people in Hawaii are fresh. News of a strike-free settlement this time was greeted with relief by state officials, tourists, and many of the 21,000 delegates to a convention of the National Association of Realtors.

The situation with United puts Hawaii in an awkward position. Officials would like the state to be less reliant on one airline, but ``United basically started the visitor industry in Hawaii,'' Hong says. ``We're not going to push them out.''

While fewer carriers and less competition have helped pushed up air fares, hotel rates have been climbing even faster. Room rates tend to move up and down in tune with the peaks and troughs of the travel seasons, but the overall trend has been distinctly upward (see chart). In 1980, the average room rate was less than $55 a day, making Hawaii a cheap vacation, especially for anyone who could get here aboard one of the now-defunct bargain airlines. Today, the average room rate is more than $75, with peak-season averages pushing $100 a day. In 1986, the average rate jumped 12.82 percent over the cost of a room in 1985.

(Those averages include many rooms in older hotels and in hotels several blocks from the beaches. A room in a modern hotel on Waikiki Beach or across the street will run $120 to $180 a night, depending on whether it has an ocean view, partial ocean view, city view, and what floor it's on.)

Still, the visitors keep coming, in numbers that are forcing Hawaiian officials to make some decisions about how to limit the flow.

``We're churning people through here,'' Brewbaker says. ``We hit the 5 million mark just last year, and crossed the 4 million mark just two years ago. We're looking at an average daily [visitor] census of upwards of 150,000 to 170,000 people.

``The demands that volume puts on infrastructure, congestion on the highways, and whatnot has really become acute. So even people who aren't inclined to squeeze out the middle-class market, because it has been the bread and butter of the industry, might be willing to ease them out, if it meant that we wouldn't have to tolerate 10 or 15 million visitors by the end of the century. It's just too many people.''

While Oahu in general and Waikiki in particular will become somewhat more expensive, this island will probably remain a middle-class destination. It contains many shops, restaurants, and other attractions that need large numbers of moderate-income visitors.

Indeed, some airlines and wholesale travel companies are doing what they can to keep middle-income people coming to Honolulu. One airline, for example, offers an eight-day, seven-night package that includes round-trip air fare from Boston, hotel, and all breakfasts and dinners for $700 to $1,100 per person, depending on the hotel selected.

It's on the other islands - Maui, Kauai, and the Big Island of Hawaii, that the multimillion-dollar resorts are going up. At some, it will be possible to stay at the resort and not really ``see'' Hawaii.

At the new Westin Kauai, for example, there are shops, restaurants, almost continuous entertainment, and gondolas on man-made canals that reach into the lobby of the hotel itself. The rooms start at $300 a day.

``The idea is explicitly to create a destination resort environment that has very little to do with Hawaii, that provides everything you need so that you literally don't have to rent a car and go out and see anything,'' a critic says. ``It doesn't seem to matter that it's in Hawaii.''

Whether the strategy of focusing more and more heavily on Japanese tourists and upscale Americans, Canadians, and Europeans works and whether it's best for Hawaii will not, of course, be known until it's been tried for a while. One justification for it can be seen by comparisons with manufacturing, which is how Brewbaker - thinking like the economist - sees it.

``People who are optimistic about this upscale strategy look at it as the equivalent of productivity growth,'' he says. ``If we were a manufacturing-oriented state, we'd be looking at adopting modern technologies to increase productivity, to increase our return on either existing or whatever new investments would come along.

``For the visitor industry, the only way to do that is to get people to spend more than they already do while they're here, or to attract people that spend more, and squeeze out the people that don't spend as much. As harsh as that sounds, those are the choices the industry faces.''

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