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Hawaii Fears Economic Fallout From Japan

Beach
Beach

"We're back in business." That's the word from Hawaii Governor Neil Abercrombie after touring tsunami damage to his state.

The tsunami did shut down some big resorts, such as the Four Seasons on the Big Island, which is scheduled to reopen on April 30, and the Kona Village Resort, which is closed until further notice, according to Honolulu News Now, and it caused temporary problems for other tourist spots.

But even if the majority of doors are open on the islands, will anyone come?

Japan is Hawaii's second largest market for tourists behind the US mainland. Last year, 1.2 million Japanese came to the islands and spent $1.9 billion, according to the state tourism officials. That was 5 percent better than 2009.

The numbers for 2011 were even stronger. In January, visitors from Japan increased 19 percent from a year ago, while spending jumped 34 percent.

Now, all of that is threatened. "It's going to be terrible," says Abercrombie about the quake and tsunami's impact on tourism. The disaster hit as Hawaii's Number 1 industry was making a comeback.

CNBC - Disaster in Japan - Japan Earthquake and Tsunami
CNBC - Disaster in Japan - Japan Earthquake and Tsunami

"The recession hit Hawaii pretty hard," says Hawaii Tourism Authority CEO Mike McCartney. "We lost two airlines, ATA and Aloha. Two cruise ships. We had the financial meltdown across the country, and we had H1N1."

McCartney says that caused nearly two years of fewer visitors spending less money. But the trend turned around in the middle of 2010. Tourists spent $11.4 billion last year in Hawaii, up double digits from the year before, though still shy of the nearly $13 billion spent in 2007.

"We've got a lot of visitors. Hotels are all full," Barry Wallace of Outrigger Enterprises Group said before disaster hit Japan. Occupancy rates are well above 90 percent, but he says room rates are still down 25 percent from the peak. "We're probably not going to recover that for a couple more years."

Since the tragedy, Outrigger says it has not seen mass cancellations, but expects "some significant short-term impact on outbound travel from Japan—whether due to cancellations or to people deferring travel until conditions in Japan are more settled—which could take weeks to months, depending on how the situation evolves."

The company's CEO, David Carey, says, "The key for Japan-Hawaii travel, in addition to the recovery effort, will be the airline situation and the maintenance of capacity. Hawaii remains a most desirable destination from Japan, so the key will be to retain that standing and market share as Japan recovers."

McCartney says the Japanese have a special relationship with Hawaii. "So many Japanese want to come here for the experience. They want to experience our people, place and culture, so it's a deeper relationship than just coming here for business. It's a much deeper one: They come here to rejuvenate."

Hawaii isn't completely dependent on Japan. Tourism from the mainland is up. Canadians are taking advantage of the stronger Canadian dollar. Mexico's drug wars are encouraging some tourists to come to the Hawaiian islands instead of catching beach-time on the Spanish-speaking country's two coasts. Disney is building a massive new resort on the western coast of Oahu.

And then there's China, an untapped market. Only one in 10 Chinese tourists coming to the US goes to Hawaii (many prefer Vegas instead). It's a market the islands haven't cracked. New airline routes may be on the way, and tourism officials are pushing the State Department to make it easier to get visas. Outrigger is building a resort on China's Hainan Island.

"Many people call Hainan Island the 'Hawaii of China'," says Barry Wallace. "So we're going to have an Outrigger there, show our hospitality to the people of China and invite them to come to Hawaii."

However, Wallace says it could take four to eight years to develop the Chinese market. It took 20 years to build up the Japanese market.

Hawaii is betting big on the meeting of 21 leaders of the Asia-Pacific Economic Region (APE) later this year. The is in the US only once a generation, and President Obama chose his home state to host it. McCartney says it could bring Hawaii $130 million and 15,000 visitors. Wallace hopes it will show off the state in a different light: "I think it gets Hawaii seen as a potential place for a business meeting, which isn't really how people think of Hawaii."

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