Honolulu Advertiser

SECOND OPINION  by Cliff Slater

January 18, 2005

Tourism up but don’t go on spending spree

Hawaii had a record year in tourism last year with visitor increases of 9 percent over the previous year. However, before legislators get caught up in all the hype and find new ways to spend our money, we should infuse a little historical perspective into the issue.

The major factors that have influenced the growth of Hawaii tourism over the past 40 years have been both permanent and temporary. Jet service starting in the 1960s, the deregulation of airline fares in the 1970s, and increasing world-wide affluence have all been permanent influences; there is no going back to propeller planes or 1960 wages. However, the nationally broadcast “Hawaii 5-0,” followed by Magnum P.I., and the Japanese “bubble” economy were major but temporary impacts — even if long lasting ones.

Together these were the events that took us up to 6.7 million visitors in 1990. From that time we had ups and downs until 2003 when we had 6.3 million visitors.[1] Suddenly in 2004 tourism reached 6.9 million[2] and everyone is excited about “solid growth” in tourism.

What influences a tourist to come here rather than, say, Mexico, Thailand or Europe? Many years ago the London Economist’s research and consulting arm studied the issue and settled on forecasts based on the desirability of different destinations and the costs in time and money needed, as both influencing travelers’ decisions.

For example, let us imagine we are contemplating either going on vacation to London, England, or Washington DC. While London may be our most desirable destination, Washington DC is less costly both in money costs and the value of our time in getting there. We settle on London since desirability of the destination to us outweighs the additional cost — at that time.

Then things change: A terrorist tries to blow up himself — and everyone else — on a transatlantic flight from London and the desirability of London goes down a notch. Then we read about the radical Moslem mosques in London and desirability goes down another notch. On the other hand, in the Sunday travel section we read about Washington’s cherry blossom time and the opening of the new World War II monument and Washington goes up a notch.

Then United announces direct non-stop Honolulu to Washington service taking four hours off our flight time. At the same time the British pound and the Euro beat the dollar to death and, as we watch, the cost of our British vacation goes up another 20 percent. Weighing up all these changes, we now change our decision and opt for Washington DC.

Those are, in essence, the kind of changes that impact tourism world wide, with the primary influences these days being changes in terrorism perceptions and exchange rates.

The Euro is up 58 percent against the dollar in just the last three years, the pound is up 37 percent and the yen 29 percent.[3] Thus, costs are up by this amount for American tourists going abroad and down by that amount for foreign tourists contemplating coming to the U.S.[4] This means there is now a tendency for foreign tourists visiting the U.S. to increase and American visitors considering Europe to instead, stay home.

When a visitor can fly directly to another island, rather than have to change in Honolulu, it can save 2 hours each way in travel time, which is important to anyone who values their time. As these direct flights have increased of late, they have been a very positive, and likely permanent, change. For example, British visitors can now fly direct to Lihue, Kauai, from London with just one change on the West Coast.

Currently, our tourism industry is the beneficiary of terrorism because Hawaii is perceived as being somewhat safer than many other formerly popular tourist destinations, such as, say, Israel. Unlike the introduction of jet flights, exchange rate changes tend to be impermanent. A reversal of the recent exchange rate changes and a reduction of the perceived terrorist threat would lead to reductions in our tourism count.

So let’s not get carried away with Waihee-like spending sprees. Instead we should take the advice of the Tax Foundation’s Lowell Kalapa and, “put a little money in the bank for the future.”[5] We may well need it.


[1] http://www2.hawaii.gov/DBEDT/images/User_FilesImages/databook/db03/Section_07_all_a1009.pdf

Table 7.03 DB03.xls from the above with added column showing annual percentage changes.

[4] The recent WSJ story of a German welfare recipient now residing on his welfare check in Miami brings a certain immediacy to this issue.