Business Beyond the Reef

President Obama swung by Disneyworld Thursday to announce his new executive order on promoting travel and tourism to the United States. Finally, it seems, somebody is taking this magnificent export industry seriously. Crippled by post-9/11 restrictions on visas and the TSA’s constant hassles at airports, travel and tourism still account for 7% of total U.S. exports and are by far our leading service export. What’s that in real money? A cool $134 billion. The industry as a whole employs 7.5 million people, with overseas visitors providing much of the profit margin that enables the industry and its jobs to grow. Unlike more stingy domestic travelers, or foreign travelers who can walk or drive into the country, long-haul international visitors spend, on average, about $4,000 per trip to the United States.

The White House press release emphasized three markets for growth in U.S.-bound tourism: Brazil, China and India. But India somehow got left out of the specific plans and proposals. There is much in the executive order that will boost travel from Brazil and China, some that is global, and a big potential boost to traffic from Taiwan.

Tourism promotion has largely been left in the hands of the states and individual destinations. True, there have been Federal boosts to tourism over the years, often at the behest of Hawaii’s Senator Inouye, but Washington support for tourism has hardly been consistent. It makes supreme sense to do some joint marketing for the whole country. After all, few tourists are interested only in Mount Rushmore, but they might be attracted by a trip that would also take in Yellowstone, the Grand Tetons, Devils Tower and Glacier National Park – none of which are promoted by South Dakota. So I am pleased to see a new national approach.

The executive order doesn’t say much about tourism promotion beyond ordering the secretaries of Commerce and Interior to come up with a strategy. The order does, however, address some of the major impediments to attracting foreign visitors to our country and its sights. The departments of State and Homeland Security have been ordered to increase visa processing capacity in China and Brazil by 40% in 2012, presumably based on the successful visa processing program piloted at the American Consulate in Shanghai over the past couple years. Both China and Brazil have a huge backlog of non-immigrant visa applications and the goal is to be able to process 80% of applications within three weeks. No more waiting months to even see a consular officer.

The Global Entry Program is a “trusted traveler” program in which frequent visitors to the United States can have background checks done in advance so that processing through immigration at U.S. airports is accelerated. They scan their passports and their fingerprints, and they are on their way. Despite the pilot nature of the program and its availability at only twenty airports, nearly a quarter million foreign travelers have signed up. The executive order makes GEP permanent and orders expansion to more airports.

Listed last, but certainly not least, is a decision to add Taiwan to the 35 countries that already are covered by the Visa Waiver Program. Technically, Homeland Security has to approve this, but with an instruction from the President, it seems likely to happen quickly. We already see a lot of visitors from Taiwan, but expect a profound increase when they get the visa waivers.

One small thing puzzles me from my parochial perspective in Honolulu. The President announced new appointments to the U.S. Travel & Tourism Advisory Board, an advisory committee housed in the Commerce Department which should be heavily involved in developing tourism promotion strategies. There are 32 private sector members of the board, not one of whom comes from Hawaii, which I understand is a major U.S. tourism destination. Four out of the 32 come from Florida – and the announcement was made at Disneyworld. Now, let’s see, Hawaii is a safe state for Obama and has few electoral votes. Florida, on the other hand, … Silly me! The President wouldn’t play politics, would he?

I often rail about the fact that Hawaii’s official tourism promotion agency virtually ignores Europe. The Hawaii Tourism Authority (HTA) pays a contractor a pittance to promote Hawaii as a destination in the United Kingdom and in Germany, but nothing gets spent anywhere else. And there isn’t enough money for the contractor to place exhibits in the major tourism trade shows, such as ITB in Berlin, where business is really done in Europe. Part of the reason is an assumption by HTA that tourists won’t come if there are no direct flights and, I suspect, part is discrimination in favor of Asian markets. Whatever the reason, Hawaii does not take full advantage of Europe’s relatively well-heeled travelers – who have always been willing to take more than a single flight to get where they want to go.

So I was interested in the visitor statistics published just before Christmas that showed Hawaii’s visitors for the first ten months of 2011. In this bleak, dark year for Europe, traffic to Hawaii rose by 3.9% to 88,280. You might assume they were all from the markets in which HTA spends money, but no. True, the leading sources for visitors were the U.K. (33,738) and Germany (27,358), but the former saw a drop of 3.1%. Germany, one of Europe’s strongest economies, saw a creditable rise of 5.3%.

Switzerland, with its strong currency, was the 3rd largest source of Hawaii’s visitors from Europe. 10,129 Swiss tourists made the journey around the world – a whopping increase of 31.5% over 2010. Admittedly, there could have been spillover from HTA promotions in next door Germany, though I doubt this had much influence.

France was an impressive performer, too, despite more economic issues than Switzerland. I knew I heard more French in Waikiki and, sure enough, French visitors were up 13.4% to 7,920. They were still outnumbered by our 9,135 Italians, though the Italians were down 3.5% in this year of economic disasters. Still, pretty good results for markets in which Hawaii does no promotion at all.

Tourism is Hawaii’s #1 export industry, so we have to be conscious of where our customers hail from. That’s why it is always fun to look at the forecasts published by the Hawaii Tourism Authority (HTA). Yesterday I looked at direct flight seat capacities, which tell us where the tourists could come from (according to the conventional wisdom that direct flights govern everything). Today, we’ll look at HTA’s best guesses about where they will come from in 2012. There may be a surprise or two for the direct flight adherents. My data comes from stats released by HTA in its fall market briefing. And here we are talking about okoles, not just seats.

Japan: HTA expects arrivals from Japan to climb about 4% to 1,322,348 travelers. They expect a stronger yen, which makes Hawaii less expensive to Japanese pocketbooks, and pent-up demand from a reluctance to travel after the 2011 disasters in Japan. I’m not too sure about the yen forecast, but the pent-up demand seems to fit. HTA also cites new charter services and growing seat capacity (that hasn’t been seen yet) to serve the MICE market. MICE is industry jargon for Meetings, Incentives, Conferences and Exhibitions – what most of us might call the meetings market. HTA expects the Japanese to stay about six nights and spend about $295 a day, about a 5% increase that presumably reflects their judgement on the strength of the yen over the coming year. Total Japanese spending (i.e., Hawaii exports to Japan) should be $2,339,800,000.

Canada: Our Canadian friends, says HTA, should benefit from a strong economy and a strong Canadian dollar, and will choose to spend some of their excess cash on Hawaii’s sunny shores. They see visitor arrivals going up 4.5% to 468,062. The Canadians will defrost in Hawaii for 12-13 nights and spend about $158 a day – tight-fisted compared to our Asian customers, but they do stay longer. All told, Canadians will spend $936,200,000 – a 5.8% increase in a single year. The trend is good.

China: HTA’s forecast relies on China’s economy staying strong, a big assumption depending on what happens to China’s export markets. They also forecast a strengthening yuan, which I think will happen in a modest fashion. To the downside, HTA cites slow visa processing, but here I think we might see a pleasant surprise. New procedures and more personnel in the American Consulate in Shanghai have made a huge difference, and I expect the same changes will be made in our other consulates in China. At the end of the day, HTA expects a nearly 37% increase in arrivals from China which should total 125,394 (don’t you just love the precision?). The Chinese will spend about $357 a day, down just a bit because the market is moving lower, bringing in a total of $267,400,000. They should stay an average of six nights.

South Korea: HTA, once again, expects a stable to growing economy, and a strong won, to bring on the tourists. They expect a more than 29% increase in Korean travelers to 165,253. The Koreans should stay for 7-8 nights and spend about $256 a day. So, they will stay slightly longer than the Chinese or the Japanese, but won’t spend as much per day. Their total spend in Hawaii should be $316,300,000 in 2012. HTA’s contractor, however, notes a superstition in Korea that you shouldn’t travel abroad during a leap year. (This is said to be an “ancient” custom though one wonders how long Korea has used a western calendar.)

Australia & New Zealand: HTA calls it Oceania, but they really mean Australia and New Zealand. We just don’t get that many Fijian tourists. Again, they rely on expectations of strong economies and strong currencies, to forecast a 9.5% increase to 235,598 visitors for 2012. HTA also expects those Aussies and Kiwis to stay for ten nights and spend nearly $218 a day. That implies total expenditures of $515,200,000. This is despite what HTA’s own contractor describes as “insufficient marketing funds for branding purposes.” What could they do with real money?

Europe: To HTA, “Europe” means Germany and the United Kingdom because those are the only places they spend any money – and that is precious little. About $100,000 out of close to $70 million, last I heard. They are rightly skeptical of European economies and expect the currencies to fall, reasonable assumptions. Despite all that, HTA expects a slight increase in the number of European visitors to 115,995, many of whom are neither German nor British. Europeans spend about $180 per day, but they should stay in Hawaii for thirteen nights. That means a total spend of $270,300,000.

There is the big surprise for the so-called tourism “professionals”. Despite almost no marketing and NO direct flights, the poor benighted Europeans are still coming to Hawaii – and still outspending the Chinese in total amount dropped in our islands. Just think what we might do if we tried to entice European visitors! Not to mention all those Latin Americans, Indians, Middle Easterners and SE Asians on whom HTA spends … absolutely nothing.

According to HTA’s last publicly available budget, admittedly a couple of years old, Japan soaked up more than 60% of the foreign marketing funds. And, according to HTA’s own predictions, the Japanese market will contribute about 50% of the foreign spend in Hawaii in 2012. What would happen if 10% of the budget were moved from Japan to Europe, Australia, New Zealand and some of those places where no marketing is done now? Heresy, I know.