 Good afternoon. My name is Ray Tuchiyama and this is Business in Hawaii. And today's show is devoted to a subject that is really a part of Hawaii's history and society. I'm talking about tourism. And we have our guest, Frank Haas, who's really been at the forefront of dealing with all kinds of issues on tourism from a business standpoint, government, and academia. And he's been here for many, many decades. So he'll be talking about tourism today and how it's evolved, given Hawaii's great mid-Pacific location, the best weather in the world, and aided by Hollywood movies like Blue Hawaii, featuring Elvis Presley in the early 60s, the Japanese tourism boom of the 80s, and then the recession of the 90s, and then the internet boom of the 2000s. And that leads to today, 2018. And we've had another bump in the middle of about 2008, 2010, a little recession there. So, Frank, welcome to the show. Aloha, Ray. Thank you for inviting me. We've had a long and colorful history with Hawaii tourism. I hope we'll have a long and colorful future too. So that's what gets me motivated to talk about tourism. Well, you're part of tourism in many, many ways. And I know you have seen it from the inside and have lectured on it to students, of course, advised major corporations and players in tourism. Let's start it out, the discussion. We've had a wonderful numbers in tourism to Hawaii. Is it going to be business as usual for the future, a bright future? Are we in crisis for tourism because of the impact of the environment and many other issues? Where are we today, 2018? Well, one of the things we are is in control of our own future. And if we take control of it, it'll be a very bright future. The question is, where are we? And that's a complicated question because on the surface, we're doing very, very well. And you can look at the last four or five years, record growth in visitor arrivals, record growth in visitor spending. And as I said, on the surface, that looks very, very good, very good. People are patting themselves on the back. The hotels have very high occupancy. They have very high rates. And those rates are holding steady. So that's good. The thing about the future really depends on our ability to justify those rates and to manage tourism in a way that makes sense not only for the visitor experience, but for the resident experience. And that's where it gets complicated because once again, on the surface, things look good. When you dive into it, it looks a little bit different. I'm a numbers person. I brought along some slides, which maybe you can start with. Can we put up number one? There it is. What does that slide tell us? The blue line is nominal visitor spending. That's visitor spending before you apply inflation. And we've had years of steady growth. And this is where the Hawaii Tourism Authority and others tout their horn and they say, look at how good we're doing. In 2017, we had almost $17 billion in spending. Where it looks a little bit different is when you adjust that for inflation. What's just called constant dollars. I've picked 1984. And what you see there is a line that's pretty flat. So once again, on the surface, it looks good. My nickname, by the way, is Dr. Doom. So even when things are looking very good, I'm saying, let's look a little deeper. When you look deeper, you see that much more flat characteristics get aligned. Because some government leaders and tourism leaders look at this as, wow, don't interfere or don't touch the goose that laid the golden egg here. There's $17 billion coming to this economy. We have unemployment at very low rates, maybe under 3%. It's hard to find people. Everybody's working. What is wrong with that? Well, if real spending is flat, if real tourism receipts are flat, but over the same course of those years, we see more than a million extra visitors. What you have is more wear, more tear, more congestion, more problems, more community issues for basically the same amount of money that's coming in. That's not healthy. What we need to see to be healthy and sustainable is a real increase in the economic impact and then a management of those negative impacts. Too many people in the parks and trails, too much wear and tear on visitor sites, too much congestion in our neighborhoods. So those are the things that require management. And the mission statement for the Hawaii Tourism Authority is to manage tourism. And that's, I think, something that we need to really pay attention to. It's not just bring them on in, get them on the airplane, get them here. But it's how do we manage the numbers? How do we manage the dispersion of the visitors once they get here? How do we manage the relations with the community? All those are necessary to be sustainable. Because the reason why people come here from the 30s when it started to grow with Hollywood and wealthy families from the West Coast and other regions coming to Hawaii was to seek the authentic Hawaii experience. And what does that mean to you back then? And that still draws the visitors from around the world? Well, things were naturally authentic. Early in the development of any destination, things are authentic because it's undiscovered. You come here and there's not a big tourism infrastructure. So when people get off the boat, the Matson boat, boat days, you have local kids diving for quarters. You've got real luau. You've got visitor experiences. The lay sellers, the hula dances, and the docks. And people used to come on canoes from the sea plains, remember, from Pan Am. I don't remember. I've seen the picture. But wow, it was like a plane to a hotel at the beach. What an experience. But when you get to 10 million visitors, what happens is the many of those experiences are less authentic. Many of them are contrived. Many of them are purely commercial. And we have to watch that because the visitor is not dumb. The visitor will sense that there is an inauthenticity that they're seeing. And once that experience starts to erode, then they're not going to pay the kind of money that we want them to pay for hotel rooms, for attractions, for transportation, for all those other things. People are willing to pay for and they are happy with spending money on anything that's worth it. I was checking hotel rates, and I think a high season, the average rates for a hotel in Wailea Maui are running around $600. I tell my students that, is it worth $600 a night to stay in a hotel? And the answer is, it depends. If you're getting a $600 experience for the right people who have that kind of money and are looking for that experience, that's worth it. If they're not getting that, then there are other choices they have. And the $600 foreign experience in Kathmandu or the Maldives or other undiscovered places, of course, you would pay more for an experience that would last a lifetime. So how do we do that? First of all, there are two elements to that. One is attracting the people who are looking for that kind of experience, because they're the ones that are willing to pay for it. If you get somebody coming to Hawaii that's only coming for the beach, they're called many things. Chief Charlie is one of them. They go to the ABC store, they get a straw mat, and they lie on the beach for a week, and then they go home and they say, what's so special? They're beaches. They eat at McDonald's. They're McDonald's at home. They can do that at a redondo beach. Right. And the beaches, at one point in Hawaii, had a tagline that said the most beautiful islands in the world. And when we did focus groups about that, people said, well, who says? And there are a lot of beautiful islands in the world. So you can't just be warm weather, you can't just be beautiful. You have to have something else to justify the price. Let's put up the second slide. This is another view of the same issue. It's real tourism receipts. This is inflation adjusted per visitor, and it's been declining, and it's been declining, and it's now around $1,700 per visit. This chart, by the way, is thanks to Paul Brubaker and Jim Mack, who are two economists who are very interested in this issue. Next slide, just show you another version of this. And that's real tourism receipts. This is in 2017 dollars, but adjusted up from over time, per Hawaii resident. And what you'd want to see here is the economic impact per resident increasing. And in fact, tourism has become economically less important as a part of this economy because of things like this, because of the real erosion in visitor spending. Okay. What we wanted to do in the show, of course, is set the stage for discussion on tourism today, but of course, what you're saying is we have to look at the future, how to manage tourism, not only for the visitor, but also residents. And back as late as the 1960s, mid-60s, when I was a child in Honolulu, probably the entire island of Oahu was barely 250,000 to 400,000 people. Now it's 950,000, maybe a million people and about 600,000 cars. So it's a different Oahu, different Hawaii. Maui before the war was barely 45,000. Now it's 170,000, 180,000 people and most of them, again, transplants from the mainland. And even on Maui, the roads, the infrastructure, housing, impacting environment, the beaches, all becoming major issues for the residents population. And of course, this spills over the visitors who feel that there's too many people or they're not getting an authentic experience. Now some properties, like the most famous one, Kanapali Beach Hotel, in the late 80s, started to develop programs to really work with the staff to train them, to educate them in the host culture, the Hawaiian culture. So when visitors came there, they really enjoyed this authentic experience. And that's why the repeat experiences of visitors to that property through the years continued. And this was, of course, emulated by major, every other major property now has a host Hawaiian culture expert on the staff. What do you see for the future of, well, we're going to get to break in a few minutes, but let's phrase the questions. Are they going to be just the private sector tourism industry or what are the players who must come together to create a strategy for the future of tourism in Hawaii? Well, obviously, when you have something called an authority, like the Hawaii Tourism Authority, you would expect it to have authority to make changes. And it's wonderful that Kanapali Beach Hotel and others have taken these steps. But really, truly, to leverage that, you need to invest money in it. And it's got to be serious money. It's not just training, it is training, but we need to spend millions of dollars on training, training customer service. And we're going to come back to this whole money thing after this break. Hey baby, that's you. I want to know Oh, will you watch my show? I hope you do. It's on Tuesdays at one o'clock, and it's out of the comfort zone. And I'll be your host, RV Kelly. See you there. Welcome back to Business in Hawaii, a show that really tackles issues that affect everybody and involving business, involves government, involves many sectors of society in Hawaii. And I'm with Frank Haas and Marketing and Tourism Guru, as we say, with vast experience in the tourism industry from various roles in his career. And we were just talking about the role of money and how do we get the money and where do we spend it? And aren't there taxes that are gathered in order to have programs to really develop tourism? Absolutely. And it's not just money, by the way. There are three, in my view, there are three elements to be successful into the future. One is authority. You actually have to have the authority to get things done. And we haven't had that. I don't talk about that in a second. But the second is money. You do need money. A lot of these issues require investment, investment in training, investment in festivals, investment in the visitor experience, investment in safety. You cannot have safety. Hawaiian culture, all those things, to do it right, really requires an investment at this point. And we're at a point in our development where if we want to go to the next level, we have to provide a better experience, a safer experience, a more rewarding experience. Visitor in that all takes money. The third is a long-range view. And this is why there is something a state agency called Hawaii Tourism Authority. The private sector is looking short-term. The general managers, God love them. They're rewarded. And these are the hotel managers, right? The top people in Waikiki. Right. Or attractions. Or any other person in the private sector. You're looked at, your performance economically and in terms of a one-month quarterly one year. So the state needs to look further. I did a project in Singapore where they did a 25-year plan, which is a little ridiculous, but we need a longer horizon than the government does. So you asked about money. So if you're going to do this, it is going to take money. That's the first aha that some people say, well, we're doing so well. Just stop spending money. And that's like taking your hands off the steering wheel of a car. We will be at the mercy of the private sector in terms of who comes here and how they market Hawaii and how we provide an experience. So we need to make these investments. So back in 1998, when Hawaii Tourism Authority was created, there was also the Transient Accommodations Tax. And last year... Which is known as the hotel tax. Right. It's known as the hotel tax. It's a little broader than that, typically for Hawaii. It's complicated. But last year, that brought in about half a billion dollars. And this last year, so that's before they increased the tax by 1% to help pay for rail. So what's happened over the years is this Transient Accommodation Tax Hotel Tax TAT, which was meant primarily to support tourism. And it was imagined that as tourism grew, the receipts from that grew, the legislature in its wisdom looked at this and said, well, we don't need so much money to support tourism because it seems to be doing fine. And one's going to remember top line. We look like we're doing fine. But when you drill into it, there's some needs that need to be funded. But over time, the total receipts for the TAT increased to about a half a billion dollars last year. And the Tourism Authority gets about 82 million dollars. So is that sound like a lot of money? It does sound like a lot of money. But if you really talk about addressing some of the things like parks and trails, beaches, visitor safety, workforce training, that's not a lot of money. Yeah. And when you look at the whole infrastructure, the minute the tourist visitor comes to Hawaii, they land at the airport. The airport needs work. There's roads to get to Waikiki. There's the sewage issues in Waikiki now. And of course, parks. You're absolutely right. There's a whole infrastructure that's outside the small budget you just mentioned. Right. And this is why you need authority. You need coordination because like the parks are owned by the state and the counties. But the Tourism Authority has to work with them to say, how can we make these better experiences for the visitor? The airport is managed by the Department of Transportation, hopefully someday be an authority of its own. But the HTA with its bully pulpit and perhaps some budget should come in and say, how can we make this a better experience for the visitor? Maybe we do pay for training. Maybe we pay for better signage. Maybe pay for, I don't know. But we need to look at all these touch points for the visitor and say, how can we make the experience better? Right. And so you're looking to the HTA to be the leader in all this? I think somebody has to be the leader. And if you're talking about the sector of tourism, it's only natural that the Hawaii Tourism Authority be that leader. They have a bully pulpit. They should use it. And they have in the past, but I think we can be more aggressive with it. But they also should have the ability to work more directly with these other entities or have the authority to address some of these problems. The homelessness in Waikiki, for example, is one aspect of homelessness in the state. Should the HTA and I think next year the legislature has carved out a part of the TAT to address homelessness. But how do you spend that money so that it improves the experience in Waikiki? Do you pay for one-way tickets back for some of the homeless? Do you pay for additional support services in Waikiki? I don't know what those particular answers are, but that's why you need somebody who is thinking primarily of the impacts on the visitor industry and how to solve those problems relative to that industry. Government leaders, what do you think they think of tourism? Well, if you look at behavior, they've cut the budget. And maybe that's because everybody's looking at this top-line record growth and maybe shame on the industry. They go out to the legislature and say, look at this wonderful growth that we're having. And so the legislature says, so you don't need the money. We really need government leaders and the tourism industry and the tourism authority to be more focused on Dr. Doom. Where are the upcoming problems that we need to solve rather than focusing on the 10 million visitors and the 17 billion dollars of receipts coming? And we need to say, where are the next issues that we need to be addressing now? That's a very good point because wouldn't government leaders or private sector or anybody that's worried or thinking about tourism refer to a document that will be a five-year, 10-year plan? Is there such a document? Well, there have been series of documents. I was very instrumental in working with a group that created one of them, which was the 2005-15 plan. And we had nine strategic initiatives. We said all these things have to happen in order for tourism to succeed. They went through a state audit and the auditor says, but you're not doing this. You're not doing this. You're not doing this because they didn't have the authority. And so the response was, well, we're just going to take that out of our portfolio. And that's not the way to solve the problem. That's the way to address the audit, but it's not a way to solve the problem. So do you think that HTA doesn't have the authority today or should have more authority to really lead the discussion forward to create a better strategy and have the ability also to develop programs in partnership with the private sector and other parts of the tourism industry and then have the resources to execute it? Well, all of the above and more. Okay. All of the above is they need the authority and they don't have it. So honestly, I think we need to look at the way things are right now and say it's not working and maybe reconstitute HTA and maybe see how we can give them better authority. Tourism czar. That's what you're saying. Well, I didn't want to use that term, but possibly, but you need either a czar or somebody that has a very strong influence over these other agencies and departments. The other thing you need is the funding. So we've talked about that a bit. The third thing that you need is a change in strategy. What worked when you were 5 million visitors, 6 million visitors is different than what you need to do with 10 million visitors. And now the focus in their marketing efforts really needs to be 100% on higher spending visitors. And we know who they are. But if you look at performance over the years, some of these high spending markets have not grown or they've declined. Name a couple of them. Weddings. Weddings has been stable. Right. But while visitor industry, while the visitation has been growing, the number of weddings has been steadily low. Because they spent a lot of money doing a wedding here. But not only that, they stay in resorts. They stay. They want beachfront or oceanfront. They splurge. They splurge. They go to the fine restaurants. How about another segment? And the incentive markets, incentive markets, those are the markets where you pay to bring your sales team or whoever set some records. The Facebooks and Microsoft's and Amazon's and so on. And the whole point is to make them happy. So they spend money on golf tournaments, on banquets, on shows, on all this stuff. It's a small... It's not going to McDonald's for the family. After I left HTA, I went to an organization's conference called Site Society of Incentive Travel Executives. And I was the only person from Hawaii there. There are people from Vegas, from Orlando, from Anaheim. And these are the resorts focusing on those high-spending visitor segments. We should be doing the same. We should be doing the same. The other thing that's changed over the years, and remember that I mentioned that I worked on a tourism plan that started in 2005. Well, now it's 2018. The world has changed. And now we can reach what I would call micro markets. These are very small markets. But we have something that's very, very pertinent to them. Birdwatching. Do you know how many birdwatchers there are? And we have birds that nobody else has seen. Of course, yeah. They only exist in Hawaii, too. If you've ever known somebody that makes quilts, these people are crazy. They love quilts. And of course, Hawaii, because of its missionary heritage, not only has quilts, but it has quilts that are different design. So through the internet, we can find kite surfers, quilters, burners. Oh, yeah. And they've been numbered to thousands. I mean, in Japan, there are tens of thousands. Oh, I went to a quilt show in Japan, and there were 26,000 people went to the Tokyo Dome to see a quilt show. Wow. But there are dozens and scores and hundreds of these markets that we could never reach before, but we can reach now through the internet. And we have something very special to offer them. Yeah, so we should be doing a better job in identifying these highest spending segments and leveraging the power of the internet and attracting them. And again, it's an authentic experience, but very, very focused. Right, right. It's something that can't get anywhere else. But it really involves changing gears, moving your mindset away from mass markets into classrooms. But if we don't do all this, looking into the future, are you back to Dr. Doom? Well, it all comes back to the fact that if you can provide a valuable experience, people will pay good money for that experience. The minute the experience declines, you can expect that you're going to either lose arrivals or lose economic impact. But it's interesting. Other resorts have evolved in different things, like Las Vegas, from 20 years ago, transformed into a family-friendly destination. Well, more than that, they were very responsive to changes in the in society, to changes in customer behavior. There's less of an emphasis on gaming. Right now, as the millennials are coming into the travel market, there's much more emphasis on clubs, DJs, and high-end liquor. They probably make a huge amount of money on their clubs and DJs. And the pool experiences, the extravagant hotel amenities, all that is catering to the market. So we have 30 seconds left. Any other places that you would like to point out for Hawaii to emulate for tourism? Well, Vegas is a good example of a place where they have an authority that has real authority. They're building an arena. They manage the infrastructure anywhere else. Oh, well, internationally, certainly the Middle East design. Singapore, coming to mind. Singapore, I did a project in Singapore. They're very strategic. Frank, we can go on forever on this exciting topic. And I think it's one of the most vital topics of our time today, going forward for the state of Hawaiian society. This is Ray Tsuchiyama. Thank you very much.