The Bratton Team

The Return Of Japanese Visitors May Be Just In Time To Save Hawaii’s Economy

By Stewart Yerton
September 23, 2022
View the full article here.

A day after Japan’s prime minister lifted all travel restrictions, UH economists issued a report saying the return of Japanese travelers could help spare Hawaii’s economy.

The flagging U.S. economy will dampen Hawaii’s economic recovery as inflation and high interest rates erode consumer buying power, University of Hawaii economists predict in a sobering economic forecast released Friday.

But there’s one continuing cause for optimism, according to the University of Hawaii Economic Research Organization. The rebounding tourism industry shows no sign of faltering, UHERO reports.

Even if the U.S. mainland dips into a recession, UHERO predicts that Japanese travelers returning to the islands after a years-long absence will be enough to maintain momentum for one of Hawaii’s major employment sectors.

“Hawaii may well escape overall net job losses, thanks to the recovery of Japanese travel that is now finally underway,” UHERO reports.

The prediction came as Japanese Prime Minister Fumio Kishida on Thursday announced Japan will lift a daily arrival cap and allow visa-free travel starting Oct. 11. Kishida also announced a nationwide travel discount program for visitors, The Japan Times reported. Japan had previously eased Covid-19 testing requirements for travelers, but a cap on daily arrivals limited the number of flights in and out of Japan.

Hawaiian Airlines, the state’s largest private employer and dominant air carrier, called Kishida’s announcement a cause for optimism.

“Obviously that’s a very big change,” Theo Panagiotoulias, Hawaiian’s senior vice president of global sales and alliances, said in an interview from Tokyo.

There’s significant pent-up demand for travel to Hawaii in Japan, where the theme of Hawaii as a vacation spot is woven into the community, Panagiotoulias said.

Previously, in places like South Korea, Australia and New Zealand, pent-up demand translated into surges in visitors when those governments lifted restrictions, he said.

“In all the geographies that we serve, the pent-up demand phenomenon was very real,” he said.

At a press conference on Thursday, UHERO’s executive director, Carl Bonham, elaborated on the forecast, which he produced along with fellow UH economists Byron Gangnes, Steven Bond-Smith, Peter Fuleky, Justin Tyndall and Rachel Inafuku.

Bonham also serves on the Hawaii Council on Revenues, which provides forecasts state government officials use to anticipate tax revenues that will be available to them. Additionally, UHERO’s supporters include the major players in the business and nonprofit sectors, which makes the organization’s reports touchstones for discussions about the economy.

“There is a possibility that Hawaii could get through this without much of a downturn, and that’s what our forecast says,” Bonham said of the recession that is looming on the mainland. “And it’s mostly because we’re still in recovery mode.”

A boost from Hawaii’s largest international market is key, he said.

“We think by the first quarter we’ll be back to about 50% of pre-pandemic levels for Japanese visitors,” he said. “You can actually imagine starting to see businesses that cater to Japanese visitors starting to come back.

“If we get back to 50% of pre-pandemic levels, businesses are definitely going to feel the difference,” he said. “You’re going to see wedding business pick up and some retailers who were really hurt, as well as food and beverage, begin to see increased traffic.”

That’s good news to a massive ecosystem of larger businesses as well as entrepreneurs like Mami Kagami, owner of A La Maison by MAnYU Flowers. An accomplished florist from Tokyo, Kagami once had a staff of 15 flower arrangers doing weddings for Japanese visitors at hotels like The Kahala, Sheraton Waikiki, Moana Surfrider and Modern hotels. But all that dried up with the pandemic.

Kagami managed to keep her shop in Moiliili afloat thanks to the federal SBA’s Paycheck Protection Program and a rent break from her landlord, she said.

But eventually, with no sign of the Japanese wedding business coming back, Kagami pivoted and turned some upstairs rooms of her floral studio into a Japanese antiques and French porcelain shop. She now also does occasional pop-up events in the space, such as Japanese matcha tea ceremonies for local residents and international visitors.

The retail space has let her expand her client base, Kagami said, while she waits for the flower business to improve.

“If I could do both of them mixed together at the same time, that would be best,” she said, referring to the housewares shop and florist business. But she’s not optimistic about Japan returning to Hawaii, in part because the weak yen has made travel to U.S. destinations more expensive.

“It doesn’t look good,” Kagami said.

Bonham and Panagiotoulias don’t think that will be the case. They both addressed the weak yen as well as high hotel room rates, which are about 30% higher on average than before the pandemic, peaking at $388 a night on average in June. Bonham acknowledged Japanese visitors might have less extra cash to spend on shopping and activities, but he still predicted they will return.

So did Panagiotoulias. The same factors were at play when other markets opened, and tourists still came to Hawaii, he said.

What’s more, he said, people in Japan have been largely employed during the pandemic, working and building savings.

“I would assert that people are looking for an opportunity to spend that,” he said.

Tourism Is Still King In Hawaii

UHERO’s forecast underscores what seems a fundamental truth about Hawaii: the economy depends on tourists.

Despite anguished talk about diversifying when the Covid-19 pandemic showed the risks of having so much depend on tourism, policymakers showed little ability to change anything. Gov. David Ige brought on former Hawaiian Electric chief executive Alan Oshima as the state’s ‘Economic and Community Recovery and Resiliency Navigator,” but it was never clear what Oshima accomplished.

In another effort, during the height of the pandemic, Ige’s economic development director and former chief of staff, Mike McCartney, proposed the state could create nearly 40,000 jobs for displaced hospitality workers by training them to work remotely for national and international companies. But those jobs never materialized.

Bonham said it’s hardly a surprise.

“We didn’t really believe it in the first place,” he said.

Inflation Is Squeezing Households

And that leaves tourism. The good news is the resurgent visitor industry is keeping Hawaii’s economy afloat. The bad news: it’s still not easy here.

While Hawaii’s inflation rate has been lower than that of the U.S. as a whole, which has reached 8.5%, Hawaii’s rate still touched 7.5% in March, meaning Hawaii residents are paying much more for goods and services in a place where the cost of living already made it hard for people to survive before the price increases. That means many households are spending $3,000 to $3,500 more annually to get by than they were before the inflationary spikes in prices, Bonham said.

“Our inflation rate of 7.5% for many households is just as bad as it is nationally,” he said.

Federal Reserve Chairman Jerome Powell has made it clear that taming inflation is a priority, and the Fed will keep raising interest rates to make it harder for individuals and businesses to borrow and spend money. UHERO referenced a meeting in Wyoming this summer when Powell said the Fed will keep raising rates even if means pain for businesses and households.

Still, Bonham said, Hawaii could be spared the broader pain of the recession looming on the mainland.

“We’re out of sync with the rest of the country,” he said.

He called the notion that what happens on the mainland also happens in Hawaii, just later, “an urban myth.”

Still, Bonham said, much depends on Japan. If the Japanese travelers do not come as UHERO predicts, and the U.S. economy continues to decline, “Hawaii would probably be in a recession,” he said.