The tourism and hotel industries in Guam are facing significant challenges ahead as the Asia Pacific region moves out of recession and the requirements of visitors to the island evolve. The tourism industry is under pressure to re-invent its market offering to ensure sustainable growth in tourist revenues. Likewise, hotels will struggle to restore operating performance back up to pre-crisis levels, unless they meet the demands of guests with different market profiles than before the down turn.

Tourism in a state of flux

Guam is the largest island in Micronesia, covering an area of 550sq.km and is the southernmost island of the Northern Mariana archipelago. It has a population of less than 150,000 people although as a strategically located US Territory in the Pacific it has a growing US military presence.

Over the past 20 years, the tourism industry in Guam has grown to become the territory’s largest source of income. The island has leveraged its strengths effectively and continues to attract visitors from selected countries, on the basis of proximity, a hot sunny climate, sandy beaches and plentiful duty-free shopping. In addition, non-US visitors can claim to have taken their vacation on US soil.

In 1999, the island attracted 1.16 million visitors - considerable, given its limited size and resources. By comparison Australia, which covers over 7.7 million sq.km and has a population of 18.7 million people, attracted 4.3 million arrivals - not even four times the number of arrivals to Guam. 

Guam’s economy is more closely aligned to Asia than to the US, due to its location and its increasing dependence upon tourism and trade from the region. The key source market for tourist arrivals is Japan, which has accounted for between 70 and 85 percent of total arrivals over the past five years. The other key markets of South Korea, Taiwan and US mainland / Hawaii accounted for 11 percent of total arrivals in 1999. 

Source: Guam Visitors Bureau

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With such dependency on selected markets, the demand volatility has been extreme over the past two to three years. As Japan and South Korea suffered from economic turmoil, the tourism industry in Guam declined and with it hotel performance steadily deteriorated. With economies recovering in these key source markets, tourist arrivals by air rebounded by almost 29 percent over the first half of 2000. 

Hotels reassess their offerings

The hotel market on Guam has a number of distinctive features, which impact market dynamics and how room inventory is sold. The heart of the hotel market is concentrated in a 6km stretch on Tumon Bay, and is dominated by international and Japanese chains - Hilton, Holiday Inn, Hyatt, Marriott, Nikko, Okura, Outrigger, Westin. However, while most of these hotels have access to their chain’s central reservations systems, all the hotels are dependent upon wholesalers to sell the bulk of the room inventory. Wholesaler business accounts for an average of 75 percent of rooms sold, with the majority sold to Japanese holidaymakers. 
 

Source: Guam Hotel & Restaurant Association

However, as Asia slid into recession, Guam hotels suffered the effects of plummeting demand and guests with less disposable income. Occupancies slipped in 1997 and continued to fall in 1998 and 1999, compounded by the impact of new supply as the 600-room Outrigger opened in mid-1999 and the 292-room Royal Tower extension of Pacific Islands Club opened in late 1999. By the end of 1999, average rates had lost US$30 from their peak, hovering around the US$100 mark. RevPAR (Rooms Yield) sank from US$111 in 1996 to below US$65 in 1999. Top tier hotels in Tumon Bay experienced erosion of RevPAR from over US$120 at the peak to under US$90 over the same period. 

The purchasing power of visitors from Japan was weakened considerably due to the depreciation of the Yen against the US dollar. Consequently, not only did rooms revenues suffer, but food and beverage revenues declined as wholesalers reduced the cost of holiday packages but offering more “no frills” packages, which excluded one or two meals. Guests were spending more of their food and beverage budget in cheaper outlets, including convenience stores such as K-mart and 7-eleven.

Hotel performance during the first half of 2000 has remained static for the hotel market generally with occupancy levels and average room rates similar to those achieved during 1999. In contrast, the performance of the quality market has declined as average room rates have come under pressure. 

Year-to-June average room rates for the quality market fell US$11 compared with the same period in 1999 to reach US$122. This has resulted in an overall drop in RevPAR of 6.4 percent to US$86. Reflecting the increase in tourist arrivals to the region generally and Guam in particular, the quality hotel market boosted occupancy levels by two percent to break the 70 percent barrier, perhaps indicating that a recovery in hotel performance is beginning, albeit slowly.

A new phase of development

After a number of years of high yield business and limited new supply, the hotel market is moving into a new phase of development where competition is stronger and guest profiles are changing. Key trends include:

“Three Generations” of one family are visiting Guam for family holidays. With the emergence of this segment, hotels have been developing facilities that serve family groups. Features include more rooms with inter-connecting doors, “Kid’s Clubs”, and in-house spa facilities.

The proportion of older visitors, otherwise known as the “silver hair” market, is increasing. This segment is forecast to increase, given the demographics of Japan, which has an ageing population. This segment has potential to become a high-yield segment. Profile characteristics indicate a guest who is not tied to traditional holiday periods, who is likely to have more disposable income and who may be less inclined to go out to restaurants, unless they are easily accessible.  One area that is currently being explored is the market for packages of “health and well-being” spa holidays.

Cultural attractions are becoming more popular, particularly with the older generation. This is a challenge for hotels to build in to their market offering, given Guam’s limited historical heritage. The indigenous Chamorro culture is not a strong feature of the resort island and the number of cultural tours are limited.

The overseas wedding market has been growing steadily and is expected to continue to grow over the next few years as increasing numbers of Japanese and South Korean couples choose to marry overseas. More hotels in Guam have invested in building chapels on their premises, or upgrading existing facilities in their attempt to capture this market. There is potential to drive room, food and beverage and banqueting revenues as wedding parties currently stay for two to three days and average about ten guests.

The average length of stay is increasing slightly, driven in part by the “silver hair” guests and in part by wedding couples. Typically, the “silver hair” market is not constrained by annual vacation allowances and the newlyweds tend to spend their honeymoon on the island.

Stronger performance is forecast

According to the Bank of Guam GIP (Gross Island Product) is forecast to jump from five percent in 2001 to 10-12 percent in 2002-2004, driven by a number of factors, including a strengthening of consumer confidence in key source markets.  Conditions look favourable for robust growth in visitor arrivals, in the light of increases in air seat capacity from 2000, stronger regional tourism demand and plans to increase the military presence on the island. If strong demand growth continues throughout the fourth quarter of 2000 and into 2001, we would expect to see modest growth in average room rates and an overall improvement in operating performance over 2001.

© 2000 Arthur Andersen
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