May 31, 2013--Hawaii's top industry is grappling with market softening less than a month after the Hawaii Tourism Authority projected a huge influx of visitors would come to the state this year.

And what once looked like a slam-dunk year for the tourism industry is shaping up to be more challenging -- at least for spring, according to HTA.

A total of 669,959 visitors came to Hawaii in April, or 3.1 percent more than the same month last year, according to HTA's visitor report released Thursday. But the new monthly measure put the state's year-to-date arrivals at 2.79 million -- about 1 percent below the 2.82 million mark that the industry should have met if it wanted to stay on track to meet its annual goals.

Visitor spending in April was even more disappointing. HTA does not adjust its spending for inflation, so it only released the nominal spending calculation, which rose only 1.8 percent to $19.1 million. Year-to-date visitor spending through April increased 6.3 percent to $5.03 billion. However, that measure was 6.4 percent below HTA's $5.38 billion target. Year-to-date visitor days and daily spending also fell below target.

In March, HTA raised its 2013 projection for arrivals to 8.5 million visitors and boosted the outlook for expenditures to $15.8 billion at its spring marketing update. Both numbers would be records.

"The wind came out of the sails a lot in the month, and we had a kind of sudden softening," said Barry Wallace, executive vice president of hospitality services for Outrigger Enterprises Group. "We're still in a good number area, but it was disappointing compared to the double-digit growth that we had previously experienced."

Summer, though, could provide some relief.

"Historically, April and May are soft months, so the fact that we've been able to pace ahead of previous years still is a good sign," said David Uchiyama, HTA vice president of brand management. "It's true that we aren't to where we targeted, but I think we'll see some pickup coming into summer. So for now I'm comfortable with the goals."

Jerry Gibson, area vice president of Hilton Hawaii, said he expects to see the downward trend begin to improve after the first half of June, when Hawaii heads into its summer travel season. Based on phenomenal results during the last two quarters of 2012, Gibson said he and other hoteliers forecast aggressive 2013 budgets and are now looking to summer to stay on track.

"We met them quite nicely in the first quarter, which was exceptional," he said. "April and May were a little softer than we had expected, but we expect to see excellent occupancy in summer."

In the meantime, Hawaii Tourism Authority President and CEO Mike McCartney said the industry is leveling off as it faces less favorable currency exchange rates, rising travel costs and competition from other destinations.

"We will continue to see reductions in the average length of stay and per-person, per-day spending as visitors exercise caution in reaching their budgeted spending limits," McCartney said.

As such, while arrivals from Japan, Hawaii's largest international market, grew 6.5 percent to 100,243 visitors in April, spending fell. Even the start of Golden Week -- a popular holiday travel period -- couldn't save the day as a less favorable yen-to-dollar exchange ratio contributed to a 12.5 percent drop in nominal spending to $154.3 million.

"'Challenging' was a word I heard not just for Golden Week, but since the beginning of the year for retailers," said Dave Erdman, president and CEO of PacRim Marketing Group. "For the most part, foot traffic, transactions and overall spend was down in retail."

Erdman said in the luxury segment, a combination of the lineup of actual holidays, weaker yen, global stabilization of retail prices for some brands, and possibly fewer Japanese travelers than anticipated or projected stifled sales.

Wallace pointed to significant drops in Hawaii's core U.S. West Coast market and the longer-staying Canadian market as key factors in April's dampening. HTA reported that arrivals from the U.S. West, Hawaii's core visitor market, were flat in April at 278,627, and nominal spending by these visitors fell 1 percent to $383.1 million. Arrivals from Canada declined 7.3 percent to 42,605 visitors. Nominal visitor spending by Canadian visitors dropped 3 percent to $81.4 million.

"For the period May-August, we are seeing soft demand from the West Coast compared to last summer," said Jack Richards, president and CEO of Pleasant Holidays LLC, Hawaii's largest wholesaler. "We believe this is related to the increased cost of hotel rooms on Oahu, whereas airfares are comparable to summer 2012. In addition, travelers are booking shorter-duration stays and visiting fewer islands versus the same time last year."

Richards said he also is beginning to see soft demand for the luxury segment on all islands, and some hotels have lowered rates to improve summer travel demand.

"Creative short-term summer discount programs to drive occupancy are already popping up in the market," Wallace said.

Further softening in the Japan market as the yen trades over 100 to the U.S. dollar also might open hotel inventory and drive summer rates on Oahu lower, Richards said.

"We are also cognizant of airlines adjusting their routes to meet demand, resulting in reduced service to the Hawaiian Islands during the second half of the year," McCartney said.

To stay on pace, the industry will have to stimulate markets with high growth potential, he said.

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