Heavy reliance on a single industry hurts Hawaii’s economy


HONOLULU – Hawaii is facing its worst recession since becoming a state 50 years ago, dragged down by its reliance on a single industry.

As much as a third of Hawaii’s economy is driven by tourism, say state finance experts, and a recent state report showed that from January to June, spending from visitors who arrived by air dropped 15% to $4.97 billion from a year earlier.

Even sunbathers this year easily claimed spots on the normally overcrowded Waikiki Beach, a distressing sign for an economy more dependent on tourism than any other state in the U.S.

Hawaii’s jobless rate is below the national average but stands at the state’s 31-year-high of 7.4%. Economic forecasters say it will likely get worse by year’s end.

Two years ago, there seemed no end to Hawaii tourism, said Marcus Oshiro, finance chairman of the Hawaii House of Representatives. “And now we’re begging and offering free meals and free lessons trying to get them to come here.”

Tourism officials say several factors have kept sightseers away. Two major airlines and two cruise ships stopped operating in the Aloha State, reducing options for visitors. High fuel prices last summer deterred travel. Then recessions in Japan and the U.S., as well as California’s economic meltdown, slowed the flow of tourists.

Hawaii’s image also was slammed by news of the H1N1 virus. Japanese visitors in April were poised to lead a tourism rebound, as arrivals from the Asian country were up 8.8% in the month compared with a year ago. Then the new swine flu broke out and May arrivals dropped 15.5% from 2008. David Uchiyama, vice president of tourism marketing at the Hawaii Tourism Authority, said Japanese tourists, who account for a fifth of Hawaii’s visitors, “were just concerned about the how contagious it could be.”

Georgina Kawamura, the state’s budget and finance director, said, “We were victims, if you want to call it, of more global and national actions.”

The tourism slump has slammed the state government, which saw tax revenue plummet 10% compared with fiscal year 2008. That forced lawmakers to close a $2 billion shortfall in a two-year, $11 billion general fund in the spring by slashing spending and raising taxes.

When the economy worsened, and an additional $800 million budget gap arose, Gov. Lingle proposed laying off and furloughing thousands of state workers. She is still sparring with unions over the cuts.

For tourists, the state’s doldrums are a boon. Daisy Duong, a San Jose, Calif., resident who visits Hawaii with her husband and three daughters every year, said the family paid $550 per plane ticket this year, compared with $1,000 a year earlier. She said the savings let her spend more on her children. When her 10-year-old daughter recently celebrated her birthday in Hawaii, the family got “to go around and do whatever she wants,” Ms. Duong said.

There are some positive signs. Tourist arrivals in July and August increased compared with June as hotels slashed rates. Though tourism revenue is forecast to be down because visitors are spending less, Mr. Uchiyama said he expects arrivals for the rest of the year to be flat compared with 2008.

That heartens small-business owners such as Michael Howard. The 43-year-old in April opened the Island Tacos restaurant in Waimea on the island of Kauai, but business has been disappointing. “Flat is better than taking another downturn,” he said, adding that he will reduce employee hours this fall if business doesn’t pick up.