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Friday, June 20, 2008

Islands in the Stream

It's not a good time to be an island. The tourism industries of both Hawaii and the Caribbean are quaking in their boots given recent developments in the airline industry. With fuel prices skyrocketing, and with carriers cutting back on service to vacation destinations, islands, which can't depend on a drive market to pick up the tourism slack, are left treading water.

American Airlines recently announced plans to cut flights to the Caribbean by about one-third. The cuts go into effect in early September. Given that American is the chief source of air traffic to the Caribbean, this development has the potential to create a swath of economic destruction across the tourism-dependent region. The biggest cutbacks are taking place in Puerto Rico, American's Caribbean hub. Daily flights to San Juan from the mainland are being cut from 38 to 18. Among the routes being cut entirely--San Juan-Washington Dulles, San Juan-BWI, and San Juan-Newark. Meanwhile, American Eagle flights out of Puerto Rico to other islands are being shaved to 33 from 55.

Some of the Caribbean islands are trying to fight back. Creating a regional strategy will be on the agenda at the inaugural Annual Caribbean Tourism Summit in Washington, DC from June 21-24. Additionally, individual countries are getting proactive. Tourism concerns in the U.S. Virgin Islands are banding together to intensify marketing in the effort to increase demand for flights. By doing so, they hope to negotiate with low-cost carriers such as Jet Blue and Southwest to bring service to the area.

There is one shot of good news, if you want to call it that, for the U.S. Virgin Islands. It looks like American Airlines will agree to exempt boxes of duty-free liquor from the new checked baggage charge. Woo-hoo.

State of the Union

Hawaii has its own challenges. Even though it's a state, Hawaii often is considered foreign territory in the airline world. You need to redeem more frequent flyer points to get there than to any other U.S. destination. US Airways is lumping Hawaii in with international destinations when it comes to charging fees for frequent flyer point redemption (see 6/16 post). There's been some cutback in service from mainland carriers and the state has suffered heavily from the bankruptcies of Aloha and ATA. Furthermore, Hawaii, which already has the most expensive gasoline prices in the nation, has the highest airline fuel surcharges as well. Hawaiian Airlines just increased its round-trip surcharge to $120 on flights from the West Coast (the surcharge charged by most carriers on mainland routes is $20).

The Hawai'i Visitors and Convention Bureau has launched a $3 million marketing campaign to entice North Americans to take their summer vacations in the state. Airfare-inclusive packages, with savings from $200 to $1000, have been created. Visit www.gohawaii.com for details. Still, whether that will be enough to convince cash-pinched travelers to say Aloha to Hawaii is a big question mark.

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