Pacific Air Fares And Tourism Competition

Pacific Air Fares And Tourism Competition

The June 2nd edition of the Japan Times carried a full page advertisement for a travel agency indicating round trip air fares from Japan to various destinations around the world. While indicating that the prices vary depending upon departure and return dates, and using an exchange rate of 144.6 Yen to the dollar, these fares are indicative as to what is happening within some Asian air lines and the impact upon travel to the Marianas.

Several of these fares are as follows: from Tokyo round trip to Los Angeles 49,800 Yen ($344); Tokyo to Las Vegas round trip 68,000 Yen, ($470). Of course, there are some restrictions but still these fares are unbelievably low. The regular fare from Saipan to Guam round trip is $229 according to a local airline agent. A special fare with restrictions is $149. The above newspaper ad indicated the fare from Japan to Saipan and return at 34,000 Yen, ($235). The distance from Saipan to Guam is 120 miles, or 240 miles round trip.

From Tokyo to Saipan the distance is about 1,270 one way or 2,540 miles round trip. Northwest Airlines flies direct from Tokyo to Las Vegas, a distance of approximately than 5,500 miles one way, (11,000 miles round trip), for 148,000 Yen or $1,023 round trip. I’m not knowledgeable about airline economics, my view point is from that of a consumer. I calculated the above distances as Great Circle Routes which are the shortest distance between two points on the earth’s surface. An examination of the cost to the consumer on a per mile basis reveals the following. From Japan to Los Angeles and return the cost is 3 cents per mile; Japan to Las Vegas and return – 4 cents per mile; Japan -Saipan – Japan – 9 cents per mile; Northwest’s fare from Tokyo to Las Vegas and return – 9 cents per mile. Continental’s regular fare from Saipan to Guam and back – 95 cents per mile.

For people who are concerned about the high cost of living in the islands the above may partially explain one of the reasons. It points out the fierce competition facing the Commonwealth as a tourist destination. Strangely, Guam doesn’t seem to be experiencing the same degree of difficulties with tourist arrivals as the islands to the north. While there has been some decline in arrivals to Guam, I was interested to learn that a feasibility analysis I prepared some months ago for a hotel on Guam now reports reservations for an average monthly occupancy of about 85 percent through August.

And this is for a hotel that only recently opened. Our tourism economy reminds me a little of the legend about the Greek philosopher Thales who fell into a well while strolling along gazing at the stars. It was his penchant for gazing at the heavens that made him great. But failure to keep his eyes on the ground killed him. That’s the way it is with the tourism sector. We have to look for the “holes” so that in turn we can avoid the pitfalls. Granted many of the forces that affect the islands, and the tourism sector in particular, are external and beyond our ability to influence. But if an opportunity presents itself to improve the sector by all means it should be embraced. We read a great deal about various possible changes in current laws and regulations.

Comments about raising this or that fee, increasing taxes and so forth. In my judgment the exact opposite should be done, namely reduce the cost of doing business in the islands. Otherwise there may not be too many business left to tax. I am reminded of a simple but true fact known to every businessman and woman. There are only two ways to make money. Increase your sales and hold your costs. If it is not possible to increase sales, then attempt to hold them at a particular level and cut costs. The government could well respect the latter. One of the things we can not control is the fluctuating exchange rates of currencies, and in particular that of Japan.

As can be examined on the accompanying graph, 17 years ago years ago in 1980 one hundred Yen would purchase the equivalent of 44 cents so a person needed 226.7 Yen to buy a dollar to spend on Saipan. Today one needs only 144.6 Yen to purchase the same, although deflated, dollar. In this example the problem for today’s tourist is that it takes more Yen to purchase the buying power of the 1980 dollar. The reason is a result of inflation which has eroded the currency’s value.

A person needs more dollars to pay for the same item he or she was able to purchase at less cost several years ago. To cite an example, when I arrived on Saipan in 1970 I rented an automobile for $2.50 a day. It costs twenty times that amount today. Now the interesting contradiction is that as far as some air fares go, this does not currently hold true. The reason being, I suspect, is that the countries owning these airlines, (of which many carriers are not private), must earn “hard currency”, that is currency that is freely convertible such as U. S. Dollars, French francs, Deutsche marks, etc. One way for “soft currency” areas to do this is to use their state owned air craft to fly tourists at “fire sale” fares. While the Yen is not “soft”, the same can’t be said of the currency of many nations such as Indonesia and Malaysia which offer reduced fares. Their currency is not freely convertible.

Their policy is fly the tourist into the county at a loss and then sell them hotel rooms, food, souvenirs, etc., and earn even more hard currency for the nation. That’s what the Commonwealth is up against. And if the vacationer can’t be convinced to visit the flag carrier’s country, then fly them anywhere they want to go where their money will go further and buy more. That’s the competition facing the CNMI’s tourist sector.