Maui County tourism gains stretch capacity

Report notes loss of sugar, efforts to diversify ag, hospital privatization

A University of Hawaii report shows Maui County’s recent economic peaks and valleys, forecasting favorable conditions but slower growth.

“After several years of robust tourism gains that have stretched capacity, Maui will see much more modest visitor industry expansion,” according to the University of Hawaii Economic Research Organization.

“Building projects in the pipeline will maintain construction activity near its current level, while structural changes continue to reshape agriculture and health care.”

Released this morning, the UHERO report notes the late December closure of Alexander & Baldwin’s Hawaiian Commercial & Sugar Co., which eliminated nearly 700 manufacturing jobs.

“With sugar’s demise, this likely represents a permanent decline in manufacturing employment on the island,” the report says.

But it adds that Maui’s “agricultural sector is in transition.”

“HC&S is seeking to use about 30,000 acres previously in sugar cane for diversified agriculture, but the 115-million-gallon-per-day water requirements have led to push back from citizen groups concerned about implications for taro farming and traditional cultural practices.”

The university report points out that Maui’s water conflicts are “reminiscent of similar disputes over water use on Oahu in the 1990s, which were ultimately resolved in the courts.”

The report notes that MauiGrown Coffee Inc., Maui’s largest coffee farmer, aims to expand its operations from West Maui to Central Maui by leasing a portion of A&B land.

This session, lawmakers passed House Bill 1230 authorizing the issuance of a special purpose revenue bond of as much as $13 million to help MauiGrown. The measure was transmitted to Gov. David Ige on May 3.

The report doesn’t mention A&B’s announcement this week that it has formed Kulolio Ranch in Hamakuapoko in a diversified agriculture venture on 4,000 acres of former sugar lands. The wholly owned A&B subsidiary will work with Maui Cattle Co., a partnership of six ranches (five on Maui and one on Kauai), to raise calves to maturity and market weight.

The report forecasts “an impressive surge in health care jobs in 2017-18, but this simply reflects the privatization of state hospitals and is offset by a corresponding drop in employment in the state and local government sector.”

Kaiser Permanente’s Maui Health System will take over Maui Memorial Medical Center, Kula Hospital and Lanai Community Hospital on July 1.

The UH report notes that the recently approved state budget includes more than $30 million in severance payments for affected state health care workers, but “the uncertain future of the three public hospitals has reportedly resulted in hiring difficulties and staff shortages.”

The strength of Maui County’s economy remains tourism, and the report says the county has had the state’s largest gain in visitor volume over the past decade. On an average day in 2016, more than 60,000 people were visiting Maui County, it notes. Last year’s average daily visitor census is 17 percent more than 2006, which saw 2.45 million visitors two years before the beginning of the Great Recession and the subprime mortgage housing collapse in 2008.

“From the low point of the last recession, the county’s visitor plant has expanded, and hotel occupancy has risen back to levels near those seen during the mid-2000s boom,” the report says. “The growth of individual vacation rental units has facilitated growth, although reliable figures are hard to come by.”

This year, the Maui County visitor industry has been “off to a tepid start,” with visitor days edging down slightly in the first three months of the year, the report says.

Airlines continue to offer roughly the same number of seats on domestic flights as they did last year for the April-to-June travel season, the UH report says. A new flight by Virgin America airlines and expanded service by Delta on its Los Angeles-Kahului route were mostly offset by reduced service from United and Hawaiian airlines on their flights from San Francisco, Los Angeles and San Jose.

The report notes that an updated Kahului Airport master plan includes a nearly $1 billion extension of the main runway, which, when finished in 2021, would allow fully loaded flights to take off for Midwest locations without refueling in Honolulu. The total cost of master-planned airport improvements, including a new 7,000-foot runway and terminal improvements, is about $3 billion.

Resort openings were forecast to be enough to accommodate incremental visitor growth over the next several years, the report says.

The Westin Nanea Ocean Villas opened April 15, offering 190 villas. Another 200 are expected to come online this fall.

The former Maui Lu resort in Kihei, which was demolished, will reopen as a Hilton time-share property, although its timeline remained unclear.

Beyond those projects, “there are very few new projects in the development pipeline, which will limit growth going forward,” the report says.

In July 2014, Peter Savio, owner of the Pagoda Hotel on Oahu, purchased the Maui Beach Hotel in Kahului for $33 million and disclosed plans to improve facilities and to build a new 150-room hotel next door on the site of the 8.6-acre former Maui Palms Hotel.

The UH report predicted that Maui tourism would remain at a healthy level for the next several years, but with smaller gains than in the past.

“Growth in the total number of visitor days will trend down from about 2 percent this year to less than half a percent by 2019,” it says.

Maui’s construction activity mirrored the rest of the state when it saw a “flattening of activity” in 2016, the report says.

Monthly payroll job counts in construction went down somewhat over the course of last year, but they’ve “spiked up” early this year, the report says.

“Building that is slated for coming years suggests that construction activity will edge up a bit from its current level, before falling back somewhat later in the decade,” the report says.

For construction, the report notes the beginning of work on A&B’s 600-home Kamalani subdivision in north Kihei; the 200-home Kahoma Village in Lahaina (with work projected for completion in late 2018); and commercial construction slated to begin this summer at the Pulehunui Industrial Park in Central Maui and groundbreaking early next year for the Hookele Shopping Center at the Maui Business Park.

The county’s robust economic conditions mostly come from the strength of Maui island, the report says.

“In contrast, Lanai and Molokai continue to grapple with infrastructure and transportation challenges,” it says. “On both islands, nonfarm payroll and visitor arrivals remain well below levels seen in the mid-2000s.”

The slowdown has been caused by a reduced visitor plant, the report says.

On Lanai, the Four Seasons Resort Lanai, formerly the Manele Bay Hotel, reopened last year, but the Lodge at Koele remains closed, although it should reopen by the end of 2018, the report notes.

It recounted how billionaire Larry Ellison, who bought most of Lanai in 2012, announced plans for Lanai that included commercial agriculture, improving the Lanai Airport and developing a 100 percent renewable power grid.

“It is unclear how or when his vision will unfold,” it says.

Getting to Lanai became more difficult for visitors last year after Island Air discontinued service there, the report says.

And, the Molokai visitor industry declined substantially after Molokai Ranch shut down in 2008 and has yet to recover.

“Molokai faces perennial challenges to development that stem from its small size and limited accessibility,” the report says, pointing out that the island’s unemployment rate has averaged 5 percentage points higher than on Maui island.

“Prospects for tourism depend on an adequate visitor plant, and there is little indication of potential new development,” the report says.

In 2015, Molokai Ranch announced that it was considering reopening its two visitor properties, “but it is unclear when or if this will occur,” the report says. More vacation rentals could help increase accommodations on the island, and last year Maui County approved 15 new home rental permits for the Friendly Isle.

Although Makani Kai Air expanded its service between Honolulu and Molokai, the Molokai Ferry closed because of financial losses and low ridership, the report notes.

“The island’s seed crop industry faces challenges both locally and globally related to concerns over the safety of modern agricultural techniques, industry consolidation and prevailing low commodity prices,” the report says.

“Prospects for (Molokai and Lanai) are uncertain, reflecting structural factors that limit development potential as well as the desire by locals to grow while maintaining their iconic rural character,” it says.

To see the full report, go to uhero.hawaii.edu/assets/17Q2CountyForecast-Press.pdf.

* Brian Perry can be reached at bperry@mauinews.com.