‘A double-edged sword’

Local tourism industry players were urged yesterday to band together in addressing the destination’s low seat and package prices, which was cited as the root cause of Japan Airlines’ impending pullout.

Michael D. Merner, chair of the Japan-based Marketing Garden Ltd. and managing director for the Marianas Visitors Authority’s Japan office, said the declining number of airline seat capacity to the Northern Marianas was merely the symptom of the low cost of airfare and travel packages to the destination.

The Commonwealth is not a profitable destination for airlines because of the excessively low seat pricing from the agents, he added.

“The affordability of the CNMI as a destination is a double-edged sword,” he said, explaining that while the CNMI’s low rates make it attractive to tourists, this also results in low profit for tour operators and airlines.

In his presentation during yesterday’s MVA membership meeting, Merner noted that airfare and hotel packages were available in Japan for as low as Y22,000, or about $200, per visitor. CNMI packages actually cost less than domestic Japan packages to Okinawa, he said.

In addition, airline seats cost about Y3,000 to Y5,000 below Guam on average, Merner reported.

“Demand and load factors have not been the issue [in JAL’s pullout],” Merner said. He pointed out that for the past six months, JAL has enjoyed 89 percent load factors from Narita and 82 percent from Kansai.

According to Merner, the CNMI tourism industry should strive in the coming months to resolve questions such as how to make the CNMI a long-term viable destination for the airlines, how to raise the price of CNMI packages, and how to raise the CNMI’s market position above Guam to command a higher price or yield.

Impact of JAL’s pullout

Merner’s presentation also provided the attending MVA members a summary of the impact of JAL’s decision to suspend its service from Narita and Kansai starting October 2005.

The cancellation of the two flights will eliminate 182,000 from the current 404,000 seats available for the CNMI’s visitors.

As it is, Merner said, the current airlift is already a serious situation for the destination because it represents only half the peak 1996 airlift and a significant drop from the airlift of 492,000 seats in 2004.

With the loss of additional seats, the CNMI will be left with only 222,000 seats, or just 30 percent of 1996 levels.

Merner projected that, if JAL’s traffic is not replaced, Japan arrivals to the CNMI will drop from 400,000 to a maximum of 222,000 per year, even assuming that airlines would be flying with all seats occupied.

Economically, he said, JAL’s flight cancellations will result in a $36.7-million drop in government revenues and the loss of estimated 2,550 jobs.

Travelers and agents are expected to have extreme difficulty securing seats to the CNMI, with demand for air seats far outstripping supply, Merner said. This, in turn, could cause airfares to rise and make it impossible to market the booming educational travel and incentive markets, given the difficulty to secure large group blocks.

“A major concern with the pullout of JAL is that the CNMI’s visibility in the Japan market will fall given the loss of JAL’s marketing and promotions,” he said.

To motivate major airlines to fill the vacuum to be left by JAL, MVA will launch a comprehensive incentive program, Merner said.

Aside from allocating part of MVA Japan’s $1-million supplemental budget to airlines that introduce new flights, MVA will have its hotel partners offer promotional rates during the new flights’ initial six-month launch period and golf courses provide promotional greens fees.