Ignore Economics and Gravity…Splat!

Data was cited from the Hotel Association of the Northern Mariana Islands (HANMI). The numbers run like this: Occupancy rates dropped in April from 58.86 percent (1998) to 58 percent (1999). That’s not much of a change, but consider the average room rate changes, which dropped from a reported $137.65 to $96.04 over the same period. That’s a whopping 30 percent decrease in room prices.

Assuming, as the article states, that HANMI comprises 3,070 rooms, we can heap all this data together and crunch out some numbers. Here it goes….

We can derive from the data that the HANMI hotels sold $4.9 million worth of rooms in April, 1999, versus $7.5 million in April 1998. That’s a decline of $2.5 million, or 34 percent.

The slide in tourism here has been so dramatic (and so predictable, I must add), that there’s no use applying seasonality factors when we analyze this stuff these days. So let’s just take the April (i.e. monthly) data and multiply it by 12 to derive a yearly estimate for the magnitude of the issue. We come up with a yearly slide of –ready for this?–$30 million in hotel room sales for HANMI hotels.

In this small economy, $30 million is a major chunk of change. And that number would be larger if we included non-HANMI hotels.

At this point, we see people throw up their hands and say “Something MUST be done!” Well, hold on. I’d inject the term “intelligent” into that cry. Yes, it would be nice for something intelligent to be done, but the time for some of that action has come and gone, just as our tourists have gone on to Guam, while some non-economist economists here brayed like jackasses about economic factors they can’t even begin to grasp. In sum, you can ignore real economics…and you can ignore gravity, too. See what happens?

And there might be more carnage to see in the future. The big story will hit if a substantial hotel closes its doors. It’s impossible to estimate from a general perspective when, or if, this could happen. Every hotel has its own unique situation. The issue is more of cash flow than of profit and loss–an issue that I’ll address some other time– but either way, we should keep an eye out for the prospect of a Big Closure. If that happens, we hit what’s called a long term shift (contraction) in supply, which is sort of like economic amputation.

Amputation–Ouch! But don’t call me “gloom and doom.” Reality is reality, and there’s no economist in Micronesia who has predicted it more accurately than I have. Nobody is even close on that score. After all, my clients want reality so they can plan intelligently. The ultimate doom, by contrast, is to embrace the immaturity of wishful thinking, which, thank goodness, is providing us with a bit of comic relief in these tight times. In some cases, it’s economic slapstick…and you thought Larry, Moe, and Curly were gone forever.