$216M loss for the NMI

The Commonwealth stands to lose as much as $216.2 million in economic output annually when Japan Airlines suspends its flights to Saipan, according to a study by a U.S.-based economic and financial consulting firm.

The economic impact study, presented at the Japan Tourism Summit last week, showed that JAL’s impending pullout could result in the loss of 2,550 jobs and $38.8 million in personal income annually.

This projection was based on a worst-case scenario, where none of the passenger traffic currently brought in by JAL would be picked up by other carriers.

JAL brings about 155,865 passengers to the CNMI annually.

Marianas Visitors Authority board chair David Sablan said there is little hope that the CNMI government could still change JAL’s mind regarding the pullout.

Sablan reported that during the Tokyo meeting between the CNMI and JAL officials, the airline reiterated that it was losing $25 million a year on its Japan-Saipan flights. “Because JAL is a public company, it cannot afford to continue this loss. The hope of JAL staying on Saipan is very, very dim,” Sablan said.

Economists.com, which was commissioned by the Strategic Economic Development Council to conduct the study, analyzed the JAL decision under three scenarios.

For all three cases, the consulting firm assumed that the average tourist spends $685 per visit to the CNMI. This estimated value is derived from visitor surveys by MVA.

But Economists.com explained that the impact of JAL’s pullout was not simply the loss in visitors multiplied by $685. “It must also include a price effect,” the firm said, citing the lodging establishments, bars, restaurants, and stores that would be forced to lower prices to stimulate business in response to reduced traffic.

“As such, the elimination of the JAL flights would not only result in less output from the business lost from the reduction in tourists, but also in lower prices for those who still would come to the CNMI. The effective net loss would be about $743 per visitor,” Economists.com said.

Including the expected multiplier effect, the consulting firm estimated that the impact of losing one visitor from a JAL flight would equal $1,396.45 in economic output for the CNMI.

The loss in total business revenues is projected to reach about $1,646.84 per visitor and the impact on personal income, about $235.78 per visitor.

Other scenarios

“Because the two daily JAL flights between Japan and the CNMI are operating above 80 percent load factor, a reasonable assumption would be that some of this traffic would be picked up by other carriers,” noted Economists.com.

Hence, the firm examined two other scenarios—one based on the assumption that other carriers pick up one-third of the JAL traffic, and the other on the assumption that other carriers pick up two-thirds of the JAL traffic.

Economists.com said that if a third of JAL’s traffic was replaced by other carriers, the CNMI would suffer a decrease of about 103,910 passenger arrivals. This is expected to result in an economic output loss of about $144.1 million annually. About 1,700 jobs and about $24.5 million in personal income would be lost.

In the last scenario, passenger arrivals from Japan would decline by 51,955. The CNMI’s economic output would be cut by about $72.1 million annually. Lost jobs would reach 850, equal to about $12.3 million in personal income annually.

Tourism industry

The study also revealed that the tourism industry directly and indirectly employs about 6,200 people in the CNMI, with an annual payroll of about $70 million.

Economists.com said 4,000 of these jobs, or about 12 percent of the total CNMI business employment, are found in the core visitor industries and generate $45 million in salaries and wages for CNMI workers each year.

The other 2,200 jobs depend on tourist spending and produce $25 million in annual payroll.

Tourists reportedly spend a total of $367 annually in the CNMI. In 2004, visitors spent about $150 million in lodging alone, the consulting firm added.

Overall, the visitor industry has a total economic impact of $733 million annually. “In terms of economic impact, tourism could now be the CNMI’s largest industry,” said Economists.com.