By Kim Mackrael / Photographs by Shafkat Anowar for The Wall Street Journal 

Hawaii is seeking a careful balance as the holiday travel season kicks off: Allow enough visitors to help struggling, tourism-reliant businesses without causing a new wave of coronavirus cases.

The state last month began allowing U.S. visitors to skip a mandatory 14-day quarantine if they get tested for Covid-19 through an approved provider within three days of their flight and the test comes back negative. The change prompted some businesses on the islands to reopen, and many are hoping for a pickup in December.

But a surge in reported coronavirus cases across most of the U.S. is raising questions about how long the reopening can last and whether it will be enough to revive Hawaii's economy. The state recently tightened its rules to require visitors to have their negative test results in hand when they arrive, which could weigh on holiday travel.

Hawaii suffered one of the most severe economic downturns of any state from the pandemic, and saw a slower recovery thus far. Hawaii's unemployment rate was the highest of any state in October, at 14.3%, the Labor Department said.

Relatively strict Covid-19 prevention measures and the fact the Hawaiian Islands can't be reached by car meant the state didn't see a summer uptick in tourism that some mainland destinations enjoyed. And many travelers remain worried about the risk of infection while flying, which could dampen travel to Hawaii well into next year.

Travel to the islands plummeted in March, and remains about 70% below its year-ago level even after the preflight testing measures were implemented, according to state data.

Efforts to restart the tourism economic engine may be coming too late for some businesses. A survey conducted by the state and consulting firm Island Business Management in September found 41% of businesses expected their 2020 revenue to be less than half of what it was last year. More than a third indicated they had significant difficulty covering costs such as their rent, payroll and operating expenses.

ABC Stores, a Honolulu-based retail chain serving resort areas, kept about 20 of its 65 Hawaiian locations, including a fulfillment center for online orders, open throughout the pandemic. It gradually reopened other stores and has about 45 in operation, Chief Executive Paul Kosasa said. Roughly two-thirds of the chain's pre-pandemic 1,000 Hawaii employees remain on furlough.

Getting a store ready and calling back workers takes about two weeks, Mr. Kosasa said. Sales are about 70% below their year-ago levels. If tourism drops off again, he said, he may need to close stores.

"Shutting down is easy, you just close the door," he said. "Reopening is very difficult."

So far, the state's system requiring visitors to get tested in advance -- or face 14 days in a hotel room -- has worked well, said Sumner La Croix, a research fellow with the University of Hawaii Economic Research Organization. Hawaii tightened its rules this week so visitors must have proof of a negative test result by the time they land in Hawaii. Those who don't will need to quarantine for 14 days or the full length of their trip, whichever is shorter, even if a negative test result becomes available after their arrival.

"We're adding this safety precaution now in response to the dramatically increasing number of Covid-19 cases in the continental United States and around the world," said Hawaii Gov. David Ige.

The mayor of Kauai County, which includes the island of Kauai, this week asked for even tighter restrictions. Mayor Derek Kawakami said he wants to temporarily opt out of the state's pre-travel testing program and instead require a 14-day quarantine for travelers to Kauai, regardless of their test results. A spokeswoman from Gov. Ige's office said the proposal is under review.

In recent weeks, Hawaii's average number of new Covid-19 cases held roughly in line with the number of daily cases reported a month earlier, according to data from Johns Hopkins University. And the rate per 100,000 residents on the islands this month has been a fraction of the number reported elsewhere in the U.S.

"Everything here really depends on us getting tourism restarted," Mr. La Croix said. "What that involves is tourists believing that when they come here, they're going to face a relatively safe environment, and us feeling that the tourists are not bringing Covid."

Visitors from Japan, a key source of tourism, were recently granted the same quarantine exemption as U.S. travelers, but their numbers have been low because they still face a 14-day quarantine when they return home. Canadians will be added to the list in December, but also need to quarantine after their trip.

When the pandemic hit in the spring, the decline in visitors to Hawaii quickly rippled across the islands. Many hotels and restaurants closed temporarily, and tens of thousands of musicians, servers, bartenders and others were unemployed. Roughly half of the hospitality jobs that existed before the pandemic hadn't returned by October, the U.S. Labor Department said. Hotel occupancy in October was less than 20%, versus 79% in the same month last year, according to state data.

One of Highgate Hotels LP's seven hotels in Honolulu's Waikiki tourist hub remains closed and another is being used to house military and health-care staff involved in the pandemic response, said Kelly Sanders, senior vice president of operations for Hawaii. A third is being used as a quarantine facility. Overall, the hotels that remain open to tourists are averaging about 25% to 30% occupancy.

State officials have said it could take until 2025 for the number of visitors to return to pre-pandemic levels.

After losing her job as a prep cook at a Honolulu seafood restaurant, Abigail Dela Cruz said it took about six months to get her unemployment benefits. They came through in September, allowing her to cover rent and start repaying friends.

Ms. Dela Cruz, 36, also received a $500 restaurant gift card, which was mailed by the state to out-of-work residents in the fall, an effort to help the unemployed and struggling restaurants.

Ms. Dela Cruz made about $200 selling pineapple upside down cakes to friends in October, and is hoping to branch out to sell more desserts. "I'm a little worried [because things are] still shut down," she said. "I'm not sure if I can find a job later."

The downturn hurt tax revenue, as well. The state will have an estimated $1.7 billion shortfall in its general fund revenue for the fiscal year ending in June 2021, according to Hawaii's Department of Business, Economic Development and Tourism, and officials have raised the possibility of furloughs that would see most state employees work two fewer days a month, with a pay cut of about 9%.

The drop in visitors renewed longstanding calls to focus on fewer, higher-spending tourists and diversify the economy, including through an expansion of the tech sector and the defense industry.

"The level of tourists that were coming in daily [before the pandemic] was not sustainable," said Shannon Edie, president of the Native Hawaiian Chamber of Commerce. "This is giving us an opportunity to look at our economy and reshape things."

Still, some businesses are optimistic that the return of tourists can keep their operations afloat.

Marn Zeeb reopened his ice cream shop in Koloa, a small town on the island of Kauai, in early October and ramped up to nearly full-time hours this month.

With just a fraction of the usual visitors, sales at Koloa Mill Ice Cream & Coffee are less than a third what they were during the same period last year. Still, the state's partial reopening is making a difference, Mr. Zeeb said, and support programs including a loan earlier this year through the federal Paycheck Protection Program helped his business survive. He said he hopes Kauai doesn't leave the pre-travel testing program.

"Every day seems to be a trickle better," Mr. Zeeb said. "If the trickle continues to be positive, if the island continues to be safe, we can make it."

Write to Kim Mackrael at kim.mackrael@wsj.com

(END) Dow Jones Newswires

November 26, 2020 07:14 ET (12:14 GMT)

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