Tom Croly’s Maui bed and breakfast once drew guests from around the world: Americans made up the majority, but there was a steady stream of Europeans and Canadians as well.

Then the pandemic hit, leaving Dreams Come True on Maui empty for nine months. Even now, more than a year and a half after the inn reopened, foreign tourists still haven’t returned.

Yet Croly’s business is thriving. American tourists have flooded back, more than making up for the loss of European and Canadian tourists. “It’s been a remarkable past year and a half since people were allowed to return,” Croly said.

International visitors were a critical part of Hawaii’s tourism-centric economy before the pandemic, accounting for about a third of all visitors in 2019. Tourism – both domestic and international – cratered in 2020, and foreign visitors have been slow to return as the economy has reopened. International travelers accounted for less than 10% of visits in March, according to the Hawaii Tourism Authority.

“The headline for the international market is, it’s just barely beginning to come back,” said Frank Haas, Director for Strategic Development at Meet Hawaii, a tourism marketing organization. 

Yet Hawaii’s tourism industry, and its broader economy, have staged a remarkable recovery all the same, thanks to a surge in demand from domestic visitors. Hotel occupancy is nearly back to pre-pandemic levels, and the state unemployment rate – which surged to 22 percent in April 2020 – is back to 4.1 percent, only modestly above the U.S. average.

Hawaii’s rebound reflects similar patterns nationally. In March, overseas arrivals to the U.S. were still 52 percent below 2019 levels. Domestic travel, on the other hand, is experiencing a boost. Nationwide, the number of airline passengers in the U.S. is nearly back up to 2019 levels. In March, travel spending was only five percent below what travelers spent in March 2019. And six in ten Americans are planning to take at least one trip this summer.

And the travel industry is seeing the benefits of this domestic tourism boom. The leisure and hospitality industry is leading in adding new jobs, approaching pre-pandemic levels. 

Croly has seen this changing composition of visitors firsthand. “It’s been almost exclusively Americans for the past year,” he said. The bed and breakfast has been fully occupied for most of that time. 

Before the pandemic, Hawaii relied heavily on international tourism. International visitors tend to spend more than Americans when visiting Hawaii, boosting important indicators tracked by tourism officials like daily spending per person. 

“Three million out of 10 million tourists each year is not chopped liver,” Paul Brewbaker, principal of TZ Economics, a Hawaii-centric economics consulting firm, said via email. “Turns out they’re the economic filet mignon.”

The most obvious barrier to entry for international visitors are still-in-place travel restrictions. For instance, Japanese travelers, who made up the largest international market in Hawaii, must quarantine for seven days after returning from the U.S., regardless of vaccination status. 

The larger-than-usual influx of American travelers to Hawaii could be another reason that international tourists are staying away. While some expect international tourism to return to normal by the end of the year, there may not be anywhere for foreign visitors to stay. “The domestic market is so hot, it’s going to soak up a lot of rooms,” said Frank Haas.  

In addition to a constrained supply of accommodations, international visitors are discouraged from visiting the U.S. because of the American pandemic response and the strong U.S. dollar, says Brewbaker.

With the dollar so strong, “I’m not sure I’d be holding my breath about reopening the most covid-toxic advanced economy in the world to travel from places where people are way smarter than Americans about how to mitigate infectious disease transmission,” Brewbaker said.

And yet, high domestic demand is filling in gaps left by missing foreign visitors, boosting Hawaii’s economic recovery.

Croly, like many other B&B and hotel managers across Hawaii, has raised his rates about 20 percent since the beginning of this year. But he believes he could have raised rates even more. “I’m probably not taking advantage of [the demand] as much as I can,” said Croly, who estimates that he is now in the midst of his best year on record. 

In fact, in Oahu, formerly a primary destination for Japanese tourists, hotel rates increased by as much as 42 percent from April 2021. 

High occupancy rates show that price increases are not keeping Americans away. In April, Hawaii’s overall hotel occupancy rate was 76 percent, only two percentage points below that of April 2019. 

But Hawaii’s recovery still lags by some measures. Unemployment, while low, is nearly double pre-pandemic levels. “The hotels learned to live without a lot of staff” during the pandemic, Frank Haas said. “So they may just be slow in re-hiring.”

Personal income in Hawaii trails behind that of the U.S. generally, while prices remain higher than those on the mainland. This reduces residents’ purchasing power, which can slow the economy further.

“Hawaii’s economy is dominated by tourism, which allows it to specialize,” said Steven Bond-Smith, Assistant Professor at the University of Hawaii Economic Research Organization. “But that means it’s also more exposed to shocks, so it’s that much more volatile.”

With the recent spate of historically high inflation that has gripped the U.S., some fear that higher prices could become baked into the economy. “Not everybody can afford to come” to Hawaii, said Kutira Décosterd, owner of Maui Eco Retreat, an ecotourism retreat center. “Only people can come here who are more or less rich,” she said, referring to the high cost of rental cars in Hawaii as an example. 

Décosterd says that the future of tourism in Hawaii needs to find a balance so that the local residents and ecosystem are better protected from the effects of drastic economic swings. 

Part of the solution, she says, is more regulation on private rentals so that revenue contributes to the tax base. “There would be more money going into the community,” she said.

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