GUALO RAI Saipan —With Japan Airlines having suspended its Saipan routes on Oct. 1 the service industry expects tough times ahead.
Companies supplying hotels with food and beverages as well as other businesses relying on the tourism industry like janitorial services and restaurants anticipate as much as a 40% drop in revenue and an economic nose-dive caused by the reduced room occupancy that will result from JAL’s move.
Wholesalers also see stiffer competition in the retail trade as they struggle to gain elbow room in a local market seeing reduced consumer spending due to increased utility bills and higher fuel prices. Hotels and other hospitality establishments are reducing working hours in an attempt to weather the economic storm further constricting the economy.
The wholesale industry expects to follow the hotels’ downturn.
“It will be a domino effect ” said Kitz Barja general manager of Micronesian Brokers (CNMI) Inc. “Hotel room occupancy will go down drastically in the next months until the situation becomes stable. We forecast a big decrease in sales ” he said.
Barja said the option left is to be “more competitive and aggressive” in the retail market. “But then again we have so many competitors and not that many outlets.” He said consumers will prioritize spending on what they need and not what they want.
“It’s difficult to maintain profitability in this environment ” Barja told the Journal.
Annamae Adaza sales manager at Luen Fung Enterprises Saipan told the Journal that Luen Fung has started reviewing its inventory to determine which items to continue placing orders for.
“We anticipate a decline in sales. The suspension of JAL’s flights will definitely create a chain reaction ” Adaza said. “We are now limiting our orders to avoid being overstocked ” she said. Adaza said the company will prioritize orders for “fast items” like chicken leg quarters and pork spare ribs; orders for “slow items” like beef and seafood may have to be put on hold she said.
Like Micronesian Brokers Luen Fung is a major supplier of frozen meat dried goods fish and vegetables to hotels on Saipan.
“We anticipate a 30% decline in hotel and restaurant sales ” Adaza said. “We still have regular orders but the volume is going down. We are on ‘wait and see’ for the next two months.” She said Luen Fung hopes to see better sales in December when hotels are booked for local Christmas parties. Adaza said the retail market has become “very competitive. Every penny counts to a consumer nowadays ” she said.
Becky Cabales-Castro general manager at Triple J Five Star Wholesale said effects of the suspension of JAL’s flights would be fully felt at the start of the new year.
“January is when we feel the direct effects. It’s now sinking in; people are watching how businesses are going to handle it. The next two months may still be stable as far as our numbers are concerned. But everybody should be anticipating a dive in January ” ”she told the Journal.
Cabales-Castro said the effects of JAL’s move could be similar to the one caused by the SARS outbreak in the first half of 2002 when flights were canceled as part of precautionary efforts to stop the spread of the disease. Triple J Five Star Wholesale has been in business for the past 14 years. Orders placed by hotels take up 60% of the company’s stock Cabales-Castro said. The company is a supplier of beef seafood canned products and coffee among others.
She said Triple J Wholesale would cut spending on advertisements donations and samples; reducing working hours will be next she said.
“Instead of laying off we’ll cut budget — advertising cost is No.1 then we reduce working hours ” she told the Journal. Cabales-Castro said these measures would allow the company to “maintain normal operations.” She said the hotels’ reactions “will extend all the way to the people that they employ. These are the people who go to the restaurants and stores that we cater to ” she said.
Cabales-Castro said that faced with increasing utility bills and fuel prices consumers have become more careful about how they spend their money. “Gone are the ice cream and potato chips. These non-essential things in a consumer’s life will be skimmed down ” she said.
There may be very slight improvements in sales in December when hotel function rooms are booked for Christmas parties and consumer spending inches up for the holidays. Cabales-Castro said the holidays which start with Thanksgiving in November will pump money into the economy. “That’s normal. Everybody spends money during the holidays. People have pretty much prepared a budget for that ” she said.
Triple J had not received reduced orders yet she said. “But we anticipate it. We are hoping that we will only feel a 15% to 20% drop. But that’s just what everybody’s hoping for. Anything higher than that will be devastating ” she said.
Gabriel Boyer owner of Ginen Saipan said 90% of businesses on Saipan will be affected by JAL’s flight suspension — “from gift shops to gasoline stations and mom-and-pop stores. It’s going to affect us tremendously. It’s going to be really scary. I need to start making adjustments ” Boyer told the Journal.
He said he’ll be reviewing his purchases to prioritize on which product makes more money. “Slower items get lower priority ” Boyer said. He said he expects a 40% drop in his sales. Ginen Saipan which has been in business for 16 years is a supplier of paper products — from cups to paper towels — coffee products espresso equipment bakery supplies and sensor paper towel and soap dispensers among others.
Frances L.G. Borja president of Carmen Safeway Enterprises which does business as Carmen Safeway Supermarket said she’ll have to cut down on overhead expenses.
The suspension of flights she said “will affect everybody. Not just one player.”
Carmen Safeway Supermarket supplies fresh bakery products to hotels in bulk.
Borja said that with a reduced number of tourists the company will have to face reduced orders as well.
Suppliers of alcoholic beverages were not spared. Joseph V. Santos general manager of Marianas Pacific Distributor told the Journal that the company “definitely will take a hit.”
He said Marpac’s hotel sales volume of beer is 15% annually “which is significant considering our total volume per year.” Liquor accounts for 30% to 40% of the sales to hotels he said. “We are sure to see declines most especially in beer because the turnover on beer is faster ” Santos told the Journal. He said it will be difficult to offset the impact of JAL’s flight suspension. “The economy overall is not in a good condition. The disposable income of locals have been reduced ” he said.
Santos said the company will implement a “strong tourist marketing program” to minimize its loss.
Sablan Topline which provides cleaning services to major hotels has suspended hiring new workers a company official told the Journal.
JAL suspended its Saipan routes effective Oct. 1. The airline’s direct flights to Saipan from Tokyo and Osaka bring in an average of 155 865 passengers a year. JAL’s direct flights to the island represent 44% of Saipan’s Japanese seats. JAL said it was losing $25 million a year on its Saipan flights thus the suspension of flights.
Northwest Airlines has launched Saipan-Osaka flights that started also on Oct. 1. The airline’s daily nonstop flights between Kansai International Airport and Saipan International Airport are expected to provide CNMI with 66 430 seats a year.
Following JAL’s flight suspension several hotels on Saipan have started planning on cost-cutting measures including a reduction in work hours. MBJ