Is there complementarity or substitutability among Hawaiian islands? Evidence from the autoregressive distributed lag approach

Abstract

ABSTRACT Despite the growing importance of competitive tourism markets in Hawaii, little is known about the dynamic effects of relative and substitute prices on US tourism demand for Hawaii. This paper estimates own- and cross-price elasticities with respect to airfare and hotel room prices among Hawaiian islands (Oahu, Hawaii Island, Maui, and Kauai). Using the autoregressive distributed lag approach, the results indicate that US real income is the key short- and long-run force driving tourism demand for Hawaiian islands. The estimated own-price elasticities indicate that in the long run, US tourists are more sensitive to airfare than to hotel room prices. Regarding cross-price elasticities, eight out of 12 coefficients of cross-airfare variables are statistically significant, but they have mixed signs. Rising airfares in Oahu reduce the number of US visitor arrivals in Hawaii Island, Maui, and Kauai, revealing complementary relationships between Oahu and its adjacent islands. In the short run, Maui exhibits a positive cross-price elasticity with respect to hotel room rates for Oahu, Hawaii Island, and Kauai, finding evidence of short-run substitutability between Maui and its neighbouring islands.