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Jim Kayalar wrote this case solely to provide material for class discussion. The author does not intend to illustrate either effective or ineffective handling of a managerial situation. The author may have disguised certain names and other identifying information to protect confidentiality.

Ivey Management Services prohibits any form of reproduction, storage or transmittal without its written perm ission. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Management Services, c/o Richard Ivey School of Business, The University of Western Ontario, London, Ontario, Canada, N6A 3K7; phone (519) 661-3208; fax (519) 661-3882; e-mail Copyright © 2008, Ivey Management Services

Version: (A) 2008-09-29

Steve McKenzie, a management consultant from New Jersey, looked out the window of a United Airlines Boeing 747 at the fading shoreline of the island of Guam.
Their 2007 Easter vacation now over, McKenzie and his wife were returning home with somewhat fond memories — “Fond memories of the island,” McKenzie thought. The hotel they had stayed in was a different story. “Think overpromise and under-deliver,” he grumbled to himself. In retrospect, as McKenzie thought more and more about his hotel stay, he contemplated writing to the hotel to share his insights with management. But would writing to them be of any use and was there anything new he could say that they didn‟t already know?

Guam Background

The island of Guam, an unincorporated territory of the United States, had a population of 175,000 and lay in the Philippine Sea. The island of Guam was three times the size of Washington, D.C., and boasted a turbulent history.1 The island was first put on the map by Portuguese adventurer Magellan, who was sailing under the Spanish flag, in 1521.2 It was ruled by the Spanish until 1898 when it was ceded to the United States. Japan ruled the island between 1941 and 1944 during the Second World War and Guam was since then an organized territory of the United States.

The United States had two permanent bases in Guam that benefited the local economy: 1. Commander Naval Region Marianas Main Base
2. Andersen Air Force Base
2, accessed August 8, 2008., accessed August 8, 2008.

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The American military presence on Guam was a serious economic factor for Guam‟s economy. Tourism was the other big revenue generator and provided 60 per cent of the island‟s gross revenue and 35 per cent of total jobs on Guam.3

Tourism Industry

Guam‟s tourism industry started developing in earnest after 1962 when President Kennedy lifted travel restrictions to the island. 1967 was an important milestone; it was when the first Pan Am World Airways jet landed on Guam, carrying 109 Japanese visitors.4

After a phase of rapid growth, the tourism industry was by 2007 in the maturity stage. Numerous new tourism destinations had entered the market and were successfully vying to bring potential customers to their countries through elaborate promotional campaigns. Guam‟s recipe for success based on sea, sand, sun and duty-free shopping had been matched and surpassed by competitors with additional cultural offerings, events and attractions. Occupancy rates and hotel prices had fallen from their all-time high in the 1990s (see Exhibits 1 to 6).

Guam‟s geographic position made it susceptible to typhoon damage and its unique position as a U.S. military checkpoint made it more sensitive to being affected by negative macro economic and political developments, such as the post-9/11 War on Terror, the 2003 invasion of Iraq and outbreaks like the SARS scare.

Guam Hotel Inventory

There were approximately...
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