Governor Cayetano recently chided the hotel industry for increasing room rates at a time when occupancy was down. Hawaii hotels need to
hike room ratesIn a June 27 Star-Bulletin story, he portrayed the move as being short-term in outlook, and counterproductive to the $10 million in emergency funding he authorized this spring in response to industry concerns about falling occupancies.
First, let me say that the visitor industry is grateful to Governor Cayetano for approving the $10 million in emergency funding the Legislature appropriated.
The industry's appeal for emergency promotional funding was no false cry of "wolf." We cannot imagine how poorly tourism might have performed this year without this vital infusion of aid.
Hawaii's hotels and tour wholesalers were caught by surprise when occupancy fell off in the first quarter of 1997. The year prior had ended with a record number of Japanese arrivals, and signs of modest growth in westbound business.
However, the rate increases to which the governor refers were fixed in the spring and summer of 1996, when the outlook, especially of the Japanese market, was for a more robust demand.
Room rates are typically set a year ahead. They are part of a long-term strategic plan, and once fixed are not easily changed, especially in the wholesale market.
In recent years, there has been a deliberate effort by many Hawaii hotels to raise their rates. Here's why.
Between 1990-96, the average daily room rate increased only 9.6 percent. During that time figures from the Bureau of Labor Statistics show that the Consumer Price Index jumped 24 percent.
According to the state Department of Labor and Industrial Relations, hotel wages alone went up 33 percent during those years. At the same time, the hotel room tax jumped 20 percent and mandates such as the Americans with Disabilities Act and low-flush toilets added to the cost of business. By 1995, many hotels were awash in red ink and desperately needed to raise room prices.
Discounting rooms, especially under pressure from wholesalers, was driving the bottom out of Hawaii's value. Eventually, owners, operators and financial institutions concluded that rates had to be increased.
It was a positive move, and even though some occupancy was lost (statewide it has only increased 0.1 percent since 1990), the net results were to slow and begin to reverse the money-losing trend. To create incentives along with these increases, many hotels provide value-added packages such as an extra night's stay for free, and complimentary meals and activities.
A higher room rate is the key to returning profitability to Hawaii's hotels. Being profitable allows us to hire more employees, offer better pay and benefits, encourage employee advancement and reinvest in renovating and improving hotels. Without an increase in room rates, none of these good things happen.
In particular, we know that the quality of our hotel plant is falling behind that of newer emerging destinations. Lower prices and declining revenues cause a downward spiral of cutbacks on services and an ever-degenerating product. Being profitable creates a positive climate in which financial institutions will underwrite renovations.
Hawaii's marketing efforts are intended to maximize demand for a Hawaii visit. The more people we attract, the higher the hotel occupancy, which in turn allows for increase in room rates.
It's the fundamental theory of supply and demand. In the end, the state is the winner because higher revenues put more people to work, stimulate new enterprise and bring in more taxes.
Hawaii's hoteliers are among the most skilled in the world. They compete as vigorously against each other for business as they compete against other destinations. They understand the fickleness of the marketplace, and are extremely sensitive to what the market will bear as they price their respective offerings.
Murray Towill is president of the
Hawaii Hotel Association.