Hawaii slowdown hurts Starwood’s profits
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The struggles of Hawaii's hotel industry, which is expecting a 10 to 30 percent occupancy drop come fall, contributed to the continued slowdown of performance for hotel and leisure company Starwood Hotels & Resorts Worldwide Inc.
The hotel company, which operates about a dozen properties throughout the islands, said yesterday that its second-quarter net income dropped 27.6 percent to $105 million from the year earlier. The company's earnings per share also dropped 31.7 percent. As a result, the company has scaled back its revenue per available room (RevPAR) projections.
Starwood anticipates that reduced airlift to Hawaii following the shutdown of Aloha Airlines and ATA Airlines, and the industry's response to high fuel prices could further pull back demand. However, the company has said that it remains committed to time-share expansion in the islands.
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Hotel and leisure company
Starwood Hotels & Resorts Worldwide Inc., which operates about a dozen properties throughout the islands, cut its outlook for the year due to weakening consumer demand, especially in leisure markets like Hawaii.
The hotel company reported yesterday that net income for the three months ended June 30 fell 27.6 percent to $105 million from the $145 million that was recorded during the same period in 2007. Earnings per share dropped 31.7 percent to 56 cents from the year prior's 82 cents.
Starwood Chief Executive Officer Frits van Paasschen said yesterday in a conference call that the company is bullish on long-term growth and plans to continue its aggressive international expansion. However, according to the latest earnings report, demand from U.S. travelers dropped significantly in May.
As a result of its domestic challenges, Starwood downgraded its forecast for revenue per available room (RevPAR), which is considered by many in the hotel industry to be a key performance indicator.
Starwood now expects to see its worldwide RevPAR grow from 6 to 8 percent. In comparison, the company only expects to see 2 to 3 percent RevPar growth at its North American counterparts.
Starwood Chief Financial Officer Vasant Prabhu, who joined Paasschen in the investor conference call, said that weakening consumer confidence and continued fallout from the credit crisis contributed heavily to last quarter's slowdown.
"As such, our hotel business is weakest in markets that are heavily leisure-driven, like Hawaii and Phoenix, although Orlando has stayed strong," Prabhu said. "The consumer weakness is impacting our vacation ownership business, too, with sales tracking below our expectations in Hawaii as a result of the western U.S. and our fractional products."
Keith Vieira, senior vice president of operations for Starwood Hotels in Hawaii and French Polynesia, said come fall the company's properties in Hawaii could experience occupancy drops ranging from 10 to 30 percent.
"We are experiencing a significant drop-off in business," Vieira said, adding that he will be among the hoteliers asking the Hawaii Tourism Authority for emergency action at the next board meeting.
Starwood anticipates that reduced airlift to Hawaii following the shutdown of Aloha Airlines and ATA Airlines and the industry's response to high fuel prices could further pull back demand. However, the company has said that it remains committed to time-share expansion in the islands.
Hawaii currently supplies 40 to 50 percent of the company's time-share inventory.
Going forward, Starwood will modulate the pace of construction in Maui based on the pace of sales, Prabhu said. However, the scarcity of new time-share projects on Maui likely will stimulate demand, he said.
"The short answer is, we're committed to Hawaii and particularly the Maui development," Prabhu said. "It is in a very good position in terms of having a very scarce commodity on the beach on a great resort."
