Hawaii's hotel rates—often the last performance indicator to recover—are expected to continue moving down this year despite the local industry posting a modest occupancy increase last month and narrower revenue losses in the fourth quarter.

As a whole, 2009 could be characterized as a year of losses for Hawaii's hotel industry despite signs of demand stability that began to appear in the fourth quarter. Dips in occupancy, average daily room rates (ADR) and revenue per available room (RevPAR) were reported across all categories and regions for the year and resulted in statewide hotel revenue plummeting $741 million.

“;2009 has been a very tough year for the visitor industry both in Hawaii and nationally,”; said Joseph Toy, president and chief executive officer of hotel consultancy Hospitality Advisors LLC. “;The speed and depth of the downturn was unprecedented, and the hotel industry has never experienced the level of rate discounting that is still in the market.”;

Since April 2008 when the sharp downturn began, Hawaii has had 21 consecutive months of hotel revenue losses that now amount to more than $1.14 billion, Toy said.

As the worldwide economy slumped, 2009 travel demand dropped, resulting in a 4-percentage-point fall in statewide occupancy, which finished the year at 66.5 percent. In an effort to attract more travelers, hoteliers were forced to cut rates significantly, resulting in a 12.6 percent ADR decline to $176.46 per night. And, while occupancy has improved, room rates and profitability will continue to lag this year, said Barry Wallace, vice president of hospitality services for Outrigger Enterprises LLC.

“;The group market still has not recovered, and many properties have not returned to profitability,”; Wallace said. “;The pressure to keep rates low will continue this year, and we may even see deeper discounting than we saw in 2009.”;

While first-quarter occupancy has strengthened some, rates have not improved, he said. Softness in the second quarter has prompted some hoteliers to anticipate further price reductions, Wallace said.

“;When the larger properties like Hilton and Hyatt and Marriott don't get enough group business, they'll discount heavily,”; he said.

“;For them, anything that covers the cost of cleaning the room is worthwhile. Summer is still a ways out, but we expect it to be very competitive.”;

Keith Vieira, senior vice president of operations for Starwood Hotels & Resorts Worldwide in Hawaii and French Polynesia, said that the group market in Hawaii and around the world continues to be soft in the aftermath of government bailouts.

“;Our group business needs to double,”; Vieira said. “;Group business creates compression that helps boost our RevPAR, and group visitors are higher-spending.”;

Hawaii's leisure business cannot fully recover until group business nationwide recovers, he said.

“;Everybody has made a strong prospecting effort, but so has the rest of the world,”; Vieira said.

Hawaii hoteliers are not likely to make a full recovery for some time, Toy said, adding that while occupancy will probably grow this year, he might revise lower his earlier estimate of an ADR gain of 1 to 1.5 percentage points.

“;While there has been some modest recovery in occupancy over the last few months, it has been uneven and in some cases property specific,”; he said. “;However, it will take a much longer period to recover from the substantial price reductions that have occurred in the market.”;

Hawaii is not likely to see the room rate improve until 2011, and it could be another decade before they recover to the peak 2007 level, Wallace said.

“;There has never been a better time for travelers to visit Hawaii,”; he said. “;I'm quite confident that between the price discounting and the value-added offers like free breakfasts and even room nights that there will never be better offers.”;