Long road to recovery Room revenue at the major Waikiki resorts may take until 2005, at least, to recover from the hits sustained this year and last year, some hoteliers say.
Room revenue at major Waikiki resorts
may not rebound until 2005By Tim Ruel
truel@starbulletin.com"If then," said Frank Lavey, general manager of the 1,230-room Hyatt Regency Waikiki.
The resorts reduced rates and encouraged perks after Sept. 11, sparing the prospect of empty rooms but driving down revenue. Trouble is, it's always easier to lower rates than it is to raise them, said Stan Brown, Pacific Islands vice president for Marriott International Inc.
Rising consumer use of the Web to book travel has forced the hotels to compete on price, Lavey said. "I just think that rate strategies have become very transparent and it's driven the prices down because we all need to remain competitive," he said.
Plus, Waikiki has seen a drop in two of its big-spending markets -- East Coast visitors from the United States, and Japanese tourists -- which are increasingly being displaced by lower-spending West Coast visitors.
Hotels have clearly been discounting on Oahu more than any other isle, said Joseph Toy, head of consulting firm Hospitality Advisors LLC.
Waikiki room revenue topped $1 billion in 2000, a record year in which nearly 7 million visitors came to the isles. Last year, which began with a U.S. recession and ended with the terrorist attacks, Waikiki room revenue retreated to $915.3 million, putting it just below 1999's $917 million, according to a survey by Hospitality Advisors and Smith Travel Research.
This year, room revenue is estimated to drop even more, to $893.5 million, according to the survey, though several hoteliers noted rates have started to improve.
The average daily Waikiki room rate in 2000 was $118, according to the survey. Even after Sept. 11, hotels managed to hold on, and average rates slipped only to $117 in 2001.
But with Oahu's post-Sept. 11 arrivals down one-third, Waikiki occupancy was hurting badly. "Last November, we were below 40 percent," said Lavey, adding it "was as low as I'd ever like to see it." A more normal occupancy for that time of year would have been 80 percent, he said.
As such, average Waikiki room rates are expected to drop to $111 this year, a 6 percent decrease from 2000.
Hotels do more to attract customers than just drop rates, such as offering meal discounts and giving free upgrades to an oceanfront room from an oceanview room. The net effect, still, is to drive down revenue.
Starwood Hotels & Resorts Worldwide Inc., which manages the four Sheraton hotels in Waikiki, has become more flexible in its upgrade practices. More often, Sheraton will oversell the cheaper rooms, then move customers to better rooms, said Keith Vieira, senior vice president and operations director for Starwood in Hawaii. Sheraton's Waikiki room rates are in the "high 80 percent" of what they were in 2000, though revenues are lower, Vieira said.
"I don't think it was avoidable," said Lavey. "These were unprecedented setbacks that we experienced after Sept. 11. We were all caught in a state of desperation to save our business."
Now, the task for the hotels is to hold onto occupancy, while bringing rates and revenues back up.
But that can take many years for a hotel to do in any given market, said Toy.
The last time Hawaii saw steep rate discounts, isle tourism was suffering from the fallout of the Persian Gulf War in 1991. It wasn't until 1997, the second-best year for Hawaii arrivals, that hotels recovered, Toy said.
"I'd say it's pretty endemic in the industry," Toy said.
America's hotels were rife with discounting in the 1980s, and it wasn't until the mid-1990s that revenues recovered, he said.
One reason for the slowness is that hotels have to negotiate rate increases with travel package wholesalers, Lavey said. "Unless there is really rampant demand, you cannot implement steep price increases," he said.
There are larger considerations for Hawaii hotels, Vieira said. The hotels depend on airlines to bring visitors to the isles from thousands of miles across the Pacific Ocean. When fewer tourists come here, the airlines drop flights. Also, if hotels refuse to drop rates during a down time, Hawaii wholesalers would go out of business, Vieira said. Visitors will seek a cheaper vacation elsewhere.
Hotels are the core of a package for Hawaii tourists, Vieira said.
Lavey of Hyatt and Marriott's Brown agreed it will take at least until 2005 for revenues to come back.
Peter Schall, senior vice president and managing director of Hilton Hawaiian Village, Waikiki's largest resort, had no comment for this story, a spokesman said.
Vieira was cautiously optimistic, saying if the market improves by the latter part of next year, rates and revenues could return to 2000 levels by 2004. "At this state nobody knows. That's just the plan," Vieira added.
"If you're not optimistic, you don't raise rates, you don't get your revenue," he said. "The way to guarantee you don't get your revenue is not to be aggressive."
Starwood was even more optimistic earlier in 2002, when recovery was steady, Vieira said. But around September, improvement stalled, he said, and it became clear the Japanese were seeking cheaper and closer destinations, such as China. In October, Japan Airlines eliminated one of its four daily flights between Tokyo and Honolulu.
"We got hit by Japan just like everybody else," Vieira said.
Some Waikiki hoteliers were adamant on one point: There's no point in wishing it were 1997 again. In that year, a record 2.2 million Japanese visitors came to the isles, spending $3.4 billion, much of which went to Oahu. "I don't know we're going to hit 2 million. It's not the growth market that it once was," Vieira said.
It makes more sense to look forward and treat last year's Japanese arrivals - 1.5 million - as the base to build from, he said.
"I think we have to realize that the world has changed," Vieira said.
