Hotel vacancy climbs, revenue declines

Outlook gloomy as hotel occupancy rate dives

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Occupancy numbers at hotels statewide fell during the month of July despite efforts to maintain market share in the face of a slowing economy, rising fuel prices and diminishing personal wealth that caused some people to stay closer to home.

Hotels statewide reported a drop of 6.5 percentage points - or 8.1 percent - in occupancy during the month to 74.2 percent from 80.7 percent in 2007, according to the latest report by Hospitality Advisors LLC.

Room rates, in what is typically a busy summer season, slipped by 0.8 percent to $211.53 from $213.25 a year earlier, while revenue per available room - the most widely used indicator of profitability - fell 8.8 percent to $156.87 from $172.03.

"With such weakness during our traditionally high summer season, we will likely see a very sharp drop for 2008 when compared to last year," said Joseph Toy, president and chief executive of Hospitality Advisors, a Honolulu-based tourism consulting firm. "The fall shoulder season also looks troubling with a lot of uncertainty for the first quarter 2009."

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Hawaii hotels, feeling the effect of a double-digit decline in visitor arrivals in July, continued to show lower occupancy levels during the typically busy summer season.

Hotel occupancy Occupancy rates at Hawaii hotels in July and the same month last year: 2008 2007 Statewide 74.2% 80.7% By Island Oahu 81.8% 81.5% Kauai 75.1% 86.2% Maui 67.8% 80.3% Big Island 58.6% 75.2% Source: Hospitality Advisors LLC

And one industry expert sees things possibly getting worse the rest of the year, with hotels also facing some uncertainty at the beginning of 2009.

Occupancy levels at statewide hotels fell 6.5 percentage points - or 8.1 percent - in July to 74.2 percent from 80.7 percent in 2007, according to the latest report by Hospitality Advisors LLC.

Room rates also slipped by 0.8 percent to $211.53 from $213.25 a year earlier, while revenue per available room - the most widely-used indicator of profitability - fell 8.8 percent to $156.87 from $172.03.

"With such weakness during our traditionally high summer season, we will likely see a very sharp drop for 2008 when compared to last year," said Joseph Toy, president and chief executive of Hospitality Advisors, a Honolulu-based tourism consulting firm. "The fall shoulder season also looks troubling with a lot of uncertainty for the first quarter 2009."

Total arrivals by air and cruise ship for July fell 14.1 percent compared with July 2007, as Hawaii's tourism industry feels the impact of a slowing national economy, rising fuel prices, mortgage woes and the loss of two cruise ships, according to the state Department of Business, Economic Development and Tourism.

Hotel occupancy continued to deteriorate, particularly on the neighbor islands, where properties reported double-digit occupancy declines and only slight room rate gains in the month.

Maui recorded a 12.5 percentage-point occupancy - or 15.6 percent - decline to 67.8 percent from 80.3 percent, and a 0.2 percent room rate increase to $293.39 from $292.68. The Big Island saw occupancy fall by 16.6 percentage points - or 22.1 percent - to 58.6 percent from 75.2 percent, while the average daily rate improved by 0.4 percent to $204.69 from $203.91. Kauai's occupancy dropped by 11.1 percentage points - or 12.9 percent - to 75.1 percent from 86.2 percent, but posted a 2.9 percent room rate increase to $222.14 from $215.87.

Meanwhile, revenue per available room fell to $198.91 from $235 on Maui; $119.95 from $153.24 on the Big Island; and $166.87 from $186.06 on Kauai.

Oahu was the silver lining in July, recording a gain, up to 81.8 percent occupancy from 81.5 percent, as a result of thousands of military visitors that participated in a large exercise hosted on Oahu (though not reported in the state visitor count because they arrived via military ships and planes), according to David Carey, Outrigger Enterprises Group president and CEO.

In addition, soccer tournaments helped boost Oahu occupancy during the summer, and the fact that more than 1,000 rooms in Waikiki are being renovated, including 535 closed at the Royal Hawaiian Hotel, has softened any occupancy drop that might have occurred.

"If we lose further airlines capacity it's going to be almost impossible to market our way out of that loss," Carey said. "In the near term I'm deeply concerned about it."

Oahu hotels achieved slight room-rate gains that increased by 0.7 percent to $177.07 from $175.75 during the month, while revenue per available room grew by 1.1 percent to $144.89 from $143.30.

Meanwhile, the state's luxury and upscale segments were the most affected by the falloff in room demand, particularly on the neighbor islands, according to the report by Smith Travel Research, which surveyed 161 properties representing 46,571 rooms, or 83.1 percent of the lodging properties with 20 or more rooms.

On a brighter note, Hawaii's midprice and budget properties reported modest gains in hotel room rates.

Collectively, the tourism community is "trying to take proactive steps before we have a super disaster," Carey said. "We're trying to stem the tide before we do have a disaster because the revenue consequences of a precipitous drop is almost unimaginable."