Posted on: Tuesday, June 26, 2001

Tourism Talk
Why is Hawai'i so expensive? Paradise requires a premium price

By Michele Kayal
Advertiser Staff Writer

May was the fourth consecutive month that hotel occupancy went down.

It was also the fourth consecutive month that room rates went up.

Excuse me, but is there a pattern here?

Kenneth from the Mainland writes that it costs more to stay in Hawai'i than other warm-weather places. Marsha from Pearl City, a senior kama'aina who lives alone and likes to holoholo in Waikiki now and then, has taken to bullying hotel desk staff over room rates. And some wholesalers, who buy rooms in giant blocks and bundle them for travelers, lament that Mexico and the Caribbean have spirited off business that might have come to Hawai'i if the rates hadn't been so ambitious.

Hawai'i's hotels are part of the local landscape, with thousands of human beings on the front lines of the state's tourism efforts, and the rates they charge are not simply a best estimate of travelers' financial means, or a barometer of the economic climate. They also say something about the way Hawai'i sees itself.

While Mexico and the Caribbean have kept their rates relatively stable since ramping up in 1999 for the millennium, room rates in Hawai'i have risen about 12 percent. The industry's key profit indicator has gone up 16 percent. Since last year — when the state had record arrivals, occupancy, and revenues — rates have gone up five percent. So has the profit indicator. Occupancy remains flat.

The message that rate hikes send? Hawai'i is not just another warm-weather destination. It is not Mexico, the Caribbean or (God forbid) Florida. Hawai'i is an island paradise that people spend their lifetimes dreaming of, and one way or another, people will find a way to get here and to pay for it.

Hawai'i's entire tourism strategy is based on attracting visitors who will spend more. And so confident is the state in its desirability as a destination that the Legislature this year toyed with the idea of making it more expensive by slapping wholesalers with an additional room tax they planned to pass on to customers.

Many executives insist that Hawai'i is not expensive, that if you do the math, it's only perceived as expensive. But when you're talking about marketing, isn't perception the reality?

For now, hotels have begun aggressively courting travelers with free stuff: breakfast, extra-night stay, parking, rental car and other amenities. This "value added" strategy of the last several weeks has begun to nudge bookings upward, executives say. And while the actual revenue coming into the hotels is, of course, less, the "rate" — the actual number that indicates the room price — remains untouched. Most hotels have been following this strategy. And that is important because the rate bespeaks a destination's stature, and maintains a certain profile for its visitors.

More than anything, occupancy this year has suffered from a lack of corporate groups, the high-spending customers that go a long way to filling up a hotel. By the end of July, executives say they expect to have a better handle on how this business will play out for the rest of the year and whether they need to consider what they have worked hard to avoid: actually lowering the rates.

Lowering rates would be aimed at attracting more independent travelers to fill in the blanks left by the wayward CEOs and corporate types.

But its effect on perception is a place that no one wants to go. Tourism executives explain that while lowering rates might attract more visitors in the short term, it would send the wrong message about what Hawai'i is about, and, ultimately, will backfire. Because when the economy recovers, and hotels try to raise rates to match, the traveling public will feel sideswiped.

The record year 2000 may have made Hawai'i feel invincible. And though hotels and others are taking seriously the rough times ahead, there seems to be a pervasive sense that a strong and infinitely desirable Hawai'i can market its way out of the mess.

Lowering rates is not part of that strategy. Lowering rates, to paraphrase one executive, is for suckers.