Analysis shows 2002 bleak for hotels so far

By Dan Nakaso
Advertiser Staff Writer

Hawai'i hotels saw their first occupancy increase of the year in June — but the little bit of good news paled in comparison to an overall 11.8 percent decline in room revenues and overall occupancy declines for the first half of 2002 as the state's tourism industry continues to struggle.

Average daily room rates also dropped 3.1 percent in June, marking the 10th consecutive monthly decline, according to the first midyear analysis of the health of the state's biggest industry by local consulting firm Hospitality Advisors LLC.

For the first half of the year, statewide hotel occupancy has fallen 5.7 percentage points, from 74.8 percent last year to 69.1 percent. Average room rates also are off 3.9 percent, to $142.05.

The combined decrease in occupancy and average room rates has cost the industry about $163 million in lost revenue so far this year — with hotels generating $1.217 billion for the six months ended June 2002 compared to $1.380 billion the same time last year.

The assessment comes as additional jitters lie ahead: Hawai'i's shaky visitor industry is entering its traditionally slow fall season; uncertainty in the stock market has some worried that travel budgets will further dry up; and the upcoming anniversary of the Sept. 11 terrorist attacks is prompting fears that travel to Hawai'i will fall off even more.

The hotel industry numbers did not surprise economists who have been tracking the poor performance of the tourism industry since Sept. 11. Some said yesterday that they reinforced the belief that Hawai'i's economy may not turn around until at least the first quarter of 2003.

"It was to be expected but it's still not good," said Leroy Laney, a Hawai'i Pacific University economics professor. "The outlook is a little less optimistic than a few months ago. The stock market is putting less wealth out there ... and that can affect consumer confidence and travel to Hawai'i."

Poor hotel occupancy and revenue translate into bigger problems for Hawai'i's economy, said Barbara Street, a Chaminade University economics professor.

"It will slow the recovery," she said. "The thing to remember is that all of the tourism dollars have what we call a multiplier effect on Hawai'i. So the dollars that we're not getting due to the increase in the hotel occupancy will be magnified, or multiplied, and have a larger impact upon the economy."

At the same time, potential buyers have shown increasing interest in Hawai'i hotels, said Douglas Pothul, senior vice president of Colliers Monroe Friedlander.

The attraction, Pothul said, is partly the result of investors' turning to real estate because of troubles in the stock market, combined with a lack of desirable hotel properties on the Mainland.

"I'm not aware of anything in play that's going to occur in the next several months," Pothul said. "But there's been an elevated interest from buyers in looking for local assets."

The hotel industry survey — covering about 50,829 rooms or 71 percent of Hawai'i's hotel rooms — was compiled by Smith Travel Research in conjunction with Hospitality Advisors and underscores trends of declining revenue and occupancy that began around the first of the year and, in some cases, have gotten worse.

Among the most troubling signs in the analysis is a widening gap between islands and various segments of the industry, particularly the struggling high-end market.

"The luxury market on O'ahu is having a very challenging time and is seeing the largest declines in room rates and revenue per available room," said Joseph Toy, president of Hospitality Advisors. "Kaua'i surprisingly has done very, very well in the last four months in the overall market. While the Big Island has declined significantly in occupancy, they're not too far off from where they were last year."

Overall, June saw a 72.2 percent hotel occupancy rate. Upscale hotels had a 2.8 percent increase, to 78 percent; and economy hotels grew by 5.5 percent to 71.7 percent. All other groups dropped.

The survey reflected the bargain-conscious market that had been emerging long before Sept. 11 and had only increased after the terrorist attacks.

For June, the only hotel market segment that saw a rise in daily room rates was the budget category, which increased from $60.91 to $61.41. All other categories saw daily room rates fall.

The luxury market, in particular, was off 3.6 percent to $211.97. For the first half of the year, the state's luxury segment has generated room revenues of $606 million, compared to $687 million last year.

Room rates at upscale hotels dropped 3.8 percent to $137.35.

While all hotel segments saw a decline in room revenue, the luxury and upscale segments accounted for about 61 percent — or $104 million — of the total statewide room revenue decline for the first half of the year.

Still, Toy said yesterday that he sees bright spots in the study.

"It was certainly expected that the luxury market would show the most impact from the weakened economy and the effects of 9/11," he said. "It could have been much worse. We should keep in mind that what this shows is that the market is quite resilient."

Reach Dan Nakaso at dnakaso@honoluluadvertiser.com or 525-8085.

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