Special deals hurting hotel revenue
By Katherine Nichols
Advertiser Staff Writer
Special deals highlighted by value-added packages and incentives to help attract tourists have left Hawai'i's hotel industry struggling despite slowly improving visitor arrival figures and occupancy rates.
While recent industry surveys show encouraging gains in the number of tourists arriving in the Islands and the occupancy levels at hotels, they also show declines in room rates and key measures of hotels' profitability.
Overall room prices may look little changed, but complementary extra nights, discounted connecting rooms, and free breakfasts or rounds of golfs all are affecting hotels' bottom line, said Joseph Toy, president and chief executive officer of Hospitality Advisors LLC.
"You typically want to maintain your rate integrity by at least publicizing what your rates are. But by giving away a free night you can, to some degree, shield your room rate," said Toy. "You don't want to sell your product short. On the other hand, you do need to get volume."
While free extra nights might affect a hotel's revenues, they do encourage people to stay longer and spend more, said Toy. Indeed, occupancy has increased above prior-year levels in the last two weeks, according to a weekly survey Toy's firm does.
Part of the reason was the value-added packages, which are very attractive to travelers, Toy said.
According to Hospitality Advisors LLC, statewide revenue per available room was $98.33 last month, down from $112 the same time last year. And while occupancy statewide has showed recent weekly gains over the same weeks last year, average daily room rates remain down. For May, the average daily room rate was $143.57, down from $149.26 the same month last year.
That mirrors a report released earlier this week by hospitality firm PKF-Hawaii that showed hotel occupancy statewide posted the best monthly increase in more than a year — reaching 69.2 percent in May, compared with 68.5 percent in May 2001. But the survey also noted that it found the statewide average room rate last month was $136.88, down 5.8 percent from $145.26 in May 2001.
Sally Proctor, regional director of Premier Resorts, which has eight hotels on Kaua'i, Maui and the Big Island, said her company is avoiding anything but a few short-term specials.
Proctor said it isn't worth it for the company to advertise lower rates because when each property has less than 100 rooms, it can't attain enough volume to make up for the advertising costs. The biggest problem with reducing rates, said Proctor, is that if visitors return they expect to pay the same as they did before. Visitors never want to pay more. Or get less value.
"We invented the fourth night free, and much to our regret," said David Carey, president and chief executive officer of Outrigger Enterprises Inc., the parent company of Outrigger Hotels and Resorts. "Once you offer it, boy it's hard to take back."
Carey said that value-added packages are only one element contributing to lower revenue for the state's hotels. Because hotels are not full, more employee and industry discounts are available, and people are taking advantage of them.
Wholesalers offering discounted package rates also are contributing to decreased hotel revenues.
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