Fewer flights from the West Coast and a slumping U.S. economy hit Hawai'i's hotel industry in May, with occupancy rates posting a modest decline, according to a report released yesterday.

Hawai'i hotels were 68.3 percent full in May, down 0.8 percentage point from May 2007, Smith Travel Research and Hospitality Advisors LLC reported.

The closures of Aloha and ATA airlines in late March and early April resulted in a significant decrease in air seat capacity from the West Coast. Although other airlines have stepped in to help fill some of the void, all of the seats have not yet been restored.

While visitor arrivals fell 6.4 percent in May, the impact on hotel occupancy was less severe because a large share of the decrease in arrivals were cruise visitors, said Hospitality Advisors President Joseph Toy. He noted that the statewide average daily room rate achieved a modest gain of 2 percent to $190.66.

Another bright spot was a 1.7-percentage-point rise in the O'ahu occupancy rate to 72.5 percent. The average room rate on O'ahu rose 3.8 percent to $166.38.

However, hotel performance on the Neighbor Islands saw an overall decline in room demand.

Maui occupancy fell by 4.1 percentage points to 65.5 percent, but managed a 2.4 percent average daily rate increase to $244.44.

Kaua'i and the Big Island also reported lower revenue per available room due to softer occupancy.

By category, the most popular accommodations were in lower-priced budget properties, which were 72.3 percent occupied in May, up 8.6 percentage points from May 2007. Budget hotel room rates grew by 6.3 percent to $101.22, boosting revenue per available room up by 20.8 percent to $73.17.

Mid-price hotels also enjoyed higher occupancy and room rates. Mid-price occupancy rose by 0.5 percentage point to 64.6 percent, while room rates increased by 6.3 percent to $131.05.

Luxury and upscale properties saw occupancy declines and small room rate gains and luxury resort regions also reported softer performances.

The high-end regions that saw occupancy declines included the Kohala Coast of Hawai'i, the Lahaina-Ka'anapali-Kapalua area; and Wailea on Maui.

Kohala occupancy fell by 3.7 percentage points to 52.9 percent, while room rates also decreased by 1.6 percent to $276.44. Lahaina-Ka'anapaliKapalua occupancy fell 6.4 percentage points to 67.6 percent, but maintained an average room rate of $226.72.

Despite a 0.5 percentage point decrease in the Wailea occupancy rate, the average room rate rose 4.8 percent to $387.82.

The survey included 161 properties representing 47,322 rooms, or 83.7 percent of all lodging properties with 20 rooms or more including hotels and condominium hotels.