Hawai'i hotels got off to a slow start this year with occupancy and room rates posting steep declines in January.

Hotels were just 66 percent full for the month, the lowest occupancy rate since January 2002, according to a report released today by Hospitality Advisors LLC, an industry consulting firm. The average daily hotel room rate fell 8.2 percent to $196.38, the steepest monthly decline in room rates in 16 years.

With the state's No. 1 private industry suffering a slump in visitor arrivals for nearly a year, the drop in hotel occupancy comes as no surprise to industry officials bracing for bad news.

On the flip side, consumers have welcomed the chance to get deals at Hawai'i hotels.

While the January occupancy rate was down 9.7 percentage points from the same month a year earlier, more striking was the big decline in rates, said Joseph Toy, Hospitality Advisors president and chief executive officer.

As the number of visitors has declined, he said many hotels opted for "added value" of free room nights, free food and beverage, and free or discounted spa services rather than widespread reductions in rates.

But now hotels are cutting rates as well, Toy said. "What's been happening is we've had this very deep and very quick drop off in the market."

Hawai'i's pricing follows a similar national trend, he said, but some properties are seeing some signs of improvement.

At Hilton Hotels Corp. Hawai'i, the first two months of the year ended up "a little better than expected," according to Jon Conching, vice president of sales and marketing.

Conching said he believes additional marketing by the state Hawai'i Tourism Authority, airlines, hotels and tour partners toward the year's end did help.

Conching noted that the economy seems to have prompted travelers to plan their trips closer to their dates of travel.

"They're making their decisions over a much shorter window," he said.

The combined fall-off in occupancy and rate led to a substantial 20 percent drop in revenue per available room — a key industry measure of profitability — to $129.54 for the month. Overall, industry room revenue for January declined by an estimated $57 million, and total hotel revenue including food and beverage and retail sales fell by $88 million.

The decline in the Hawai'i hotel market is in line with the 12.4 percent drop in statewide visitor arrivals and the 13.6 percent decline in total visitor spending for January as reported earlier by the state Department of Business, Economic Development and Tourism.

O'ahu had the highest occupancy, dropping by 7.2 percentage points to 69.6 percent. The average daily rate also fell 8.9 percent and to $161.60.

The O'ahu rates were partly cushioned by a 30 percent increase in economy and budget travelers from Canada who chose O'ahu as their sole island destination. The Big Island experienced the steepest declines, with occupancy falling by 14.7 percentage points to 56.5 percent, and average daily rate dropping 10.1 percent to $201.46.

Statewide, budget hotels fared the best, falling a modest 3.2 percentage points to 75.8 percent occupancy. Budget daily rates dipped 7.9 percent to $97.51.

Economy properties did the worst, with occupancy falling 12.6 percentage points to 66.6 percent, with average daily rate declining 7.7 percent to $111.73.

The hotel survey is compiled by Smith Travel Research in conjunction with Hospitality Advisors.

For January 2009, the survey included 161 properties representing 47,227 rooms, or 82.9 percent of lodging properties with 20 rooms or more in the state, including condominium hotels. The survey generally excludes properties under 20 units, such as small bed and breakfasts, youth hostels, single family vacation rentals, cottages, individually rented vacation condominiums and sold time-share units no longer available for hotel use.