Hawaii Hotels Drop Rates to Maintain High Occupancy

Inflation and leisure travel fatigue are driving Hawaii hoteliers to lower rates in order to increase demand.

The Hawaii hotel industry has seen strong rate growth in the past year and is now closer to pre-pandemic occupancy levels. However, the state of Hawaii finds itself in an unusual position with a clouded outlook for the future of tourism and hospitality.

Industry experts predict that international travel will pick up this summer, despite the fact that it is expected to increase. However, the high rates that hotels were able to charge during much of the pandemic are unlikely to be sustainable as leisure demand falls due to inflation.

A government dispute has also prevented Hawaii from signing a statewide marketing agreement beyond March.

According to Emmy Hise (senior director of hospitality analytics at CoStar), the Oahu market for hotels, which is located in Hawaii's capital city of Honolulu is expecting growth in occupancy as well as rate, as more business and group travelers increase. After a strong 2022, the more leisure-oriented destinations like Maui could see a decline.

"We assume the [average daily rate] is going to normalize a little bit back to historical levels, but it's still going to be significantly above the previous peak of 2019," Hise said. "I think part of that [projected dip in year-over-year rate] is the upcoming recession that they think is going to happen, probably in [the third quarter]. That could deter leisure travelers, especially in super high-spending markets."

Data from STR, CoStar’s hospitality analytics firm, shows that hotel ADR in Hawaii in 2022 was $371.21. This is 12.4% more than 2021.

The hotel occupancy in Hawaii increased from 65% to 75% during the first two weeks January 2023. Its ADR was $422 compared to $381 last year.

"Obviously, this is tremendous growth. And that's part of why the forecast is for some normalization because it just can't keep going," Hise stated.

Lynette Eastman is the general manager of Surfjack Hotel & Surfclub in Honolulu. She said that her property's 17% increase in rate year-over year in 2022 wasn't a platform to grow this year.

"That was a lot. Do you think that we would have that same kind of increase in 2023? It's not going to happen," she mentioned. "There was a lot of things going on in 2021, 2022. All the people that didn't travel during the pandemic -- they got away [from home], they came."

Eastman stated that the hotel is enjoying its best January ever, but that the Surfjack had no choice but to lower rates in February and March to increase occupancy. This is unusual after a strong year.

"Usually by this time, if it's a good year, you can just let the rates ride, however you set it expecting pent-up demand," she stated. "We've had to manipulate the rates for February and March to keep the pickup continuing."

Sean Dee, executive vice-president and chief commercial officer at Outrigger Resorts & Hotels said via email that although occupancy was down at company's Hawaii properties in Q1 2023 compared with 2019, ADR is 20% higher.

The expected return of Asian travelers by the summer is a silver lining for Hawaii's occupancy markets. Hise stated that the return of travelers from Asian countries could offset the decline in leisure travel domestically.

"Occupancy hasn't fully recovered. That shows that demand isn't all the way back and it's not a supply issue, because there's very high barriers to entry in Hawaii," she said. "[The occupancy dip] more comes from the lag of a little bit of group, corporate, but mostly from the Asian countries, which have a pretty heavy presence."

Outrigger expects steady growth of occupancy throughout the year, according to Dee, as more people travel internationally, particularly Japan, Dee.

Eastman stated that Japanese and Australian tourism are important to her hotel. While the demand for these services has grown, there is still plenty of growth potential.

"The talk is Japan is really going to start moving in the summer," she said. "If that's happening, then I'm sure Australia's going to pick up their movement, so I'm excited about that."

 

Source: hotelnewsresource.com