Hotels ended 2010 with higher rates, occupancy

Increased hotel occupancy and room rates in December helped push Hawaii’s hotel room revenue to $2.55 billion in 2010, according to hotel consultancy Hospitality Advisors LLC.

While the 8.7 percent year-over-year gain was good news for the beleaguered industry, room revenue was still well below the 2006 peak of $3.12 billion.

"What we saw in 2009 and 2010 was that the revenues essentially evaporated from the market, dampening profitability and short-circuiting debt services," said Joseph Toy, Hospitality Advisors’ president and CEO.

In mid-2010, Hawaii’s hotel industry began to turn around, Toy said. After two years of discounting, Hawaii hoteliers finally saw the statewide average daily room rate (ADR) increase during four of the last six months of 2010, Toy said.

December provided a strong finish to the year, he said.

In December, statewide occupancy rose 6.8 percentage points to 69.4 percent. At the same time, ADR increased 3.8 percent to $203.56, and revenue per available room (RevPAR), a key measure of profitability, climbed 15 percent to $141.88.

For the year, Hawaii’s statewide occupancy rose 5.9 percentage points to 70.7 percent, earning it the nation’s third-best occupancy behind New York City and San Francisco. Hawaii’s year-end ADR fell 1.56 percent to $174.33, but the state’s nightly rates came in second only to New York. The state’s year-end RevPAR, which also lagged only New York, rose 7.39 percent to $123.25.

Hawaii’s hotel industry might have held its own against other U.S. destinations; however, it has a long way to go before matching the peak levels of several years ago.

"The occupancy has returned to more normal levels, but the average rate is still down about 15 to 20 percent from the peak and costs have risen 5 to 10 percent," said David Carey, president and CEO of Outrigger Enterprises Group. "Hotels and their owners continue to be squeezed."

Factors such as rising oil prices, increased labor and operational costs and loan terms could make or break some hotels this year, he said.

Hawaii’s tourism recovery gained momentum in 2010 as hoteliers regained some of the nearly 25 percent in revenue per available room that was lost during the industry downturn in 2008 and 2009. However, Toy said that most of the improvements were related to occupancy gains from price discounting. Moving forward, the challenge for hoteliers will be to sustain consistently high enough occupancies to achieve lasting rate growth, he said.

"When we see occupancies that are sustained above 78 percent, we’ll see hoteliers with the ability to raise rates," Toy said.

For instance, hoteliers raised rates 21.9 percent from 2005 — the year occupancy peaked at 81.8 percent — to 2008 when statewide ADR topped out at $202.64.

While Hawaii hoteliers are hoping this year to continue building on the strides made during the latter half of 2010, soaring rates are still far away, said Keith Vieira, senior vice president and director of operations for Starwood Hotels & Resorts in Hawaii and French Polynesia.

"We are still six years away from even achieving the profitability of 2006 and 2007," Vieira said.

Save for Hawaii’s highest-demand periods, consumers probably will see similar prices this year, Vieira said.

"We’ll probably take away some of the value-adds like free breakfasts and room nights, but it’s hard to drive prices without consistent yield," he said.

In addition, commitments that were made last year when the market was down to travel wholesalers and package providers will lock about half of the state’s hotel inventory into softer prices through December, Carey said.

"It’s hard to respond quickly when the market changes," he said.

While some sought-after properties in Waikiki and Maui are seeing pockets of high occupancy now, Toy said statewide recovery is uneven. Waikiki hotel rates likely will recover next year, followed by Maui, he said. The Big Island and Kauai probably won’t see significant gains until compression in Waikiki and Maui sends more travelers their way, Toy said.

"It could be 2013 or longer before the state’s entire hotel industry begins to regain rate," he said. "Profitability is even longer out."