Hawaii hotels report lackluster first quarter

What a difference a year makes.

This time last year, Hawaii hoteliers were enjoying one of the best first quarters on record. This year, not so much.

State occupancy in March fell nearly 3 percentage points to 79.6%, while the average daily room rate fell 1.1% to $285, according to a report released by hotel analytic company STR.

Revenue per available room, the rate a hotelier earned for each available room regardless of its rental state, dropped more than 4% to nearly $227. Revenue fell nearly 6% to almost $374 million.

March results continued earlier monthly declines and were on trend with February, which logged the worst monthly performance in about a decade for Hawaii’s hotel industry.

For the first three months of the year, occupancy fell more than 3 percentage points to 80.8%, average room rates were flat at $292 and revenue per room dropped more than 3% to $236. Revenue fell nearly 5% to just over $1.1 billion.

The current softening looks especially dramatic when compared with the start of 2018, a peak time for Hawaii’s hotel industry, said Joseph Toy, president and CEO of Hospitality Advisors LLC.

“We’re clearly off peak now. But I don’t want to call the year until I’ve seen the second-quarter results,” Toy said. “Hotels have already started ramping up their specials, and they’re offering kamaaina deals that haven’t been seen in years. They know if we don’t have first-quarter momentum, it’s hard to make up for it during the second quarter. Without summer momentum, then typically, it’s going to be a softer year.”

Keith Vieira, principal of KV &Associates, said the drop in occupancy and demand is a carryover from last year’s volcanic eruption on Hawaii island and severe weather events, which slowed tourism’s pace. More problems came in the form of disruptions at some of the state’s top attractions, including Hawai‘i Volcanoes National Park on the Big Island, Ha‘ena State Park on Kauai and the USS Arizona Memorial on Oahu, Vieira said. A lengthy fall strike at hotels owned by Kyo-ya Hotels &Resorts and Marriott-operated properties on Maui and Oahu didn’t help, either, he said.

Mufi Hannemann, president and CEO of Hawaii’s Hotel &Lodging Association, said he’s also concerned that growth of vacation rentals, some illegal, has cut into hotel demand at a time when hotel costs are escalating.

Hannemann said hotel labor costs have risen dramatically following last year’s hotel strike. Rising property valuations already have increased taxes, while local governments are considering tax hikes and the state is considering taxing resort fees, he said.

“Every time they are short on money, government turns to the (hotel) industry — but they aren’t ensuring that transient vacation rentals are operating on a level field and paying their fair share,” Hannemann said. “That hasn’t stopped us from continuing to invest, but they need to believe us when we say our profitability has dropped.”

Jan Freitag, STR senior vice president, agrees that “demand declines coupled with lack of pricing power does not bode well for growth in profitability.”

But Freitag noted that Hawaii’s “absolute values” are still above and beyond other U.S. hotel markets.

Freitag said Hawaii’s first-quarter ADR was $292 as compared with $129 for the national average and $154 for the top 25 U.S. hotel markets, excluding Las Vegas. Hawaii’s first-quarter occupancy was 80.8% as compared with the national average of 61.8% and 69.9% for the top 25 U.S. markets, excluding Las Vegas.

“Yes, your growth is slower. Yes, there are actual declines that you are reporting. But when compared to other markets, you could say, ‘Life in Hawaii used to be great, and now it’s good.’”