Hotel Revenues Drop by $136 Million

Represents a 10.5 percent drop compared to the summer of 2007

Hospitality Advisors LLC, Hawaii’s leading hospitality consulting firm, has reported that Hawaii hotels lost nearly $136 million in total revenue during the 2008 summer months of June through August, representing a 10.5 percent drop compared to the summer of 2007. Of the total hotel revenue lost, room revenues declined by $92 million, with another $44 million in revenue losses from food and beverage, retail, spa and other hotel profit centers. The losses reflect a sharp fall in room nights sold (-10.5 percent) and visitor arrivals (-14.9 percent) for the summer busy season compared to last year.

Although the hotel industry posted modest gains during the first quarter of 2008 over a weak quarter in 2007, April marked the beginning of steep market declines due to rapid deterioration in air capacity, economic instability, consumer confidence and escalating fuel costs. Combined statewide hotel revenue losses for April and May totaled $20 million, bringing the total hotel revenue loss for April through August to $156 million.

“The losses have been substantial during what is typically the second busiest period of the year in Hawaii’s tourism industry,” said Hospitality Advisors president Joseph Toy. “Unfortunately we can expect these losses to continue through the end of the year as the market decline in the off-season is expected to be far greater than usual.” Toy also noted that while the statewide average daily room rate (“ADR”) appears to have declined slightly to $209.55 for the summer, the swings in ADR discounts have varied substantially depending on location and class of property. “Hotel room rates are also reflective of the substantial renovations and improvements that have been invested in Hawaii’s hotel inventory, and in some cases, for now at least, are likely well-below the projected room rates used to justify such renovations,” Toy said. Hotels are in a difficult position as direct discounts to room rates take substantial time to recover, he added. “Hotels saw a period of hotel discounting that began in the early 1990s during the last major economic downturn, and took about seven years for the industry to regain any real ADR growth,” Toy said. He noted that many of the costs of value-added packages that hotels are offering, including free meals and spa services, are not apparent in room rates and instead are reflected in higher expenses that are borne by the hotel industry.