New report says hotels lost $156M

Hotel revenue dropped $156 million year over year during the five-month period beginning in April, with the greatest losses -- $136 million -- occurring during the industry's peak summer months, said Joseph Toy, president and chief executive of Hospitality Advisors LLC.

"At times like these, I count the number of lights that are on at Waikiki hotels," Toy said. "It's really dim. Most of the hotels have cut their lighting to curb expenses."

The most recent hotel losses reflect a sharp 10.5 percent decline in room nights sold and a 14.9 percent drop in visitor arrivals during this year's busy summer season as compared with last year, Toy said in an analysis released today. Average room rates statewide have increased slightly to $209.55 for the summer, but substantial renovation and improvement costs and other discounting have offset most of the gains, he said.

"Much 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," Toy said.

Consumer confidence in the U.S. economy, which is reportedly at its lowest level since the 1980s, has taken a toll on all long-haul destinations, especially those that are luxury-branded like Hawaii. As concerns rise about prices and the economy, more travelers are choosing to stay closer to home, and the big spenders are pulling back.

"It's a perfect storm," said John Monahan, CEO of the Hawaii Visitors and Convention Bureau. "We've never had so many challenges come together at one time."

Hawaii's visitor industry started seeing the effects of the subprime crisis and stock market volatility last July, Monahan said. In the spring, visitor counts went down with the loss of ATA and Aloha airlines, he said. Now, weakened consumer confidence is causing losses to mount, he said.

"Interest in Hawaii is still strong, but the consumer feels less able to travel," Monahan said. "We have clearly moved into a much bigger crisis situation."

Performance at Hawaii hotels this summer has dampened to its lowest point ever, said Murray Towill, president of the Hawaii Hotel and Lodging Association.

"I don't remember it ever being this bad," Towill said. "Even during their peak summer period, many of our hotels have had to reduce employee hours or lay off workers."

April marked the beginning of a steep decline in Hawaii's hotel industry that Toy does not expect will right itself until well into 2009 or 2010.

"Unfortunately, we can expect these losses to continue through the end of the year as the market decline in the offseason is expected to be far greater than usual," Toy said.

Performance during the first and second quarter of 2009 will be the most telling measure of whether Hawaii's hotel industry will see any improvement before 2010, he said.

So far, the odds of seeing improvement in the hotel industry without intervention are not looking good, said Keith Vieira, senior vice president of operations for Starwood Hotels & Resorts in Hawaii and French Polynesia.

"Our advance bookings for first quarter 2009 have dropped 30 percent as compared to the prior year," he said, "and it's continuing to get worse."

Vieira said it is critical that the Hawaii Tourism Authority put more of its budgeted dollars into marketing. The HTA budget has grown $19 million since 2004, but marketing programs only have grown by $1 million, he said.

"People want to focus on culture and heritage, and all of those things are important, but marketing provides sustainability over time," Vieira said. "We want to continue to have those events, but if the visitor count goes negative, everyone suffers."

Starwood has had to lay off workers and reduce hours, he said. Momoyama, the popular Japanese restaurant at the Sheraton Princess Kaiulani, will soon close, Vieira said.

The HTA and industry wholesalers have released at least $12.5 million for new marketing campaigns since May. Yesterday the Hawaii Visitors and Convention Bureau used $4.5 million of those funds to kick off a marketing campaign to entice travelers to come to Hawaii despite the slumping U.S. economy. The campaign will target avid travelers in cities such as Los Angeles, San Francisco, Seattle, Phoenix, Chicago, Denver, Dallas and New York where consumers are most likely to travel to Hawaii.

However, while the campaign might contain the spread of losses in the near term, Vieira said that the hotel industry still needs more marketing money to prevent an industrywide collapse.

Gov. Linda Lingle and Hawaii's hoteliers asked the HTA in August to funnel an additional $10 million into marketing to shore up the state's struggling key visitor industry, but the board has failed so far to act on that request.

"We're going to ask them again during their HTA meeting on Thursday," Vieira said. "The inability to move quickly and make decisions is a concern."

While the HTA realizes the seriousness of the visitor industry decline, more funding might not be available, said David Uchiyama, HTA marketing director.

"Our funding is based on (hotel room tax) collections," Uchiyama said. "They originally forecast $88 million but have since bumped that down to $79 million. However, we think that's optimistic."

The HTA based its fiscal year 2009 budget on $76 million and already has allocated $60 million of that to marketing, he said.