Excerpt from CoStar
Leisure travel fatigue and inflation are causing Hawaii hoteliers in leisure destinations to drop rates to strengthen demand.
Hawaii's hotel industry is coming off a year of strong rate growth and continues to inch closer to pre-pandemic occupancy levels, but the island state finds itself in a peculiar position, with clouded optimism for the future of hospitality and tourism.
Despite international travel expected to pick up by the summer, industry experts expect that the high rates hotels have been able to charge throughout much of the pandemic will be unsustainable as leisure demand declines due to inflation and travel fatigue.
Hawaii is also without a statewide marketing contract past March because of government disputes.
The Oahu hotel market, which is home to the Hawaii state capital of Honolulu, is forecasting growth in occupancy and rate as business and group travel increase, said Emmy Hise, senior director of hospitality analytics at CoStar. The more leisure-driven destinations, such as Maui, however, could face a setback after a robust 2022.
“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.”
According to data from STR, CoStar’s hospitality analytics firm, hotel ADR in the state of Hawaii in 2022 was $371.21, up 12.4% from 2021.
For the first two weeks of January 2023, Hawaii’s hotel occupancy was 75%, up from 65% last year. Its ADR was $422, up from $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 said.
Lynette Eastman, general manager at the Surfjack Hotel & Surf Club in Honolulu, said her property’s 17% year-over-year increase in rate in 2022 isn’t a platform for growth 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 said. “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.”
The hotel is having its all-time best January, Eastman said, but the Surfjack had to drop rates in February and March in an effort to grow occupancy, which is abnormal after a strong start to the 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 said. “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 for Outrigger Resorts & Hotels, said via email that occupancy is still down at the company’s Hawaii properties in the first quarter of 2023 compared to 2019, but ADR is 20% higher.
A silver lining for the Hawaii markets on the occupancy front is the expected return of travelers from Asian countries by the summer. Hise said the loss in domestic leisure travel could be offset by that return.
“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.”
Dee said Outrigger anticipates steady growth in occupancy throughout the year as international travel, specifically Japanese travel, picks up.
Eastman said Japanese and Australian travel are important for her hotel, and while that demand has increased, there’s still a lot of room for growth.
“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.”
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