Hotels in Hawaii are dropping rates to maintain high occupancy rates

The Hawaii hotel industry has seen strong rate growth over the past year and is now approaching pre-pandemic occupancy levels. However, the state of Hawaii is in an unusual position with a bleak outlook for the future of tourism and hospitality.

Industry experts predict that international travel will increase this summer, although it is expected to increase. However, the high rates that hotels have been able to charge during much of the pandemic are unlikely to be sustainable as leisure demand falls due to inflation.

A government dispute has also prevented Hawaii from signing a statewide marketing agreement beyond March.

According to Emmy Hise (Senior Director of Hospitality Analytics at CoStar), the Oahu hotel market, located in Hawaii’s capital Honolulu, expects growth in occupancy and rates as more business and group travelers increase. After a strong 2022, the more leisure-oriented destinations like Maui could see a decline.

“We assume that [average daily rate] will normalize a bit back to historical levels, but it will still be well above the previous peak of 2019,” said Hise. “I think part of it [projected dip in year-over-year rate] is the imminent recession that they believe is likely to occur [the third quarter]. That could deter leisure travellers, particularly in very high spending markets.”

Data from STR, CoStar’s hospitality analytics company, shows that hotel ADR in Hawaii was $371.21 in 2022. That is 12.4% more than in 2021.

Hotel occupancy in Hawaii jumped from 65% to 75% in the first two weeks of January 2023. ADR was $422 compared to $381 last year.

“Obviously this is a huge growth. And that’s one of the reasons the forecast is for some normalization, because it just can’t go on,” Hise said.

Lynette Eastman is the General Manager of the Surfjack Hotel & Surfclub in Honolulu. She said the 17 percent year-over-year increase in her property’s rate in 2022 is not a platform for growth this year.

“That was a lot. Do you think we will have the same increase in 2023? That’s not going to happen,” she said. “2021, 2022 was a lot going on. All the people who didn’t travel during the pandemic – they got away with it [from home]They came.”

Eastman explained that while the hotel was enjoying its best January ever, Surfjack had no choice but to lower rates in February and March to increase occupancy. That’s unusual after a strong year.

“Usually at this point, if it’s a good year, you can just let rates run however you set it in anticipation of pent-up demand,” she said. “We had to manipulate rates for February and March to continue collection.”

Sean Dee, executive vice president and chief commercial officer at Outrigger Resorts & Hotels, shared via email that while occupancy at the company’s Hawaii properties was down in the first quarter of 2023 compared to 2019, ADR was down 20% be higher.

The expected return of Asian travelers by summer is a silver lining for Hawaii’s occupancy markets. His said the return of travelers from Asian countries could offset the drop in domestic holiday travel.

“The utilization has not yet fully recovered. It shows that demand hasn’t quite gone down and it’s not a supply issue as Hawaii has very high barriers to entry,” she said. “[The occupancy dip] more comes from the delay of a small group, companies, but mainly from the Asian countries, which have a fairly strong presence.

Outrigger expects steady growth in occupancy throughout the year as more people travel internationally, particularly to Japan, Dee said.

Eastman explained that Japanese and Australian tourism are important to their hotel. Although demand for these services has increased, there is still plenty of room for growth.

“The talk is that Japan will really start moving in the summer,” she said. “If that happens then I’m sure Australia will pick up on their movement so I’m looking forward to that.”