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.”
State Marketing Contract
For the past year, solidifying a contract to market and manage U.S. tourism to Hawaii has been a struggle.
Two contracts for two separate organizations — the Hawaii Visitors and Convention Bureau, which has held the marketing contract since the 1990s, and the Council for Native Hawaiian Advancement — were rescinded last year due to disputes over the procurement process, according to Hawaii Public Radio.
In June 2022, former Department of Business, Economic Development and Tourism Director Mike McCartney awarded the CNHA a $34 million contract to take over Hawaii’s marketing. The deal was heavily protested by the HVCB, but in October it was announced that the two organizations had come together and agreed to split the marketing duties.
That deal, however, was short-lived, as McCartney announced he was both rescinding the CNHA’s award and canceling the joint proposal in December in his final moments as director.
HVCB’s current contract expires in March, but the uncertainty surrounding the state’s marketing has clouded the outlook of some Hawaii properties. Eastman said concerns of inflation and leisure fatigue are more pressing, but the marketing situation is one to watch.
“You have to admit the tentativeness of everything — to say that it has zero impact would be ignorant,” she said. “Hopefully they’ll make a good decision, because the marketing side is pretty complicated because it’s not just Oahu, it’s neighboring islands.”
Dee said mainland domestic travel kept Hawaii afloat during the pandemic, so a concerted effort toward marketing to those travelers is a necessity.
“Now that the world has opened up again for travel and competition for other destinations is steep, a continuous and consistent marketing presence is needed to attract a mindful visitor,” he said.
Both the HVCB and the CNHA are in support of a joint contract moving forward, but there are still steps to be taken to solidify a contract in a timely manner.
“We just want things to move forward. Because we can’t change the past of what happened. I’m not focused on whether it was right to rescind HVCB or was it right to rescind CNHA, I just want something to help us market Hawaii,” Eastman said.
With spring bookings currently pacing down and the questions surrounding Hawaii’s marketing, Eastman said the Surfjack is in discussions about internal marketing via promotions with online travel agencies.
Outrigger has already started to increase its internal marketing efforts in wake of the uncertainty, but Dee said “the larger messaging connected with Malama Hawaii and regenerative travel is critical for visitor education on all stages of the booking path.”
“Tourism is the largest single source of private capital for Hawaii’s economy; we understand that sustainable tourism is a high priority for our newly elected leadership and look forward to moving Hawaii forward together,” he said.
Eastman said the marketing contract dispute hasn’t had an effect on demand yet, but could rear if it continues for much longer.
“The reality is that it has to have some kind of an impact with the uncertainty [in spring demand],” she said. “The No. 1 thing is to move forward and get marketing out there because we’re being out-marketed by the other destinations.”