Hawaiian Resorts Struggling Through Recession
The recession has hit most industries very hard. Businesses that were booming during the glory years of consumer spending have now found it hard to cope with the changing financial climate. Those that expanded thinking that the growth would just keep going and going, are now stuck with a shrinking customer base for their increased operations.
One industry that’s been hit especially hard is the hotel industry. People just don’t have the extra money to be going on vacations at this time. Five star hotels have been forced to over deals that seemed unimaginable a mere four years ago. The hotel industry in Hawaii has been hit especially hard. Simply getting all the way out there to Hawaii has now become almost unmanageable with people who can afford to go on vacation, at the very least choosing to take them a little bit closer to home. As anyone who’s seen a map in their life knows, Hawaii’s not really close to anything. The airfare alone is enough to scare off almost anyone during these tough fiscal times.
The Wall Street Journal has a great article today describing this situation entitled “Hawaii Hotels Face Fewer Visitors, More Debt”. This article talks about how hard its been for these hotels especially at a time when the number of expensively renovated rooms has been rising. It seems that the hotel industry in Hawaii has almost gotten too big for its britches, and now their paying the price.
occupancy at Hawaii’s resorts dropped to 66.9% in the first eight months of this year, the lowest level since the same period in 1993 and down from this decade’s high of 80.7% in 2005, according to Smith Travel Research. Meanwhile, revenue per available room has fallen nearly 25% in the past two years and now averages $150.75.
That combination means a number of Hawaii’s resorts no longer generate enough revenue to pay the mortgages on their properties. Distressed debt tied to hotels is rising across the nation, but Hawaii has more troubled hotel debt per room than any other state, about $23,256 compared with $5,083 in California and $5,345 in Florida, according to statistics based on data from Real Capital Analytics. Overall, Hawaii’s distressed debt tied to hotels totals nearly $1.6 billion.
Many investors that had bought up Hawaiian resorts during the real estate boom, are now saddled with properties that aren’t generating revenue to pay for the inflated mortgages caused by the boom. These investors also had been so enamored with their new purchases that they began making renovations in attempts to upgrade the service to target a more luxury clientele. This has been standard operating procedure in the Hawaiian resort industry, as building whole new resorts is extremely limited by the steep land prices and local anti-expansion legislation.
Now these new owners are left scratching their heads and how to fix their mistakes. Can you really blame them though? During the boom times almost all of us had become blinded at the fact that at some point the bottom was going to fall out. When things are going so good, why even think that the good times won’t last forever. That’s negative thinking, and we’re all taught to stay away from things like that.
Hawaiian tourism finds itself in a position that really has no easy fix. Their remote location is not something that they have any control over at all. It would be pretty difficult for them to just decide one day to move the whole island chain closer to the rest of civilization. That had long been one of the allures of going to Hawaii, now it’s become a major hindrance.
Its not just the American tourists that have stopped venturing out to Hawaii these days either. Japanese visitation has fallen off dramatically as well. In 1997 2.4 million Japanese made the trek over to Hawaii, this year that number is cut in half down to 1.2 million. That fall has as much to do with fears about the swine flu as it does to the recession, so Hawaii’s got a double whammy going on that side.
This drop has effected the Hawaiian economy a whole lot as well. Their economy is largely tied to the tourism industry, so when that goes south, everything goes south. Unemployment in Hawaii has risen from only 2% before the downturn, all the way up to 7.5% right now. That’s still less than the national average, but the rate of increase is substantially more than other areas.
It’s a shame that this situation is hitting Hawaii so hard, because it is really the ultimate vacation destination. It offers something unique that’s really hard for almost anyone else to match, and it’s not even an international flight for those of us here in the United States. I love Hawaii and hope they can ride out this rough patch. As soon as the economy recovers, the people will be back Hawaii, that you can count on. Unfortunately, it could be a while, hopefully its not too late.
