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It’s been a glorious seven year run. Unfortunately, 2008 will prove to be the first year since 2001 when visitation to Hawaii turned negative. And it’s getting worse. Visitation fell over 10% in both June and July. August shouldn’t be much better. We’ve got more up to date hotel metric data and it is even uglier. While the hotels are trying to maintain rate, ADRs have ranged from 1% to -4% the last few weeks, occupancy is plunging. RevPAR has consistently been in the range of -6% to -16%. So what’s going on?

• It’s global this time! That’s not good.
• Stronger dollar. US no longer “on sale”.
• Aloha and ATA airlines shutting down has slammed the Hawaiian tourist economy. By far the primary manner of travel to Hawaii is via air. Hawaii has lost over 1m annual seats from east coast alone.
• The price of fuel is a dominant factor in the health of the Hawaiian tourism industry. Kelvin Bloom, President of ResortQuest Hawaii, states that Hawaii, as the most isolated land mass on the planet, is facing severe long term problems due to the current fuel crisis. “Airlines won’t fly flights that don’t yield. Las Vegas is an example of this”.
• July, traditionally one of the strongest months of the year, saw a 6.5% hit to occupancy and a decline in room rates. High-end markets such as Maui, which attracts affluent vacationers, took the steepest decline in July. Visitation from Japanese, corporate meeting groups, and honeymooners declined by 11.7%, 26.7%, and 24.2% respectively.

So who is exposed? HOT maintains 5% of its domestic hotel rooms in Hawaii. Worse, 30% of HOT’s timeshare revenue was derived in Hawaii. Timeshare is not an immaterial business for HOT, generating 25% of total company revenue. I’ve analyzed HOT’s 3 most important markets: NYC, London, and now Hawaii. Trends are getting worse in all of those markets with no signs of stability. Somehow, the sell side still believes EBITDA will grow next year. In my modest opinion, EBITDA estimates still need to come down 10-15% and EPS estimates reduced by 20-25%.

I hear crickets chirping
Hotel metrics are falling off the Hawaiian cliffs