Recession-Battered Hotels Face Pricing Dilemma

While some hotels are cutting rates or offering free nights for a three- or four-day stay, others are saying that they’re only hurting the industry. And ground zero of the debate seems to be occurring in tourism-battered Hawaii, where 20 percent of businesses have reported layoffs and visitor spending has declined by 15 percent, or $177 million last month since 2007.

Outrigger Hotels & Resorts  is offering discounted rates for 30 percent to 40 percent of its rooms, compared half of that last year. “We think the writing’s already on the wall for the fall,” said Barry Wallace in the Star-Bulletin, Outrigger’s executive vice president.

Smith Travel Research wonks say that discounts don’t necessarily work  and that a 10 percent discount has to be cost-effective. “If you do the math, it would imply that you have to make up a lot of points in occupancy to break even on the lowering of the rate,” said  Jan D. Freitag, vice president in a company report. Plus competitors will copy the discounts and kill its competitive edge. “It’s an easy move to copy, and everyone will end up worse off.”

But Hawaii, which has suffered the loss of Aloha Airlines and ATA and a weakening economy in both the United States and Japan, is facing $800 round-trip tickets, a rise of $460 from last year. And that cost has to be mitigated by hotel rooms, which have dropped $344 from last year, and hoteliers are facing the fact that those bargains may have to stay.

State tourism liaison Marsha Wienert told board members of the Hawaii Tourism Authority to take another look at the quality-over-quantity approach to tourism, attracting high-end customers rather than the rank-and-file – especially when tourism needs to recoup 300,000 lost visitors.