Hawaiian Hotels and Resorts Suffering Major Financial Problems

The world-wide tourism downturn has been particularly harsh in Hawaii because of its remote location and its upscale focus. The number of domestic and international visitors to Hawaii has fallen 12% since 2007. Rising fuel prices and the March 2008 shutdowns of Aloha Airlines and ATA made air travel to—and throughout—Hawaii both challenging and expensive for tourists, leading many in the U.S. to take cheaper trips to closer locales like Mexico.

And the long-running decline in Japanese visitation—down from 2.4 million in 1997 to an expected 1.2 million this year—has been exacerbated by Japanese fears of the swine flu virus. The tourism slump is hitting Hawaii's economy hard. The state's unemployment rate has risen to 7.5% from 2% before the downturn, with many of the job losses coming in tourism-related industries, Hawaii-based economistPaul Brewbakersays.Hawaiian hotel jobs have fallen to 35,100 from 39,200 three years ago, he adds. Retail sales are down roughly 15% from 2006 levels.

Many Hawaiian resorts have remained in the good graces of their lenders but are still suffering. Dell Inc. founder Michael Dell's MSD Capital and partner Rockpoint Capital LLC paid $502 million in 2006 for the 243-room Four Seasons Hualalai hotel and 8,800 acres for residential development.

Since then, the hotel's annual cash flow has sunk to $7.9 million from $20.6 million, and occupancy has fallen to 54% from 87%, according to reports from the servicer of the hotel's securitized mortgage. Some of the drop resulted from $40 million in renovations that temporarily closed some rooms, Haulalai executives say.