Running even a small property like the White Sands Hotel in Waikiki costs a lot of money, even with few or no guests.
As simple as it is — two stories with 95 rooms surrounding a courtyard of palm trees, a koi pond and a swimming pool — the boutique property requires constant care to fend off the elements, says Romeo Aguinaldo, the White Sands’ general manager.
Landscaping, pool maintenance, feeding the koi — it all needs to get done. Security guards are a must. Even empty rooms need care — toilets have to be flushed at least once a week to keep the pipes healthy, he said.
It adds up to at least $100,000 a month in fixed operating costs, he said.
Meanwhile, the property has few guests to pay for any of this.
“You’re protecting the asset, basically,” he said.
The experience at the White Sands shows what’s happening throughout Hawaii’s hotel industry on a massive scale. A 14-day quarantine on arriving passengers imposed by Gov. David Ige has all but shut down visitors coming to Hawaii.
And that’s meant more than lost revenue.
Hotels also are bleeding cash just to keep things from falling apart — and to pay expenses like taxes, loan interest and insurance.
It’s an existential crisis that directly threatens the livelihoods of tens of thousands of Hawaii residents — housekeepers, clerks, maintenance workers, bell staff and valets. The accommodations segment of the hospitality industry provided more than 43,000 jobs in 2019, according to the University of Hawaii Economic Research Organization. And there were another 112,000 employed in bars and restaurants — many of them in hotels.
A prolonged shutdown will likely lead to the permanent loss of jobs and some business failures, executives say.
Even if Hawaii opens to tourism soon, it will likely take months for the industry to recover enough to rehire the large staffs needed when the state had 250,000 tourists a day.
And because hotels are among the state’s largest taxpayers, the decline means lost revenue for government at a time when people most need the help of government services.
“The public and the government leaders have no idea,” said Mufi Hannemann, a former Honolulu mayor who is now president and chief executive of the Hawaii Lodging & Tourism Association. “You look at a hotel that’s shuttered, they think we’re saving money — we’re not.”
For big properties with multiple pools, restaurants and hundreds of rooms, operating expenses alone – even when the hotels aren’t really operating — are astronomical.
Nobody understands this better than Keith Vieira. A long-time hotel executive, he formerly managed iconic Waikiki properties like the Moana Surfrider and Royal Hawaiian Hotel as Starwood Hotels and Resorts’ senior vice president in charge of Hawaii and Tahiti.
Even with a bulk of employees furloughed, he said, keeping an empty hotel ready to receive guests costs a small fortune.
“You just can’t turn everything off,” Vieira said.
To keep a 400- to 800-room hotel operationally ready can cost $1 million to $2 million a month, said Vieira, who now has his own consulting firm, KV & Associates.
Building engineers need to be on hand. Common areas have to be cleaned. Perishable food has to be tossed, canned goods inventoried so kitchens can be ready to stock up again when people start coming. It’s the same kind of work that goes on at Aguinaldo’s smaller White Sands property, but scaled up exponentially.
Aguinaldo’s eyes widen when he’s asked what it would cost to keep up the place where he previously was rooms manager: the Alohilani Resort. That hotel has 839 rooms, an infinity swimming pool, three-story high salt water aquarium and two restaurants run by “Iron Chef” Masaharu Morimoto.
“It would be millions,” he said.
And it’s not just operating expenses. Furloughed employees generally don’t get paid, Hannemann said, but some hotels are still providing medical coverage to furloughed employees.
For two large companies with multiple properties, this is adding up to $1 million to $1.5 million each per month, he said.
And that’s not all. Most properties have debt payments, plus property taxes that can be well over $2 million per month for the big players. While the City and County of Honolulu has agreed to defer a payment due in August, Hannemann said that just kicks the can down the road, and other counties haven’t been as helpful.
And that’s hardly surprising. Even if the hotels aren’t generating revenue, their property tax payments are vitally important to keep the local governments afloat.
For example, according to a statement of finances published in February, seven of Oahu’s 10 largest property taxpayers last year were hotel and resort companies: Kyo-Ya Co., Hilton, Outrigger Hotels Hawaii, Ko Olina Hotel, Disney, Maps Waikiki Hotel and Halekulani Corp. The Top 10 paid a total of $172.5 million in the 2019-20 fiscal year.
Kyo-Ya was the biggest. It owns several landmarks now managed by Marriott, which bought Starwood in 2016 — the Royal Hawaiian, Moana Surfrider, Sheraton Waikiki Hotel and the Sheraton Princess Kaiulani Hotel. Kyo-Ya alone paid $34 million last year, just less than $3 million a month.
On top of everything else, many hotels are having to return deposits made by guests planning summer vacation, said Jonathan McManus, the owner of Maui’s Hotel Wailea, which is regularly rated one of Hawaii’s top hotels by publications like Travel & Leisure and Conde Nast Traveler.
“It’s millions and millions of dollars,” McManus said.
The challenge facing policymakers is that lifting the state’s 14-day travel quarantine order will also open the state to the virus, which for now appears to be under control. There have been few or no new cases for weeks.
But there’s no sign the order will be lifted soon.
Ige is known for a slow and deliberative decision-making style. And he seems in no hurry to open up Hawaii or even signal when he might.
Asked repeatedly about a timeline for opening to tourism at a press conference last week, Ige said there wasn’t one. When asked specifically about lifting the 14-day travel quarantine by July, he replied: “I just said, we don’t have a hard timeline.”
July is important because that’s when some hoteliers would like to see things open up to visitors from outside of Hawaii. Waiting until September would likely lead to defaults, foreclosures and bankruptcies, Hannemann said.
But regardless of what the date is, the key is to have a reopen date as soon as possible so hotels can plan, said Benjamin Rafter, the chief executive of OLS Hotels and Resorts, a Honolulu-based hotel management company that operates about two dozen properties in Hawaii and on the mainland.
“One of the challenges is we cannot just reopen in a day,” said Rafter, who previously was president and chief executive of Aqua Hospitality and president of Aston Hotels & Resorts — the largest hotel operator in the Waikiki market.
Among other things, hotels need to mobilize staff and train them on new COVID-19 safety protocols, said Rafter, who also owns the White Sands.
Gearing up could take six weeks, he said. Sales staff also need to know when they can start promoting the hotel.
And the longer hotels are shut down, he said, the longer it will take to gear up.
Kekoa McClellan, the Hawaii spokesman for the American Hotel and Lodging Association, said safety of residents and employees is vitally important. But he also said hotel companies could be forced to make tough choices if the shutdown persists with no indication of when it could change.
“At some point hoteliers will have to make difficult decisions about what their hotels will look like in the long term,” McClellan said.
And it’s more than just jobs at stake, Hannemann said.
To be sure, Hannemann acknowledged, hotels can generate enormous revenue. During good times, he said, a small hotel can generate $2 million a month while a luxury resort can rake in $12 million and upward of $18 million per month during the holidays, he said.
But he noted that in addition to using that money to pay employees, the hotels also pay a lot in taxes, which have plummeted, which means less for state and local governments.
“If we’re down and out,” he said, “it affects the whole state.”
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