A term we’ve avoided because of its one-time political connotation came to mind when global financial giant Societe Generale released a scorching piece on Greedflation. With their use of the term, it’s now mainstream.
Greedflation points precisely to corporations in the US (and the UK). And it refers to businesses that have preyed on customers, using the concept of increased expenditures, such as rising materials and employee costs, as excuses for raising profits to unprecedented, lofty heights. In case you aren’t familiar with the 159-year-old Societe Generale, they are a bank deemed to be systemically important by the G20s international body charged with global financial system safeguards.
Even as February data (released by Hawaii Tourism Authority) said visitor arrivals might be slowing, this could play right into the hands of corporate profit-makers. Could the sweet spot for the state of Hawaii and corporations be fewer hotel rooms, car rentals, or airline tickets at artificially inflated prices?
While February hotel revenue was up 17% compared with 2022, which was hugely up from pre-Covid, it came with 6% less demand. That was based on the state’s average daily room rate of $387 before taxes and fees.
In February, for example, Maui sat at a $655 average nightly rate (up 50%), but occupancy was down 9%. Wailea was at $1,004, up 55%, while occupancy was down 25%.
Record-high profit margins hit Hawaii vacations.
Companies are continuing to leverage leftover pandemic remains to “profiteer.” And it appears the concept of soaring profits based on a perceived crisis contributes to issues particular to Hawaii. As just one example, Marriott, which manages 36 resorts in Hawaii, reported their 2022 financial results. It showed record adjusted earnings that were up almost 70 percent year compared with the prior year.
The point about all this from Societe Generale is that something is clearly broken. The picture now coming into focus is specifically that of corporate profits. And that’s something you’ve mentioned in comments on BOH countless times.
Author Albert Edwards said in last week’s edition of Global Strategy Weekly that he’s never seen anything like it and used words like “unprecedented” and “astonishing” to describe levels of corporate Greedflation as it currently exists. That followed a January study from the Federal Reserve that looked at an increase in the ratio of prices charged to cost of production. They concluded it was a major driving factor in the recent round of inflation when compared with historical data.
So if you feel that the cost of a Hawaii vacation is becoming exponentially more expensive, this may be one indication of why. In our own experiences, Hawaii hotel prices have escalated by multiples, far more than the 50% figure that the state and others banty about. We experienced that recently on staycations on the Big Island and in Honolulu.
And while there is definitely the potential for a softening of Hawaii visitor arrivals, this can more than make up for that loss with higher pricing and corporate profit.
Visitors reconsider Hawaii travel plans, including Beat of Hawaii.
We are suffering sticker shock the same way that you are. A recent Kamaaina rate stay on the Big Island caused us to pay nearly $1,000 per night per hotel room – a new high for any of BOH’s editors. A stay at an iconic Oahu resort was not far behind, where Kamaaina rates were simply through the roof. Even as they purported that Hawaii residents receive a 40% discount.
On Maui, luxury hotel rates are among the highest in the country, not stopping until they reached nearly $1,100 per night for 2022. Statistically, the state Department of Business, Economic Development, and Tourism numbers say that figures are up a mere 50% compared with pre-pandemic. Our experiences, based on what we’ve been paying, are that they have increased far more.
State: Higher revenue based on lower occupancy at higher rates.
Only Oahu has come in with lower room rates, mainly due to the loss of international arrivals. Economists at the State of Hawaii concur, saying: “I think it’s the hotel industry strategy.”
And there’s no relief coming from Hawaii vacation rentals.
Sky-high hotel prices come while a squeeze has been put on alternative accommodations, including vacation rentals such as Airbnb. The state’s research arm at UH Manoa said last month, “Restrictions on transient vacation rentals will limit visitor capacity, which could support already-high hotel room rates and other tourism prices even in the face of softening U.S. travel demand.” Not only that, but legal vacation rentals also now suffer from a plethora of non-ending fees.
Societe Generale’s take on Greedflation.
They said that “super-normal profit margins” of US corporations have the potential to “inflame social unrest” as we all continue to struggle with higher prices. We see that in Hawaii, where drastically increased costs don’t align with increased value and set in motion a significant potential for visitor dissatisfaction with Hawaii.
Societe Generale’s Edwards said, “The end of Greedflation must surely come…this is a big issue for policymakers that simply cannot be ignored any longer.”
One of the subjects typically associated with discussing Greedflation is price controls, which may relate more to products rather than services. But it is interesting nonetheless.
STR says hotel profits are at an all-time high.
If you haven’t heard of STR, the company provides worldwide market data on the hotel industry. They say, “Total revenues and profits surpassed 2019 levels due to strong demand, tremendous pricing power influenced by inflation, and increased revenues from other departments.” — Raquel Ortiz, STR’s director of financial performance.
How do you outsmart Greedflation?
Let’s discuss in the comments what you found to be helpful. Add your “two cents,” or perhaps now, “two bucks,” to the topic. Mahalo!