Hawaii Tourism Operators Face Continued Revenue Pressure as 2025 Visitor Numbers Lag Pre-Pandemic Levels

Executive Brief Hawaii's tourism economy concluded 2025 with visitor arrivals still below pre-pandemic peaks, signaling continued revenue challenges for businesses reliant on high visitor volumes. Tourism operators and small businesses must re-evaluate financial projections and operational strategies.

• Tourism Operators: Stretched operating margins, potential need for cost-cutting or aggressive marketing.
• Small Business Operators: Reduced foot traffic and discretionary spending from tourists.
• Investors: Reassessing growth potential in Hawaii's hospitality and retail sectors.
• Action: Review Q1 2026 financial forecasts and implement cost-saving measures immediately.

The Change

Hawaii's visitor arrivals at the close of 2025 remained virtually flat compared to the previous year and continued to fall short of pre-COVID-19 pandemic peak levels. This sustained period of diminished visitor volume means that the foundational economic engine of the islands is operating below its historical capacity. While official figures for the entirety of 2025 are still being compiled and analyzed, preliminary reports and anecdotal evidence from industry stakeholders indicate a persistent shortfall. This situation directly impacts revenue streams for hotels, restaurants, tour operators, and a wide array of supporting small businesses that depend on consistent visitor spending. The expectation of a full recovery to pre-pandemic tourism levels has been pushed further out, necessitating a recalibration of business strategies and financial planning for the foreseeable future.

Who's Affected

Tourism Operators: For hotels, airlines, tour companies, rental car agencies, and vacation rental managers, this persistent visitor deficit translates directly into lower occupancy rates and reduced service utilization. Many businesses operated under the assumption of a full tourism rebound, potentially leading to stretched budgets and a struggle to cover fixed costs. The inability to reach pre-pandemic revenue targets may force some operators to consider service reductions, increased marketing spend to attract the available visitors, or, in the worst case, business closures. The impact is particularly acute for businesses that have taken on debt or invested in expansions anticipating a robust return of tourists.

Small Business Operators: Restaurants, retail shops, activity providers, and local service businesses that cater heavily to tourists are experiencing a tangible slowdown. Reduced visitor numbers mean fewer customers dining out, shopping for souvenirs, or booking excursions. This can lead to lower sales volumes, impacting everything from inventory management to staffing levels. Small businesses often have tighter margins and less financial flexibility than larger corporations, making them especially vulnerable to prolonged periods of reduced consumer spending. The ripple effect can also be felt in the demand for local goods and services if tourism-dependent businesses cut back on their own operational needs.

Investors: Investors with exposure to Hawaii's tourism and hospitality sectors face an altered risk-reward landscape. The continued underperformance relative to pre-pandemic benchmarks suggests that growth projections for these sectors may need downward revision. This could impact the valuation of hospitality assets, opportunities for new development, and the performance of publicly traded companies with significant Hawaiian operations. Private equity and venture capital firms looking at Hawaii might need to scrutinize the resilience of business models that are heavily reliant on tourism volume rather than other growth drivers. Real estate investors might also see slower appreciation in short-term rental yields or hotel property values.

Second-Order Effects

The persistent shortfall in tourism arrivals has a cascade of consequences across Hawaii's uniquely interconnected economy. A sustained low level of visitor spending directly reduces the demand for goods and services that are often supplied by local businesses. This can lead to slower job growth or even layoffs within the tourism sector and its feeder industries.

Furthermore, with fewer tourist dollars circulating, there can be increased pressure on local businesses to raise prices to maintain profit margins, potentially exacerbating the already high cost of living for Hawaii residents. This inflationary pressure can impact everyone, from families struggling with grocery bills to other small businesses trying to manage their operating expenses.

Another critical downstream effect is on government tax revenues. Taxes tied to tourism—such as the Transient Accommodations Tax (TAT) and General Excise Tax (GET) on tourist spending—will continue to lag. This can strain public services, infrastructure projects, and state and county budgets that rely on these revenue streams. Potential cuts in public services or delays in infrastructure development can further impact the quality of life for residents and the attractiveness of Hawaii as a place to do business or live.

What to Do

Tourism Operators

Immediate Action: Conduct a thorough review of Q1 2026 financial projections based on the observed 2025 visitor trends. Identify non-essential operating expenses that can be curtailed or eliminated. Aggressively pursue marketing campaigns targeting existing, loyal customer segments and explore partnerships with airlines and travel agencies to secure bookings with favorable terms. Consider dynamic pricing strategies to maximize revenue from available bookings, but avoid deep discounting that could devalue your brand long-term. If feasible, explore diversification of revenue streams (e.g., local patronage, corporate events).

Timeline: Implement budget revisions and cost-saving measures within the next 30 days. Launch updated marketing initiatives within 60 days.

Small Business Operators

Immediate Action: Re-evaluate staffing models to align with current customer traffic, considering flexible scheduling or cross-training to manage reduced hours. Focus on building loyalty with local customers through targeted promotions and enhanced service. If reliant on tourist foot traffic, assess opportunities for online sales or delivery services that can broaden your customer base beyond immediate physical location. Review inventory turnover and adjust purchasing to minimize holding costs for slow-moving items.

Timeline: Adjust staffing and inventory plans within the next 45 days.

Investors

Immediate Action: For existing portfolios, monitor the financial health and cash flow statements of Hawaii-based tourism and hospitality companies very closely. Reassess growth assumptions and risk factors for any planned new investments in the region. Consider diversifying investments away from pure tourism plays or focusing on businesses with strong local market penetration or diversified revenue models that are less susceptible to visitor fluctuations. For real estate investors, evaluate the stability of rental income and property value appreciation forecasts.

Timeline: Conduct portfolio reviews and revise investment strategies within the next 90 days.

Action Details: Tourism operators should immediately revise their Q1 2026 budgets to reflect a revenue potential that is 5-15% below pre-pandemic expectations. This may involve renegotiating supplier contracts, reducing non-essential travel, and optimizing staff schedules to align with projected booking levels. Investors should prioritize due diligence on businesses that demonstrate operational resilience, strong local customer bases, or innovative strategies to mitigate reliance on peak tourist volumes during their next investment cycle.