How bad will it get? This is the burning question for many Asian hoteliers in light of the recent combination of events namely SARS (severe acute respiratory syndrome), the war in Iraq and…
How bad will it get? This is the burning question for many Asian hoteliers in light of the recent combination of events namely SARS (severe acute respiratory syndrome), the war in Iraq and the continued depressed global economic conditions
`Pretty gloomy` appears to be the answer as preliminary figures from the March 2003 Deloitte & Touche HotelBenchmark Survey reveal. Across Asia all hotels experienced a 4.6 percent decline in revPAR (revenue per available room) when measured in US dollars. Hong Kong and Singapore were some of the regions poorest performers in March with revPAR falling 16.8 percent and 15.4 percent respectively when measured in US dollars, as occupancy levels fell in response to the SARS epidemic.
Of the 24 markets sampled on the survey, over 60 percent experienced revPAR declines during the month. Other markets that witnessed double-digit revPAR falls were Penang (10.6 percent), Seoul (10.8 percent), Bangkok (13.1 percent) and Phuket (24.9 percent). Hotels in Bali were the regions worst performers with revPAR down 57.5 percent over 2002 levels. The market is still reeling from the October 12 atrocities and the slowdown in leisure travel caused by poor economic conditions. Penang and Phuket are generally regarded as leisure destinations and so, like Bali, are bearing the brunt of a downturn in the number of leisure travellers whereas Singapore, Seoul and Bangkok have been hit to a greater extent by both the postponement and/or cancellation of a number of business/conference events, in addition to the loss of the leisure market. Among those events that have fallen victim to the SARS outbreak are the Asia-Pacific Economic Cooperation (APEC) Tourism Forum that was to have been held in Pattaya from April 8-10 (this has now been cancelled) and the 6th Asia Pacific Hotel Investment Conference to be held in Singapore on April 9th (postponed until June 2003). In Thailand, the Tourism Authority estimate that about 50,000 visits to the country have already been cancelled between April and June, and hotels are experiencing cancellation rates between 5 and 10 percent.
To allay the spread of SARS, a number of airlines have cut their routes in the region. Singapore Airlines recently announced that it has effectively grounded 13.5 percent of all its flights, whilst Cathay Pacific has indicated that it may need to ground its whole fleet next month as declining passenger numbers are making the flights unviable. The International Air Transport Association (IATA) estimate that current bookings to destinations such as Hong Kong are down between 30 and 40 percent.
Fear and panic are exacerbating the SARS problem across the region, as countries adopt policies to try and mitigate its impact. For example, Malaysia, which is currently free of SARS, has put into effect an immediate freeze on visa issuance from countries affected by SARS, with the exception of official visitors, genuine business travellers and investors. In Thailand, people travelling to any of the high-risk destinations are liable to face a prison term of up to six months and a fine not exceeding 10,000 Baht (US$240). Singapore has also taken the decision to go beyond the World Health Organisation`s recommended control measures and is stepping up health screening procedures for passengers arriving at Changi Airport and the Singapore Cruise Centre. Elsewhere, countries like Australia are reallocating their marketing spend to capitalise on opportunities in non-SARS-affected countries.
The timing could not have been worse for the hotel industry as March and April are often peak months for trade fairs and exhibitions. In Hong Kong the week-long Labour Day holiday (from May 1) last year attracted 200,000 visitors from the mainland, however this year arrivals are likely to be severely reduced.
Tourism, which accounts for nearly six percent of the GDP in Hong Kong, is heavily dependent at this time of year from visitors from Southeast Asia where many countries, in particular Singapore, have long school vacations around Easter. Figures from the Hong Kong Travel Industry Council suggest that visitors from these areas have already fallen by more than 80 percent, and the Hong Kong Tourist Board estimate that visitor arrivals have fallen 10.4 percent since the World Health Organisation issued its travel advisory on 16th March. So it seems likely that the worst is yet to come with many hoteliers expecting April to be an even quieter month than March.
Surprisingly, given that the first official SARS case was reported in a southern province of China, Guangdong, on November 16th, 2002, the Chinese markets tracked on the HotelBenchmark have continued to perform well. In March, hotels in Nanjing reported a 15.7 percent improvement in revPAR. RevPAR increases were also recorded in Shanghai, up 6.2 percent and Xian up 0.6 percent. However, Beijing saw revPAR fall 3.5 percent – primarily due to a decline in demand, which can be attributed in part to fewer international tourists travelling to the region. Hotels in Ho Chi Minh City also performed well during March recording yet another month of double-digit revPAR growth, up 17.7 percent, although this was entirely driven by increases in average room rates, as occupancy fell seven percent.
The short-term prospects for the Asian hotel industry remain challenging, although the longer term fundamentals are sound as, prior to the World Health Organisation travel advisory on 16th March, the industry was showing signs of recovery from the plethora of events that have impacted the region. The industry has weathered five years of troubles – the Asian financial crisis in 1997/8; political unrest in a number of southeast Asian countries; the September 11 attacks and Bali bombing both of which caused a fear of travel; the conflict in Iraq; the SARS epidemic and generally poor global economic conditions – and yet demand levels are still growing as revealed by the World Tourism Organisation which reported international visitor arrivals up 7.9 percent in 2002, catapulting Asia above the Americas for the first time ever.
Against this background and the robust performance put in by the industry last year we are optimistic for the medium-term prospects for the region, although clearly the next few months will be challenging, particularly April when the full impact of SARS will be felt, as the March numbers hide the fact that the first two weeks trading prior to the World Health Organisation travel advisory were generally very positive.
Performance of the selected Asian Markets – March 2003
Performance of the selected Asian Markets – March 2003 year-to-date
Theodore is the Co-Founder and Managing Editor of TravelDailyNews Media Network; his responsibilities include business development and planning for TravelDailyNews long-term opportunities.