Hotel business still healthy but economic cloud dims outlook

Source : Business Times - 28 Oct 2008

Like a game of dominoes, the economic crisis is making its presence felt in most industries and tourism - which is dependent on the corporate dollar and discretionary spending - is unlikely to escape unscathed.

For now, it appears that local hotels are posting relatively healthy occupancies but as visitor arrivals continue to dwindle, what will happen next year seems to be anyone’s guess.

Singapore’s rapid increase in average room rates (ARR) over the last few years may have priced itself out of the market, reckons Citigroup economist Kit Wei Zheng.

‘The fact that until recently, tourist arrivals in the rest of Asean still maintained positive growth even as tourist arrivals in Singapore fell, attests to this. Not only is the size of the tourism pie shrinking, I suspect Singapore may be getting a smaller share of that shrinking pie,’ he said.

In a research note dated Oct 17, DBS Group Research noted that RevPAR (revenue per available room) in August was down 10 per cent from April’s peak of $210, but that FY08 RevPAR should finish off with a 20 per cent rise year on year, on the back of a stronger first six months.

For FY09, DBS Research is predicting RevPAR to worsen, chalking up a 15 per cent year-on-year fall, before strengthening 3 per cent in 2010.

Even then, DBS Research warned that downside risk still exists in its RevPAR estimates if Asia slumps into recession and the average length of stays is lower than expected.

While visitor arrivals in Singapore for the first six months of the year registered a 2.9 per cent increase to 5.1 million visitors, tourism receipts were 0.2 per cent less compared to H107 with $6.5 billion. June also marked the beginning of the decline, as it posted a year-on-year drop in tourist arrivals for the first time since early 2004.

Tourist arrivals contracted 4.1 per cent in June, a further 3.8 per cent in July and then as much as 7.7 per cent in August.

Speaking to the press at the sidelines of ITB Asia last week, Singapore Tourism Board’s (STB) assistant chief executive of business travel and MICE group Aloysius Arlando urged hotels to ‘cast nets wider’ as well as establish the optimum mix of business and leisure travellers. This is expected to put industry players in a better position to ride out the storm until the tourism sector regains its footing in 2010.

For now, MICE events seem to be proving a blessing for some hotels as they bring in the dollars. At the same time, the higher ARRs this year compared to 2007 should do well to protect profits even if occupancies dip slightly, as any increase in ARR generally goes straight to the bottom line.

The Mandarin Oriental, for one, was running a full house last week thanks to ITB Asia, and it expects occupancies for November and December to run into the 80s.

‘Bookings are on track compared to the past few years,’ said director of communications Ruth Soh. ‘People are still flying in. We’re not feeling the impact yet. We will have to see how next year goes,’ she added.

Grand Copthorne Waterfront Hotel is also banking on the MICE segment, which is fuelling demand for November and the first half of December.

‘The second half of December will be dependent on the leisure market, which might be hit by the financial turmoil,’ said DayLin Koh, director of marketing communications. Still, the hotel expects to post higher occupancy rates this November compared to last year, and December occupancies that are on par with last year.

The Raffles Hotel said bookings for its 103 suites are healthy because of the festive year-end.

Other hotels that have seen minor dips in occupancy include Swissôtel The Stamford and Fairmont Singapore, which saw occupancies in the low 80s and high 70s, respectively, this month, sinking a few percentage points year on year.

‘Bookings for November and December remain positive although we see a marginal drop in volume as compared with last year,’ said Belladonnah Lim, director of marketing communications at the group.

The two hotels will be ramping up sales and marketing efforts to actively seek out new business both here and abroad, in order to maintain market share.

And over at the Royal Plaza on Scotts, occupancy in recent months has been slightly below average. It expects occupancy to hit between 80-86 per cent for November, and 80 per cent in December.

‘Year-end is still good as most companies would have planned ahead and budgeted for their spending in 2008. However, Q109 would be challenging if the economic situation does not improve. It will be a real test of the room rates,’ said Patrick Fiat, general manager of Royal Plaza on Scotts.