The global hotel business is in a deep funk, but that has not kept the industry from betting on Asia, the one region of the world where growth is strong. In October, two major upscale hotels opened in Hong Kong, each with views of the skyscrapers huddled between the city’s mountains and harbour. One is a 381-room Hyatt Regency, on top of a shopping mall in the Kowloon district.
The other is the 117-room Upper House, owned by the Hong Kong conglomerate Swire and within walking distance of the central business district on Hong Kong Island. A 300-room Ritz-Carlton is among the hotels due to open here next year.
Many of these projects began before the downturn hit the travel industry, but even in the midst of the gloom, hotel companies big and small are pressing ahead with expansion plans in Asia.
Drop in occupancy
But the slowdown that has caused a drop in occupancy worldwide has also struck Asia. For the entire Asia-Pacific region, hotel revenue is down 28.4 per cent, echoing the situation in Europe, as businesses and tourists cut back on overnight stays and events, forcing operators to offer deep discounts.
Although some hotel companies say occupancy rates have started to pick up, room rates remain under intense pressure. Many economists say they believe the global economy is not yet out of the woods, given that US consumer spending, the driving force for much of Asia’s growth, will take years to return to normal.
Asia’s the place to be?
“Europe and the United States are still in a total mess, and Asia is not immune to what’s going on there,” Albert Edwards, head of global strategy at Societe Generale, said this month at a media briefing in Hong Kong. Still, hotel managers stand by their belief that Asia is the place to be.
“We’re growing more rapidly here than in any other region of the world,” said Michael Issenberg, who heads Accor’s Asia-Pacific business. Accor, the French hotel giant that runs the Novotel, Mercure and Sofitel brands, is opening 54 hotels, with about 10,000 rooms, in Asia this year and about as many again in 2010. In India alone, Accor plans to have 50 hotels, with more than 10,000 rooms, by 2012, up from five hotels now.
“The growth opportunities in Asia-Pacific are unsurpassed perhaps anywhere in the world,” said Frits van Paasschen, chief executive of Starwood, whose brands include Sheraton and Le Meridien and which just opened its 150th hotel in the region.
Smaller local hotel operators are also joining the rush. Amari, a Thai hotel management company with 11 properties and 3,000 rooms, announced plans last month to add 40 hotels by 2018. Also last month, the Park Hotel Group, which is based in Singapore and runs eight large hotels, announced that it planned to open as many as 12 in the next three to five years.
Not all projects have gone as planned.
In Beijing, a 34-storey building under construction and designed by the architect Rem Koolhaas was ravaged by a blaze in February, ignited by an illegal fireworks show. The building was to be completed in May and house a Mandarin Oriental hotel.
Occupancy at the Beijing Marriott, which opened just before the 2008 Olympics and was booked solid, fell to about 20 per cent this year, according to the China Daily, a state-run newspaper. Marriott would not comment on individual hotel statistics.
A number of hotels opened in Beijing and Shanghai for the Olympics last year and for the 2010 World Expo set for next year, adding a lot of supply at a time of generally low demand.
Revenue per available room, a key measure of hotel performance, plunged 56 percent in Beijing in the first eight months of this year, according to a recent report by the Deloitte consulting firm. In Shanghai, the figure was down 35 per cent as many hotels stood half-empty.
But many operators see growth opportunities, particularly in developing regions. “Look at the statistics: The United States currently has 4.9 million hotel rooms catering to a population of 300 million. Europe has about 5.3 million rooms. China, with its population of 1.3 billion, has only 1.7 million, and India barely has 120,000. There’s a lot of runway left in these countries,” said Paul Foskey, who is based in Hong Kong and heads Marriott International’s Asia business.
Marriott has 72 hotels, with 19,000 rooms, in its Asia pipeline, adding to the 113 hotels it operates in the region now.
Ian Wilson, general manager for Asia at Fairmont Hotels and Resorts, another international hotel company, said that in 10 years China was expected to have a middle class of 400 million people.
“That, and a growth rate of six per cent-plus this year, if you got that in the West, everyone would be high-fiving each other,” he said.
India’s potential
India, with its large population, has enormous potential. But it, too, has its drawbacks as infrastructure there remains poor, and industry executives complain about the dozens of permits and time needed to set up a hotel.
Indonesia, by contrast, is a bright spot because expanding low-fare air travel makes the island of Bali easier to reach. Within China, too, the picture is varied. “China is not a country. China is a continent,” Martin Rinck, Asia-Pacific chief at Hilton Worldwide, said by telephone from Singapore.
Cities in China’s interior have mostly been resilient, as those areas depend less on international travel.
“Domestic destinations are doing very well,” Rinck said. “Cities like Hefei and the resort of
Sanya, here, it’s more than 80 per cent Chinese clients, and they have not stopped coming. Demand here is still increasing.”
International hotel operators are also positioning themselves for an expected huge increase in the number of Chinese travelling abroad. “It’s key to have an on-the-ground presence here,” said Wilson of Fairmont, “to establish oneself as a brand that domestic travellers will come to as and when they travel abroad, which they surely will do so more and more in future.”
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