After resisting longer than Western economies, the major countries in the Asia-Pacific have been impacted by the world economic crisis. Since the beginning of the year 2009, the drop in business has led to a massive revision of the rate policy. And yet, the formidable development in countries and regions that are still under-equipped merely slowed. The openings of luxury hotels are multiplying, driven by major events such as Expo 2010 in Shanghai. Potential for secondary cities remains strong and economic growth is already showing signs of picking up again.
After resisting longer than Western economies, the major countries in the Asia-Pacific have been impacted by the world economic crisis. Since the beginning of the year 2009, the drop in business has led to a massive revision of the rate policy. And yet, the formidable development in countries and regions that are still under-equipped merely slowed. The openings of luxury hotels are multiplying, driven by major events such as Expo 2010 in Shanghai. Potential for secondary cities remains strong and economic growth is already showing signs of picking up again.Is Asia the continent of the future? All the financial players are fighting to assume the responsibility for this. During the International Finance Forum held in Beijing last November, Dominique Strauss Kahn, managing director of FMI, joined the ranks of global managers who are banking on the radiant future of the Far East. “The organization of the world is changing,” he estimated while highlighting that “all eyes were on Asia, and there are many that expect the region to open the way for a new period of strong and sustained growth for the world's economy. In this regard, China will undoubtedly play a major role.” Like the managing director of FMI, hoteliers also hope that the continent will be able to meet this challenge.Resistant… but only to a certain extent. Asia-Pacific, which includes some of the most dynamic economies in the world, has also felt the pernicious effects of the financial crisis. When Wall Street gasps for breath, businessmen hide in the four corners of the world. The problem for Asia's hotels: the butter.y effect of an increasingly global economy played full force on their results.The results published by Shangri-La, one of the major player on Asia's upscale ho-tel market, offer proof of the problems encountered in recent months in the region. Beginning with solid foundations thanks to a good first semester, the group's hotels survived in most destinations in 2008 except for Thailand due to the political instability that reigned in the country from November 2008 to April 2009. Despite a sharp drop in occupancy, properties saw their RevPAR grow in Singapore (+14.5% despite -8.4 pts OR) or at least stay afloat in continental China (-1.1% with an OR down by -14.9 pts).Unfortunately, with the continuing drop in business, the maneuvering margin was considerably reduced in the first semester 2009. Average daily rates plunged by more than 10% in Hong Kong, Beijing and Singapore. Consequently, hotel groups are not expecting fantastic results for the year 2009. Last August, Simon Keswick, president of the board of directors at Mandarin Oriental, expected “market conditions to remain mediocre for the rest of the year.” Clement Kwok, le CEO de Hong Kong & Shanghai Hotels, owner of Peninsula hotels, was also ex-Average daily rates plunged by more than 10% in Hong Kong, Beijing and Singapore. Consequently, hotel groups are not expecting fantastic results for the year 2009 pecting business to remain slow: “While there have been occasional improvements in markets and consumer sentiments, economic data remains volatile while the demand for regional and international travel continues to be depressed.”Fortunately for the region, the lean times seem to gradually be coming to an end. Industrial production and exportations from emerging countries are off to a fresh start. Most economists say they are surprised by the rapidity of the comeback of the continent's power houses: India and China. Surpassing initial forecasts, the FMI expects China's GDP to grow by 8.5% in 2009 and then by 9% in 2010. India also surpasses the expected average for the region in 2010 (+5.75%) with forecast growth of 6.4%. Such results are significantly higher than in mature countries such as Japan (-5.4% this year and +1.7% in 2010).Tourism should benefit from this initial bright spell. The first signs of improvement: according to the Pacific Asia Travel Association (PATA), international arrivals in the region progressed by 0.5% last August. While Singapore, Thailand and Vietnam continue to show a slight drop, China (+3%), Hong Kong (+6%), Macao (+7%) and, even more so, Malaysia (+10%) and Cambodia (+9%) are all doing better.This news will reassure tourism actors that have invested much hope in the future of the Asian continent. “Chindia”, the union of the two future giants of the global economy, plus Vietnam, the Philippines, Malaysia and Thailand and Indonesia: all these countries in full effervescence and incontestable appeal for tourism present fine growth perspectives for hoteliers. Upscale hotels, which are in the lead when it comes to heading off to conquer new markets, succeeded in ta-king advantage of the opportunity to accompany businessmen's Oriental dreams. The rate of development accelerated in recent years, copying the region s economic surge.But this frenetic growth in the supply was not insignificant in these difficult times. Due to the weakness of business tourism, Tokyo’s supply on the Luxury segment is flirting with overcrowding. The brands Peninsula, Shangri La and Ritz-Carlton benefited from the improvement on the real estate sector to make their entry after the Four Seasons, Mandarin Oriental and Conrad Hilton shortly before. In China, the two main markets are overcrowded and the OR struggles to rise above 50%. In Shanghai (see article p.20), the multiplication of openings in light Expo 2010 seriously complicates things for hoteliers. And Beijing, which experienced the same rush prior to 2008, is feeling a bit under the weather after the Olympics. Despite solid foundations, a little more time is needed before these cities have fully absorbed the overcapacity of their hotel supply.Whereas most groups succeeded in obtaining a prestigious showcase in the key cities in the region - New Delhi and Mumbai join the three aforementioned cities - these groups are now turning towards secondary and tertiary cities in China and India and towards Asian Tiger cities. According to the consultant CBRE Hotels APAC, 23,000 new 4* and 5* hotels are expected in Bangkok, Hanoï, Ho Chi Minh, Kuala Lumpur and Singapore before 2012 (see the following pages for further information). St Regis Tianjin and the Westin Xiamen, JW Marriott Gurgaon and the Renaissance Bangalore, Pullman Lijang and Lavasa: the international brands are off to conquer these very dynamic cities that are not well equipped with ho-tels that follow international standards.Local authorities encourage this wave of hotel expansion even if, there too, the crisis should temper certain ambitions. Guangzhou, Shenzhen and Tianjin have been forerunners for this growth, followed by Chengdu, Chongqing, Dalian, Shenyang, Xiamen... Opening properties outside Beijing, Shanghai and Mumbai remains a formidable growth engine for brands that are already well established on their mature markets. The prestige of brands such as Hilton, Sofitel or Kempinski works well with local developers and the low development and operating costs encourage the projects. “Owners and developers actively seek international hotel management groups to help them through the business slump. Our non-standardized brands such as Mercure and Pullman benefit from this trend,” explains Robert Murray, Senior VP of Accor Group - Greater China.The stars of the world's hotel industry have tried and true savoir-faire in the management of upscale concepts. And that, even if, with such low average daily rates, there remains a major challenge to obtain results that fit the economic model of the segment. Nonetheless, less local competition than on the economy segment helps promote a high capacity for penetration of international brands alongside prestigious names such as JinJiang, Langham or Taj in India which are very active on their markets. Another major player, Shangri-La has just opened its 28th hotel in China in Ningbo and has several other projects in the initial stages.In addition to the potential construction of extensive networks - China and India have more than thirty or so cities surpassing a million inhabitants - the regional expansion of the international groups proves to be just as strategic for developing brand awareness: “Like in any other country in the world, for guests (leisure or otherwise) to get to know Kempinski, you have to go to secondary cities, as in France, for instance,” demonstrates Leonard Cohen, Chief Development Officer at Kempinski Hotels.According to hoteliers, domestic clientele, which represent the majority in the region, appear to have adopted the western-style hotel offer. “The Chinese guest is changing and increasingly seeking international brands, which are synonymous with innovative products and status,” remarks Robert Murray. “In secondary cities, nearly 90% of our clients are Chinese. They appreciate Kempinski's European heritage,which in their eyes means dependability and good service, as well as F&B outlets, which are also frequented by the local community,” underlines Leonard Cohen. Yinchuan, Guiyang, Huizhou, Xiamen, Chongqing, Tianjin, Qingdao: the Kempinski Group's projects for the next three years make it possible to revise Chinese geography. At Accor, while Sofitel welcomed the 23rd member of its network at the heart of the leisure desination of Sheshan near Shanghai, it is Pullman that has the wind in its sails. “By the end of 2013, the Pullman hotel network in China will consist of 18 hotels, many of these will be located in secondary and tertiary cities. This presence will provide increasing brand recognition,” rejoices Robert Murray.In Asia, development is a question of confidence with local players and relations that are developed year after year and are producing results today. In October 2008, IHG expanded its partnership with the Shimao group to construct six new hotels by 2013 under the brands InterContinental, Crowne Plaza and Holiday Inn. This signature is further to other similar agreements with the group Chengdu International Exhibition & Convention or the Shanghai Greenland Group. “This agreement demonstrates Shimao's con.dence in our brands and in the infrastructure that we have developed in China since 1984,” says Andrew Coslett, CEO of IHG who explains “one-third of IHG s projects are concluded with owners that already work with us.”But it is in India that these close partnerships show all their strengths. The observation for this country is fairly paradoxical: the sub-continent is immense, in full economic growth, clearly under-equipped in terms of hotels. And yet, until now, the openings have not pursued at the same rate as in China. “India remains a complex country to initiate new business opportunities. Identifying and working with key partners is necessary for being successful in India,” explains Evan Lewis, VP Communications Accor Asia-Pacific.The French group receives support from its partner Interglobe with which Accor concluded a joint-venture. Thanks to that, the hotelier s Indian adventure will take off from 2010. Of the 6 properties it has at present, Accor s offer will multiply to 50 hotels in just three years. The economy brand Ibis was the first concerned by this take off, but 23,000 new 4* and 5* hotels are expected in Bangkok, Hanoï, Ho Chi Minh, Kuala Lumpur and Singapore before 2012 Pullman, Novotel and to a lesser extent So.tel were also part of this rapid expansion. Novotel should thus have a 13-hotel network in the next two years.Kempinski, meanwhile, is pleased with its co-branding alliance with Leela Palaces & Resorts. “Our sales & marketing agreement with Leela Palaces & Resorts was bene.cial,” Leonard Cohen is pleased to say. The luxury brand is present with four properties and soon there will be more since Leela is preparing to open new properties in Udaipur, Chennai, New Delhi, Jaipur, Agra, Hyderabad and Pune. Oberoi and Hilton had also signed this kind of agreement to develop the Trident brand, but the announcement in 2007 of the partnership between Hilton and DLF, a partnership that should result in 75 new properties, put an end to this agreement.The race is on to conquer this vast country: hoteliers are attracted by the economic boom in Bangalore, Chennai, Hyderabad or Kolkata, the emergence of Pune or Jaipur. Marriott has just announced two new hotels with Phoenix Hospitality after the 7 hotels developed with the Uppal Group. The upscale and luxury brands still have priority over the sub-continent. For logical reasons: “the high cost of real estate and construction led to this domination of luxury hotels in India. Consequently, the properties need to maintain high average prices,” describes Evan Lewis.As the steady growth of international tourism joins forces with growth in India's domestic demand, the future looks bright. “Domestic tourism is strong thanks to the explosion of the middle class, improvement of airline transport and investment in infrastructures. This will ensure perennial business in the future and increase demand for hotels in the economy segment throughout the country,” foresees Evan Lewis.
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