Sector Insight... Hotels vie for visitors as room numbers surge

Perhaps the greatest expansion the Asian hotel industry has ever witnessed is finally losing steam, with the Sars slump and the Olympics serving as bookends on the giddy era of investment in new hotels. As the global economy suffers, hotels will have to fight harder to bring in business.

Major hotel franchises in the region offer at least 500,000 rooms, according to research by Jones Lang LaSalle Hotels (JLLH), and the supply will increase 25.8 per cent, or an additional 140,000 rooms by 2010, based on already signed projects. But the momentum has peaked. “In China, we are seeing delays in the completion of projects mainly due to funding issues of the developers,” says Andreas Flaig, China MD at JLLH. “We would not be surprised to see cancellations and supply-and-demand imbalances for certain tier one and two cities.”

The slowdown is expected to hit corporate travel hard. “Even in Asia, the corporate market is bound to show softness,” says STR Global’s managing director, James Chappell. “During recessions, two things are cut from corporate budgets — advertising and travel.”

That is already happening in Hong Kong, according to Mark Lettenbichler, chairman of the Hong Kong Hotel Association and vice-president of The Ritz-Carlton Hotel Company. “International businesses have a total ban on non-essential travel at this time.”

Hotels spend roughly one per cent of revenue on marketing, says Lettenbichler. Although normally sufficient, doubling or tripling such budgets during a downturn will not sway corporate travel planners. Hotels catering to corporate travel must simply ride out the downturn, he adds.
Ian Thubron, executive VP of Asia-Pacific at TBWA, which handles Shangri-La Hotels, believes the major high-end hotels are following similar paths. “The key luxury set (Shangri-La, Mandarin Oriental, Ritz-Carlton, Four Seasons, Grand Hyatt) all have predominantly similar strategies, and are probably all competing for lucrative management contracts. This will centre around gateway cities, developing markets, offering a total brand footprint and a mix of city and leisure hotels.”

For leisure travel, there is scope to offer special packages or target tourists from certain markets. According to Mia Wong, associate director of Synovate Customer Experience, a more competitive market will mean hotels will have to focus on both the quality of their product and their service.

That means a greater focus on gaining customer feedback, with online research growing in popularity as a way for hotels to gain consumer inisght.

Wong adds that hotels’ food and drink offerings and spa facilities will also assume greater prominence. “That is why many major hotel chains are developing their own branding in food and beverage and spa services.”
The conference and exhibition sector will also be an important focus for hotels. Markets such as Macau, Vietnam and Malaysia are building themselves into event destinations, and there is confidence that recent growth in Asia’s exhibition industry will continue.

Domestic travel within the region’s three biggest countries - Japan, China and India - is another growing force. Okinawa, for example, is expecting 10 million Japanese visitors this year, a huge leap from six million last year.

Beijing received about 140 million Chinese visitors last year, as the Chinese took 1.6 billion domestic trips, according to the China National Tourism Administration (CNTA). Appealing to this market brings its own challenges. Chinese travellers, for example, are “not so brand conscious”, says Nielsen’s head of travel and tourism research for China, Grace Pan.

“The majority still use star ratings as a benchmark. Unrated budget hotels, such as Home Inn and Hanting, are also popular as long as they meet the basic needs of a clean room, bedsheets and a broadband connection.”
Juggling these competing audiences and priorities will be the major challenge facing hotel marketers in the coming years.