HOTEL REBOUND
by Lim Lay Ying
Property Times, New Straits Times
11th December 2004

Never in living memory has the Malaysian hotel market experienced such a wild roller-coaster ride in such a short period of time as it has undergone in the last four years. Already reeling from the aftershocks of the Asian currency crisis of 1997, a stock market in free fall, and the broad economic recession, volatility in the industry heightened as travel came to a virtual standstill following two major tragedies of global proportions.

When the 9/11 tragedy struck New York, the market disappeared almost overnight. The two years that followed put every hotelier’s survival skills to the test, but before business and leisure travel could regain its full steam, another tragedy struck – this time, it was severe acute respiratory syndrome or SARS outbreak (in mid-2003).

Once a hive of activities, hotel lobbies grew empty quickly and restaurants didn’t open. With occupancy rates dropping to their lowest level ever, thus causing hotel profits to plummet, staff had to take extended leaves – sometimes without pay. Given these dire conditions, hoteliers cut prices and launched aggressive promotions to attract customers.

But thanks to the quick end to SARS which happened to coincide with a pick-up in the global economy, the cessation of major hostilities in Iraq, and the beginning of the peak summer air travel season, business and leisure travel recovered quickly.

Strong support from new markets

Now, business has bounced back very strongly, even reaching record numbers in some locations, according to people in the industry.

The Ministry of Tourism announced a jump of 68.4 per cent in tourism arrivals during the first eight months of this year. The number of tourists climbed to 10.4 million against the 6.2 million recorded during the same period last year. It is expecting arrivals to gross 15 million for the entire 2004, up almost 50 per cent from the 10.6 million in 2003. The industry is enjoying strong support from new markets such as the Middle East, China, and Russia, besides long-established ones like the United States, Britain, Europe, and Singapore.

The Malaysian Association of Hotels (MAH) reported the average occupancy rate for hotels in Kuala Lumpur touching a record high of 86 per cent for August 2004. Shangri-La Kuala Lumpur is achieving occupancies in the high 80s and has thus far exceeded last year’s revenue target by 155 per cent.

Other hotels like PJ Hilton, Mandarin Oriental, Istana Hotel, Concorde Hotel, Federal Hotel, and Armada Hotel, reported either full or almost full occupancy. With more tales of recovery echoing throughout the industry, the new entrants to the market such as Hilton Kuala Lumpur at KL Sentral are optimistic about the sector’s outlook. The hotel expects to achieve 70 per cent next year going by current bookings which are driven by increased business and leisure travel.

Greater challenges ahead

Barring any deep economic slump or major catastrophes in the likes of 9/11 or SARS, Kuala Lumpur’s hotel industry could finally enjoy some significant profits right into the coming year at least. First, the national economy has begun to show strong signs of recovery since early this year, and secondly, occupancy rates have been improving steadily. When 2003 drew to a close, the average occupancy for three to five star hotels was a dismal 59.1 per cent.

But as the industry rebounds, some 23,936 rooms from 98 hotels are waiting in line to join the stock of the existing 25,463 rooms from 220 hotels and the 7,876 rooms from 22 hotels that are in the midst of construction.

From the new inventory (those planned and under construction), 44 hotels of the total 120 hotels will average 443 rooms each. The pace of construction of new hotels is expected to accelerate as the turnaround enters a more dramatic phase. This spells stiffer competition and greater challenges ahead for hoteliers across the board.

The international luxury chains are continuing to expand – spending millions wherever they go, to cement their reputations for offering the very best. The moderately-priced, locally-branded hotels on the other hand which believe that most travelers just want a room that is fairly-priced, and comfortable, functional, and quiet, are choosing to pursue the “second-best” strategy. They offer significantly less expensive rates and choose not to offer the smorgasbord of amenities – spas, Internet access, full range of restaurants – that these days add up to “five star” rankings.

Finding their own niche

Some are even resorting to different approaches to make up for the difference. In the highly-competitive environment in the US for instance, the Affinia Dumont which is a moderately priced independent hotel located at 150 East 34th Street in New York City, has repositioned itself to be the “first and only executive fitness suite hotel” after a US$15 million (RM57 million) make-over.

Equipped with an in-house fitness centre and spa, in-room spa treatments, exercise equipment that guests can use for free in their rooms, a fitness concierge to help guests with all fitness-oriented activities, and minibars stocked with healthy foods such as energy bars and low-fat snacks, the Affinia Dumont hopes to attract fitness- and health-conscious business and leisure travelers.

Other hotels which have similarly jumped on the pamper-the-guest bandwagon include the Benjamin at 125 East 50th Street in Manhattan. When Affinia Hospitality reopened the Benjamin some four years ago, it soundproofed all its guest room windows and fitted them with blackout curtains. Besides bringing in more comfortable beds, it went further to offer its guests 11 different pillows to choose from and has a pillow concierge to service them. It was an attention-grabber and became a focal point for the hotel’s advertising.

Independent hotels like the Affinia Dumont and the Benjamin are not fazed by top-ranked names which tend to be attached to generally much larger hotels and more likely to be a member of a luxury chain. They have managed to prove their mettle by finding their own niche in the market. Just as some of the best hotels and resorts in the world that aren’t branded, have done in the boutique category.

The potential of Malaysia’s hotel market is promising, going by expected improving performance which will be driven by the domestic economic recovery. It is experiencing a rarely seen confluence of events, and has an extra-ordinary appetite for high-quality products.