In March, hotel occupancy rates across the industry fell between 15 to 20 per
cent. As soon as the World Health
Organisation (WHO) issued a warning on 2nd April 2003 against non-essential
travel to Hong Kong, hotel occupancy rates dropped to single digit. The SARS'
hit on hotel industry is even more severe than after the September 11 terrorists
attack because SARS grounded all segments - long and short haul, business and
leisure travellers - to a halt.
March and April were traditionally the peak season with occupancy rates often
as high as 90 per cent. However, all trade functions and exhibitions schedule
for March to May this year had either been cancelled or postponed to October to
December. According to the report released by Secretary
for Economic Development and Labour Bureau on 28 May 2003, hotel occupancy
rates in February and March 2003 were 81 per cent and 79 per cent respectively,
but for April, it dropped to below 20 per cent, a sharp decline of 67 per cent
compared with April 2002. The overall drop in average daily room rates in April
was 23 per cent year-on-year. According to industry veterans, these rates and
yields were below the levels 10 years ago. With the drop of both occupancy and
room rates, the overall impact on revenue amounted to 85 per cent less than same
period last year. Forward booking for 2003 was also looking bleak, a 75 per cent
drop for May, 65 per cent for June, and 60 per cent for July.
Hotels introduced generous offers to lure local citizens to their hotels, however,
this has proven to be a rather thin market. In general, food & beverage offered
a brighter note for hotels.
SARS' Impact on the Hotel Industry
- According to Mr. Li Hon-Shing, executive director of the Federation of Hong
Kong Hotel Owners, the hotel sectors is set to lose between HK$600 million and
HK$700 million because of SARS.
- Hotel industry was hurt even worse than the airline industry because airlines
have relatively more leeway to manipulate capacity and the cargo market has been
holding up very well despite the SARS outbreak. It is estimated that it will take
at least three months after the lift of WHO's travel advisory to get back to normal
occupancy level. For room rate to restore to pre-SARS level, it may take more
than one year.
- Five hotels are being up for sale. They are the Regal Oriental Hotel in Kowloon
City and Regal Riverside Hotel in Sha Tin, the Winsor Hotel and Kimberly Hotel
in Tsim Sha Tsui and the Majestic Hotel in Jordan.
- According to a survey1 , during 1 to 21 April 2003, top-tier
hotels were hardest hit with 87 per cent drop in occupancy. Mid-tier and lower-tier
hotels' occupancy rates dropped 66 per cent and 75 per cent respectively. Mid-tier
hotels had the most aggressive price cut with average daily room rate 30 per cent
less than same period last year. Top-tier hotels only slashed 16 per cent of the
price tag, and lower-tier hotels reduced room rates by 19 per cent. The average
daily gross operating loss of all hotels was HK$100,391. Running the hotels in
Hong Kong for a month could cut into the bottom line with HK$3.1 million loss
Positive Outcome of the SARS Crisis
- On a brighter note, the SARS crisis could bring about a turning point for
hotels that are catered for domestic tourists. Far East Hotels, the operator of
Cheung Chau's2 Warwick Hotel hopes to rejuvenate the
island into a Phuket-style resort destination geared towards the domestic tourism
market. In contrast to the dismal situation most city hotels are in, hotel on
the outlying islands have been swamped by Hong Kong residents with occupancy rate
stood at 85 per cent since the SARS outbreak. Silvermine Beach Hotel on Lantau
Island enjoyed a full house during the Easter holidays. The proposal of domestic
tourism is also in line with the Government's aim to develop the domestic economy.
- Since the 1997 Asian economic crisis, hotels' profit margin has been on a
downward trend. Borderline performers are likely to be driven out of the playing
field by the SARS crisis. Those who survived the storm will re-emerge with an
opportunity to capture a bigger slice of the pie.
- With China's accession to the World
Trade Organisation (WTO), the opening of Disneyland
in Hong Kong and world-class casinos in Macau
and the rapid growth in the Pearl River Delta region, the outlook of the hotel
industry is positive in the long run.
- Many hotels have cancelled all promotional campaign, closed swimming pools,
health and fitness centres, and reduced operating hours of restaurants. The number
of lifts and escalators in use has been reduced to save on power.
- Hotels have also closed some floors and asked staff to take holidays or "voluntary
- The Hyatt Regency in Tsim Sha Tsui has dismissed 130 employees, 22 per cent
of its staff.
- The Hong Kong Hotel Association
(HKHA) and Hong Kong Tourism
Board (HKTB) are planning a large-scale campaign that will be consumer oriented.
It will also be targeting the international market, rebuilding their confidence
that Hong Kong is a safe place to visit.
- A survey commissioned by HKHA on 100 travel consultants and decision-makers
showed that 96 per cent of them thought it is important for hotels to maintain
hygiene levels in order to boost travellers' confidence. 44 per cent said during
the post-SARS period, discount and promotional deals should be offered to lure
visitors. 50 per cent of them said if there are no more SARS cases in ten consecutive
days, they will advise clients and staff to come to Hong Kong. 40 per cent said
if WHO's travel advisory is lifted they will immediately encourage people to travel
to Hong Kong. Since hotels rely on airlines to bring in customers from overseas,
it required the joint effort of both industries for a rebound. HKHA will work
with HKTB to restore confidence among business communities to continue their activities
in Hong Kong.
Last Modified Date : Tuesday, January 27, 2004 5:10:08 PM
Sources of information:
- Interview with Mr. Andrew Hirst, Committee Member of Hong
Kong Hotel Association, 22nd May 2003.
- South China Morning Post
- Survey of Hong Kong Hotels Operating Performance 1-21 April 2003 and 1-21
April 2002, Horwath Asia Pacific
- Survey of Hong Kong Hotels Operating Performance 1-21 April
2003 and 1-21 April 2002, Horwath Asia Pacific Consulting.
Top tier hotels - average achieved daily room rate >HK$1,000 in April 2002.
Mid-tier hotels - average achieved daily room rate >HK$999 in April 2002.
Lower-tier hotels - average achieved daily room rate >HK$500 in April 2002.
- Cheung Chau and Lantau Island are two of the major outlying
islands of Hong Kong.