Hotel Industry

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

1. 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.
2. 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.
3. 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.
4. 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 from operation.

Positive Outcome of the SARS Crisis

1. 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.
2. 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.
3. 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.

Actions

1. 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.
2. Hotels have also closed some floors and asked staff to take holidays or "voluntary non-paid leave".
3. The Hyatt Regency in Tsim Sha Tsui has dismissed 130 employees, 22 per cent of its staff.
4. 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.
5. 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:

1. Interview with Mr. Andrew Hirst, Committee Member of Hong Kong Hotel Association, 22nd May 2003.
2. South China Morning Post
3. Survey of Hong Kong Hotels Operating Performance 1-21 April 2003 and 1-21 April 2002, Horwath Asia Pacific

1. 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.
   
2. Cheung Chau and Lantau Island are two of the major outlying islands of Hong Kong.