Hotel owners face changing times with optimism
By Mehru Jaffer
JAKARTA (JP): Despite a chain of challenges faced by owners, hotels seem to be here to stay.
"We have no major worries," said a confident Fabrice Burtin of Accor Asia/Pacific.
Fabrice said business from overseas remains uncertain but domestically the middle management market is solid, providing up to 70 percent occupancy.
The extreme confidence at Accor is a direct result of having made great inroads into the new mid-market sector, which is predicted as having a far greater potential than expensive hotels, especially in a population-rich country like Indonesia.
With an oversupply of first-class and luxury hotels in most Asian cities, the crying need is to provide internationally operated hotels to the fast expanding middle-income group of people as well.
Over the past decade, Accor has perhaps been the only one, apart from Holiday Inn, to penetrate premises beyond just primary cities and establish property in secondary cities all over the region.
Much competition is expected from ITT Sheraton's Compass, Marriott's Courtyard, Shangri-La's Traders and Inter- Continental's Forum brand, all pushing hard to make their presence felt in the mid-market.
Accor Asia/Pacific manages hotels under the brand name of Sofitel, Novotel, Mercure, Ibis and Formula 1, currently operating 75 hotels in Asia.
Under an aggressive expansion plan, Accor is expected to add 34 hotels with 6,053 rooms to its 75-property portfolio in the near future and plans to focus primarily on Indonesia, the world's fourth most populous country.
The international hotel group has 25 hotels and resorts in Indonesia and its network includes all key destinations, such as Jakarta, Surabaya and Medan.
It operates in 3,400 countries around the world, including 170 in the Asia-Pacific region, concentrating also on secondary cities that are expected to gain in importance over a period of time.
Accor is pursuing this particular policy despite the fact that the payoff from the secondary market will not be immediate and profits are expected to flood in only in the long run.
However, the future in this sector looks bright for the simple reason that most primary Asian cities are groaning under a load of too much human, economic and political activity.
It is hoped that sooner rather than later the secondary cities will be allowed to share the burden concentrated today in just certain centers of each country.
Secondary cities around the region are almost begging for decent accommodations at more affordable prices for members of the Asian middle class as well as western tourists in search of culturally rich but less crowded dwellings for both business and vacation.
At present there is a wide gap between the demand and what is actually available for the average traveler.
The boom in the hotel industry is a direct result of Asia Pacific's phenomenal economic achievements in the past two decades.
The tiger economies of Asia created new markets, wealth and the fastest growing middle class, which has supplied the hospitality industry and tourism with unparalleled growth opportunities.
Visitor arrivals, tourist receipts and a supply of hotel rooms were highest in 1996.
Total arrivals for the region reached 94.3 million in the same year, peaking at almost 7.8 percent over the previous year.
Some 2.9 million beds were added between 1980 and 1995 at a compound annual growth rate of 10.9 percent, encouraging international business and leisure travelers to visit Asia, many for the first time.
In a special report, Arthur Anderson's Asia/Pacific offices offered an analysis of the Asian hotel industry from a view of the impact of the hotel boom on select Asian cities, the future development plans of major hotel operators in Asia and the challenges facing operators in this increasingly competitive market with a substantial oversupply in first class accommodations in most of the region's primary cities.
Tourism in the region galloped to double-digit increases in recent years despite the reduced annual growth rates since 1995.
And regional markets here offer dramatically different profiles when it comes to new hotel development.
East Asia and the Pacific registered the quickest increase in hotel accommodation measured by beds, adding 2.9 million between 1980 and 1995, representing a compound annual growth rate of 10.9 percent.
This is, of course, likely to grow in the 21st century with countries with larger populations, like China, India and Indonesia,showing better opportunities for hotel development.
The history of Asian hospitality is long and illustrious. However, formal attempts to provide safe lodging and excellent food day after day at a cost is comparatively modern.
The earliest accommodation for travelers followed the English and Dutch examples of inns.
During colonial days lodging was available at all seaports. There were bars where sailors could fasten their hammocks on hooks in the backroom and more costly accommodations even offered bunks.
Luxurious inns then had rooms with several beds big enough for more than one person to sleep in.
The American innkeeper, however, did away with old, European ideas of class, title and background.
In America, anybody who could pay for the goods or services received was treated like a king.
The capitalist system born out of freedom and the desire to get rich offered the best to anyone who was willing to pay.
The first hotel opened in New York in 1794. With 73 rooms it was considered a large property in a city that was home at that time to approximately 30,000 people.
Apart from accommodation, the City Hotel offered meeting rooms and eventually became a very popular center of social activity.
The first five-star hotel, by the standards of 1829, was the Tremont House in Boston with 170 rooms.
Part of the luxury were water pitchers in each room as well as a bowl for washing up.
Free soap was included in the price. What was started long ago is still being perfected and updated to accommodate the modern day guest.
To prepare itself for the future, Accor recently introduced its Blue Phone services. The Blue Phone, available in all of its hotel lobbies, is free of charge and is expected to provide the local and international traveler with fast and efficient access to reservations.
"Accor operates the most comprehensive global hotel network. With properties ranging from five star through to economy, we offer our guests a vast range of hotel choices in 140 countries," explained Oswald Pichler, director of operations for Indonesia.
Occupancies increased annually in Jakarta between 1993 and 1996, however, competition due to new supply limited increases in room rates, keeping room yields relatively stable.
By the end of 1997, the economic crisis and the devaluation of the currency caused domestic and social unrest and political riots in Jakarta and other parts of Indonesia, severely affecting both national and international demand for accommodation here.
Hotel values dropped after having peaked in 1996.
As supply has remained relatively stable during the last four years, hotels in Bali have benefited from rising occupancy levels and average room rates.
The combination of new supply and a growing negative perception of Indonesia by travelers resulted in a drop in room yields during the first part of 1998.
After the resignation of former president Soeharto in early 1998, the country is concentrating on rescuing its national banking system and economy.
Among other plans the government has introduced are new borrowers, allowing transactions to take place more easily.
Although the immediate economic outlook for Indonesia is improving in line with the implementation of new laws and the strengthening of the rupiah, hoteliers are also faced with new challenges as markets continue to experience severe financial problems.
This is likely to interrupt domestic developments for the time being until financial institutions have identified a new way forward.
There is also a shortage of skilled labor in almost all Asian markets, especially as new hotels come on line.
Hotels have to be aware of any rise in costs as profit margins will inevitably slide if hotels do not reinvent their primary processes and eliminate services not sought by today's traveler.
The high staff to room ratio of the past may well decline during the next five years to levels much closer to what is common in Europe and the United States.
To continuously adjust business according to circumstances without compromising the dignity of the flag that flies on the rooftop is the greatest challenge before Peter Carmichael, the general manager at Jakarta's Shangri-La hotel. But he is optimistic.
"My optimism springs out of the very challenge that we face. Every day we experience difficulties, adjust, regroup and carry on in the hope of better times to come," Carmichael told The Jakarta Post.
Carmichael is convinced that better times will definitely come, but when is the big question.
The Shangri-La, a major player in Asia, had enjoyed an occupancy rate of 70 percent in precrisis times, before it dipped to 48 percent.
The company continues to rapidly expand its portfolio of deluxe city hotels and resorts. Presently, it operates 35 properties with a total of 17,000 rooms and has plans to add 11 hotels with a total of 5,718 rooms in Asia, mainly in primary and secondary cities of China.
Hotel owners and operators will need to embrace many changes, improve processes and introduce advanced technology to realize a future they are looking for.
They will have to diversify and innovate to the satisfaction of not just those with money but also the ballooning middle class so eager to use its increasingly disposable income for leisure, and for making more money.