Hotel owners face changing times with optimism
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.