Saigon hotel floats away from tough local market

Saigon hotel floats away from tough local market

By John Chalmers

HO CHI MINH CITY, Vietnam (Reuter): When the Saigon Floating Hotel finally weighs anchor and sets sail for a paradise island somewhere in the Pacific Ocean, old rivals in Ho Chi Minh City will watch it go with a bitter-sweet mix of relief and envy.

"It's one hotel less in a crowded market, and that's good," said the manager of a struggling up-market hotel in old Saigon, where occupancy rates, room rates and profits have all tumbled.

"But the Floating Hotel is leaving because it can," he said. "There's a few other hotels which would like to know which tug boat they can hook on to."

Three years ago, austere state-owned hotels had a virtual monopoly at the top end of the market -- and a frosty take-it-or- leave-it attitude.

The economic powerhouse of a communist country which has gone from reform-led boom to boom, Ho Chi Minh City has since become a battlefield for both foreign and state-owned hotels.

As foreign investors poured into the country and the economy blossomed, property developers from Hong Kong, Malaysia, Singapore and elsewhere in Asia raced to put up hotels.

James Juers, general manager of property consultants Colliers Jardine, says that when the U.S. trade embargo was lifted in 1994, developers thought they spied a land of opportunity.

"There's 75 million people here, there's not enough office space, there's not enough residential, tourists are coming back after the war. Wow! We've got to get in there," he said, imagining their thoughts.

Now, as a cityscape littered with building sites makes all too plain, others -- some of them big names like Hilton, Hyatt and Marriott -- are set to join the fray.

"Competition will get bigger, and... for the new hotels coming into the market it's going to be very, very competitive and very, very tough to establish themselves," said Udo Doring, general manager of one of the city's leading hotels, the Omni Saigon.

To make matters worse Saigon's hotels are now losing long-term business clients to a growing market for serviced apartments. There are more than 5,000 up-market hotel rooms in Ho Chi Minh City and hundreds more at "mini hotels" which serve Vietnam's most typical tourist -- the impecunious backpacker.

For state-owned SaigonTourist, the city's largest operator with over 3,000 rooms in 53 hotels, the good old days are gone. SaigonTourist's Continental featured in Graham Greene's Indochina-era novel The Quiet American and the Rex, its biggest, served as an officer's club during the Vietnam War. Now, both struggle to match the panache and facilities of new arrivals.

"We have a very serious problem with competition, especially from the Saigon Omni, the Prince and the New World Saigon," said Ton That Hoa, administrative manager of SaigonTourist. "This year we had to slash room prices for the first time."

Hoa put SaigonTourist's average room occupancy rate so far this year at 60 percent, down from 68 percent in 1995. Three years ago it stood at about 85 percent.

Hotels with foreign investment such as the 540-room New World, the city's largest, the Omni and the Floating Hotel got into the market early and established a base of faithful clientele.

The "Floater", as the 182-room boat-hotel was nicknamed, had the luxury market cornered for years after arriving from Australia in 1989.

But when local authorities told the hotel to leave its prominent city-front mooring on the Saigon River earlier this year, it had already seen much of its business drain away. Even in the peak travel months of October and November, its average occupancy rate was only 70 percent.

Newcomers have found the going even harder. Many struggle to keep occupancy above 50 percent and, resorting to deep-discount deals, regularly offer room rates of below $100 a night.

"Eventually every hotel has to come back to a quite reasonable price, otherwise it would be easier to close the hotel instead of keeping it open and making a loss," Omni's Doring said.

Although it remains a challenging holiday destination because of backward infrastructure, facilities and information, Vietnam has enjoyed a steady increase in tourist numbers. The government tourist department says it expects 1.6 to 1.7 million foreign visitors this year compared with 1.4 million in 1995.

But it is business travelers that hoteliers are wooing most ardently.

So, although the economy seems on track for near-10 percent growth again this year, many are keeping their fingers crossed and hoping a recent slowdown in foreign investment is just a temporary glitch.