Fri, 22 Dec 2000

What is the forecast for Indonesia and ASEAN tourism?

JAKARTA (JP): Most of the countries in the Association of Southeast Asian Nations (ASEAN) have experienced the inclement weather of crisis in the last three years. Tourism, hotel and leisure industries consultant Horwath Asia Pacific looks at what lies in store for tourism in select markets in the region.

Bali: The beat of the gamelan is definitely picking up in the Bali market this year, but somewhat cloudy skies are likely to continue as the market remains influenced by the larger market forces at play in Indonesia. Occupancy has leapt back up past the 60 percent mark for two years in a row, but it is still a far cry from the 75 percent to 80 percent average maintained prior to the regional crisis. The average room rates for top tier hotels, though reduced, remain relatively high at approximately US$112, which when converted into rupiah are currently yielding extraordinary Gross Operating Profits (GOPs) for hotels.

Nevertheless, although Bali is definitely an international favorite when it comes to resort destinations, it will take some time for conditions to turn completely sunny again in the island of the gods.

Jakarta: Severe thunder showers in addition to torrential rain could very well arise, but for the moment the market is wallowing along with the slow process of reform.

Investors are curious but business has generally stagnated. Year-to-date occupancy remains below 40 percent for the third year running, while rates are down by another 10 percent from last year. Without any clear sign of political stability, consensus or a strong commitment to true reforms, such conditions are expected to persist.

Bangkok: Beginning with a relatively brighter side of the region, the clouds finally appear to be parting for the Thai capital's market in 2000. Demand levels are up 10 percent this year, an acceleration in growth which really began along with the devaluation of the Thai baht in 1997, when this already favorite destination suddenly became cheaper by 40 percent overnight.

At the same time, Thailand also became a favorite among foreign investors when everything in the country was going to be for sale. Certainly several banks were sold, some securities firms were recapitalized and investment in various manufacturing concerns was realized. However, few property deals, particularly for hotels, were consummated. Nevertheless, a new internationalization of the business environment has taken hold to such an extent that business for hotels is becoming quite brisk.

Occupancy in Bangkok has finally breached the 65 percent ceiling off which the market has been bouncing since 1991, as year-to-date occupancy reached a high of 67 percent.

The occupancy outlook for 2001 and 2002, however, is estimated to be held back from reaching the 70 percent level despite further positive demand growth, due mainly to the opening of the Plaza Athenee and Conrad International hotels.

As for room rates, cloudy conditions are expected to remain for the next few years as only limited growth has been achieved to date and any significant growth is unlikely until the market exceeds 70 percent occupancy in late 2003 or 2004.

Vietnam -- Ho Chi Minh City and Hanoi: Thunder and lightning are considered the best representation for the market conditions facing Vietnam's two major cities. Occupancy in Ho Chi Minh City remains stifled below the 50 percent level for the third year running and below 30 percent in Hanoi, while average room rates for most top tier deluxe hotels are in the $50 to $60 range.

With no clear change in the investment climate and plenty of promising opportunities to explore elsewhere in the region, Vietnam has clearly been relegated to the "what could have been" bin. The visit of U.S. President Bill Clinton encouraged speculation of business interest, though subject to certain Hanoi concessions and reforms. However, the latter objective may be difficult to achieve under the current political climate in the country.

Regardless, word is out that the formerly dormant Marriott, Westin and Park Hyatt projects are due to open in 2001 and 2002, thus crashing the market with a very unnecessary additional 1,000 hotel rooms. As a result, the evening storm is likely to be heavy for some time, prolonging the wait for a good morning in Vietnam.

Manila: After all the promises fueled by the Aquino-led revolution and the mending created by Ramos, the current slip backwards is hard to watch. Yet looking at those jubilant faces in the house of representatives after the recent impeachment vote gives hope that all is not as before; just as those representatives rejoice in the expectation that their powers are indeed real. Regardless, the tussle is likely to disrupt the market for some time, bringing foul weather with it.

Kuala Lumpur: Murky conditions remain, particularly for achieved hotel room rates. Occupancy, however, has improved significantly this year, exceeding 60 percent on a renewed positive business environment and special events such as the Formula 1 race.

Looking to foil this positive momentum, however, is the restart of several previously stopped projects, such as the Westin, the Novotel and KL Sentral hotels. As a result, sunny skies are likely to be a long way off for this capital city of Malaysia (but don't those Petronas Twin Towers sure look great?).

Singapore: Perpetual sunny skies are forecast for this smallest member country of ASEAN. By far the most sophisticated market in the group, the hotel market in Singapore was probably least affected compared to its neighboring markets.

Nevertheless, Singapore's turnaround from the doldrums of the regional economic crisis is nothing short of extraordinary, with 15 percent growth in top tier hotel demand driving occupancy to a heady 85 percent year-to-date. The tourists are back with a vengeance, as are a whole new generation of business visitors responding to Singapore's aggressive reforms in the banking and telcom sectors and attractive incentives for nurturing IT and Internet startups.

Room rates grew only modestly at around 5 percent in 2000, but double digit growth is fully expected next year as occupancy remains near full capacity. With a net decrease in rooms supply due to hotel redevelopments into private condominium projects, Singapore is actually worried about how to promote new investment for hotel development, or face losing tourist arrivals and their spending in the economy.

Phuket: Sunny skies continue in Phuket as the market heads into another stunning high season of strong demand. Overall, market occupancy is pressing up again to the 80 percent level after taking a dip in 1999 due to some wholesaler reactions to perceived excessive rate hikes in 1998. For 2000, with further depreciation of the baht, average room rates in U.S. dollar terms appear to have changed very little since 1998 at approximately $95 for the top tier segment of the market.

Having reached this market stabilization, sunny skies are expected to continue to shine upon Phuket, preparing the way for a new round of hotel development and the introduction of several new international brands whose absence has been somewhat surprising compared to the hotel scene in Bali.

The article was compiled from a speech by Robert Hecker, the managing director of Horwath Asia Pacific, at the opening of the 11th Annual Asia Hotel Investment Conference in November in Hong Kong.