Industry Players Feel Pinch Of Rising Hotel Rates

Source : The Business Times, January 14, 2008

They are a concern for leisure travel sector; the going may get tougher for Mice operators also

The average daily hotel room rate for 2007 is expected to have hit a record $200. And although 2,000 new rooms will be added this year, there will be no let-up in rising rates.

For 2008, consultancy firm HVS International tips a 15 per cent year-on-year rise in the average room rate (ARR) to $230, then a further 13 per cent rise to $260 in 2009.

But these increases are lower than that last year. According to the Singapore Tourism Board (STB), the ARR rose 23 per cent year on year between January and November 2007. For the month of November, it hit a record $226.

In comparison, the ARR for the same period in Hong Kong was $221.80. And the estimated ARR for Shanghai (which HVS notes was comprised of mostly high-end hotels), was $277.

Pressure on room rates will likely ease with new supply. For 2008, HVS reckons government land-sale sites could yield more than 4,600 rooms. But the actual number will depend on the take-up of such sites - and their cost.

HVS managing director David Ling said: 'As demand for the economy and mid-tier segments is expected to surge, the land-sales programme for hotel projects should be tailored to locations that encourage developments of this type. Such sites are likely to be outside the prime area due to land costs.'

STB has been encouraging the industry to develop a range of options to add to the hotel mix to cater to different markets.

STB director (travel and hospitality business) Caroline Leong said: 'In terms of hotel room rates, while we are seeing a record in Singapore, we are actually just keeping up with market rates in Asia. Also, prices are determined by demand.'

Industry players will be monitoring room rates closely.

Chan Brothers Travel executive (marketing, communications) Jane Chang said: 'Rising rates are a concern for the leisure travel sector as it becomes increasingly difficult to source rooms at competitive prices.'

Chan Brothers also has a meetings, incentives, conference and exhibitions (Mice) arm, and on the upside, Ms Chang said: 'Despite the increase in rates, bookings remain high as demand for corporate travel continues to grow.'

A tour operator who spoke on condition of anonymity bemoaned the skew towards the Mice sector. Many Singapore hotels now prefer to take corporate bookings, he said.

'I believe top-notch hotels earn up to 60 per cent of their revenue from corporate travellers. Five years ago it was the reverse.'

Also in Singapore, accommodation can eat up as much as 26 per cent of a package-tour budget, the operator pointed out. 'Spending one night in Singapore is equivalent to spending two to three in Bangkok or Denpasar.'

While he expects more hotel rooms and budget airlines to bring costs down, he said: 'At the moment the number of packages we book has been decreasing and our margins are slimmer.'

Even for Mice operators, the going may get tougher.

Dilys Yong, immediate past-president of the Singapore Association of Convention and Exhibition Organisers and Suppliers, and president of Mice organiser HQ Link, said: 'The quoted average room rate for 2007 is bearable for exhibitors and average trade visitors, but not budget trade visitors. However, the fact is that during the run-up to big events, room rates are even higher than the quoted average rate due to a shortage of rooms.'

As such, Ms Yong says that while the forecast 2008 average room rate is still 'bearable', actual rates will be higher.

Budget Mice visitors will find it virtually impossible to get a room, as Ms Yong reckons affordability in this segment is limited to $120 per night.

Inbound travel depends partly on the strength of the economy in the traveller's home country, and SA Tours marketing and communications manager Ruth Lim noted: 'There is an influx of leisure tourists to Singapore at this point as generally, these economies are rather robust.'

Until six months ago, SA Tours did not have an inbound leisure travel arm, but Ms Lim said: 'Our inbound tourism clientele base has been steadily increasing.'