Hotels Cut Room Rates As Occupancies Slide

Source : The Business Times, March 23, 2009

Room rates fall up to 20%; corporate demand slows as companies cut cost

IT'S known that what goes up must come down, but in this case, the inevitable may be coming a little quicker and sharper than expected as lower occupancies force hotels to cut room rates.

At the Rendezvous Hotel for example, corporate rates have gone down 20 per cent to $190++ and walk-in rates have dropped 20 per cent to $220++. Average occupancy is hovering at 70 per cent, versus last year's 80 per cent. The hotel aims to beef up occupancy through a lower room rate so as to reclaim its 80 per cent occupancy level.

The Royal Plaza on Scotts has adjusted average room rates downward by 12 per cent, due to weakening demand for high end products such as club rooms and suites, says Patrick Fiat, general manager. Its room rates currently start from $198++.

At the Marina Mandarin, rates are down year on year but the hotel declined to give figures. Occupancies for Q1'09 were as expected, but rates are 'under pressure.'

One of the reasons for this is a drop in business travel as companies try to keep expenses down.

'Since the last quarter of last year, we observed that there has been a slowdown in the corporate sector. Currently, the business trend is still on the slow side, hence we have adjusted the rates to further suit our client spending power,' said a spokesperson from the Marina Mandarin.

Over at the St Regis Hotel, room rates for both frequent individual travellers (FIT) and corporates have been lower for the first two months of the year compared to the corresponding period in 2008, according to Cheryl Ong, its director of marketing communications. 'Occupancy is under pressure with lesser in-bound travel into Singapore,' she added, but declined to comment on actual figures.

Hotels are also offering value-added packages. The Novotel Clarke Quay, for instance, has tweaked rates by between 5-10 per cent for key corporate clients. Those that forego the discount can look forward to other perks such as transportation and Internet service, said general manager Heinz Colby.

And as some consumers trade in their five-star hotel stays for value-for-money accommodation, hotels in the three and four star range are expecting to reap the benefits, although such establishments won't escape unscathed either.

'There are clients who are looking for cheaper accommodation. Hence, we are also affected. For leisure, we see a decline in visitor arrival especially for long haul travel,' said Kellvin Ong, general manager of the four star Rendezvous Hotel.

'There are also other factors which may affect occupancy. New kids on the block are sprouting, which may shrink the pie,' he added.

Indeed, another hurdle facing the industry, aside from the slump in visitor arrivals, is the injection of supply that the market will see this year as new hotels come onstream.

The recently launched Ibis Singapore - a no-frills, three star hotel by the Accor group - offers rooms starting from $138 per night. Other hotels that are expected to open their doors this year include the 336-room Park Hotel Clarke Quay.

According to a Kim Eng report, an estimated 2,000 hotel rooms from the Marina Bay Sands and a further 1,640 rooms from other hotels are slated for completion in 2009. This would raise the total available room-nights by 12 per cent to 11.7 million for 2009. There are currently 39,000 hotel rooms in Singapore, said the Singapore Tourism Board (STB).

If the integrated resorts (IR) fail to draw the crowds, Kim Eng estimates that average occupancy rate (AOR) could fall to 55 per cent by year end, and to 50 per cent by end 2010 - not far from the lows plumbed at the height of the Sars outbreak in May 2003, when AOR fell to 34 per cent.

On the flip side, a successful showing by the IRs coupled with the positive impact of the various global stimulus packages and the efforts of STB's $90 million BOOST scheme could stabilise AOR at 60-65 per cent for 2009 and 2010, Kim Eng reckons.

Meanwhile, hotels are banking on recent efforts by STB and tie-ups with airlines such as Singapore Airlines to bring the tourists back.

'We are expecting last minute bookings from the region as the various airlines have come up with promotions to stimulate travel. We are optimistic that there will be business out there although the numbers have not yet shown it,' said Mr Ong.

STB's figures for January 2009 saw average room rate (ARR) sliding 11.7 per cent year on year to $209, while AOR dropped 17.7 percentage points to 67 per cent, well below last year's overall AOR of 81 per cent. Revpar (revenue per available room) fell 30.2 per cent year on year to $140. Hotels pulled in $124 million in room revenue, a staggering 29.9 per cent less than the corresponding month in 2008.

In contrast, for 2008 as a whole, ARR was $246, an increase of 21.9 per cent over 2007. For the first time since 2003, AOR was down by six percentage points to 81 per cent while Revpar for the year reached $199, up 13.5 per cent from 2007.

For January 2009, luxury and upscale hotels suffered larger drops in ARR and Revpar, while hotels in the economy tier - budget hotels in outlying areas - emerged in a better position.

However, economy hotels still saw a 3.4 per cent year on year dip in ARR to $101 for January, and a 26.8 per cent fall in Revpar to $66.