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Asia hurting, but in position for rebound

MACAU—The news wasn’t exactly cheerful for attendees at the inaugural International Hotel Investment Forum (IHIF) Asia Pacific, held at The Venetial Macau, but most speakers and attendees seemed determined to find some measure of hope that the economy would turn around sometime soon.

Keynote speaker Andrew Ness, executive director, CBRE Research, noted that export-oriented countries in Asia have proved to be most vulnerable in this current downturn, and that Asia as a whole had lost 42.6 percent of its stock market capitalization—a staggering figure, and the highest of any region in the world. Ness thinks the worst is likely over, but doesn’t expect a fast recovery.

“2010 does look a little bit brighter, but many economists’ consensus is that we’re in the midst of a U-shaped economic slowdown, and this will persist for three or four more years,” he said.

Not surprisingly, Ness traced the industry’s problems back to the fall of Lehman Brothers in September 2008.

“Lehman Brothers event, from our point of view, was the major watershed,” Ness said.

Ness said that the unfortunate thing about the current downturn is that a recession occurred at the exact same time as a financial crisis. This also is having an effect on unemployment levels.

“There’s a feeling that the downturn in unemployment will persist, even in 2010, when we’ve actually probably emerged from the fall and many indicators are recovering,” Ness said.

Ness told attendees that bargain hunting has begun.
“We would expect that property investment transactions, in the hotel sector, will pick up in the second half of 2009,” Ness said. “I’d be very surprised if they didn’t.”

“In Asia, I think China and India are very optimistic, but also Southeast Asian countries will also see a lot of growth,” Ness said.

He also cautioned that when the global economy finally rebounds, it will certainly be smaller in Asia than the rest of the world.

The big travel picture
John Koldowski, executive director, Strategic Intelligence Centre, PATA, told the audience that airlines were still hurting, with a global airline loss of $9 billion expected in 2009.

“Carriers in Asia Pacific will carry the largest losses, $3.3 billion. However, that’s a better performance than last year, when they lost $3.5 billion,” said Koldowski.

Koldowski said that the difference between $3.5 billion and $3.3 billion wasn’t enough, though.

“So the airlines are not bleeding, they are hemorrhaging. If we can’t get people moving, then down the line, obviously hotels will suffer,” he said.

PATA’s forecast is that 2009 will be a fairly static year for the airlines, but Koldowski said that they are bullish over the next three years.

“Intra-regional [airline traffic] is the key—Asia to Asia,” he said.

Ness added that the demand fundamentals for the hotel industry haven’t changed, and they are still weak.

However, he said several factors in Asia have mitigated the economic effects. One is that the price of oil is down 40 percent, which has made it easier for airline companies—and particularly intra-Asian carriers—to offer deals. Asian governments, as part of their stimulus packages, have increasingly been offering discounts to travelers. The Chinese government has also begun to distribute tourism vouchers, in an effort to keep tourism levels higher. The city of Hangzhou, for example, recently gave away RMB 150 million ($22 million) in tourism vouchers, Ness said.

Within Asia, Ness sees China, India and Vietnam as bright spots in tourism. He said that Korea, Malaysia, Hong Kong, and Taiwan have all done things to try to stimulate tourism.

In the pipeline
Bruce Ford, SVP and director of new business development, Lodging Econometrics, presented his company’s 2009Q1 report on the construction pipeline for hotels in Asia Pacific. The numbers showed the region dropping 16 percent, as far as number of rooms in the pipeline from 2008Q2 (the peak) to 2009Q1. Currently, 1,826 projects, accounting for 423,758 rooms, are in the pipeline. Leading the way is China with 964 projects and 260,560 rooms. India is second, with 421 projects and 72,682 rooms.

Focusing on China, Ford noted the substantial openings related to the 2008 Olympics, as well as substantial openings in Shanghai scheduled to coincide with the 2010 World Expo. He said that Hong Kong, too, had a healthy pipeline, in part due to reclaimed land that has becoming available in the city.

In Macau, Ford said that building will continue, and noted that “we’re not building Macau for the next two years, we’re building it for the next 50 or 100 years.”

Ford said that roughly 50 percent of the luxury hotel pipeline in the world is located in the Asia Pacific region.

“There are so many more cities to penetrate [for luxury hotels] across the Asia Pacific region,” said Ford. “Currently, in the Middle East, there’s a big pushup in the United Arab Emirates, but that’s really multiplied here in China with 17 cities in China being in the top 25 in terms of pipeline.”

What’s next?
Ness is down on the luxury sector in general, and he said that the mid-market segment is poised for stronger growth across Asia. He said that there will be plenty of assets disposed of by institutions, but that there will be fewer distressed hotels for sale.

“We don’t see a lot of distressed properties for sale in Asia,” Ness said, before hedging. “Maybe Japan might be an exception.”

He explained that to the extent that there are distressed properties available, they will be more of a function of personal problems or peculiar financial problems of individual owners.

Jonas Ogren, area director-Asia, STR Global, warned hoteliers against rate cutting, saying that it didn’t pay in the long run.

“In a market like this, I would argue that it becomes more and more difficult to actually stimulate demand,” Ogren said. “People who are not traveling are not necessarily not traveling because it is too expensive, they are just not traveling because their companies have cut back on travel. It’s not that if you lower the price for a room by $10, they will actually come. They’re not coming at all.”

Ogren said that in an up market, everyone tends to follow best practices, but in a downturn, everyone panics and the rates fall.

Ness, however, ended on a positive note.

“I think this conference is very, very timely, and I think we are in the very early stage of a rebound,” he said.

This article is quoted from the Tourism ROI Newsletter published on 2009-06.09.
This article is uploaded by Majbritt Thomsen, administrator on ‘Views On Tourism’.

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Posted in Asia, Market knowledge, Performance and management, Sale and marketing.

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