2004 is shaping up as the Year of Recovery for the hotel industry in Asia Pacific. But, although there is cautious optimism throughout the sector following the nightmare of 2003, the challenges and threats loom large.

Following a year that saw occupancies and rates devastated throughout much of the region, the biggest challenges in 2004 are to ensure safety and security, while getting rates back on track in the face of cut-throat price-cutting among the third-party online booking channels.

At the same time, hotel groups are desperately trying to regain control of their inventories from the online merchants, whose reach has been spurred by consumers' demands for the best - and cheapest - deals.

"The greatest challenge is uncertainty," says Accor Asia Pacific MD Michael Issenberg. "No longer is there a 'crisis of the decade', but really a whole series of crises that have economic, political and, more recently, medical origins. 

"I fear that this ever-increasing uncertainty is set to continue. Just when you think that a destination settles down, something else happens, and travellers from countries such as Japan and America are tending to take far longer to return to traditional patterns and, in some cases, just stop travelling at all.

"In Asia, where there are vast national and regional differences, many less-experienced travellers have put the continent in the same basket following the SARS crisis, the Bali bombings and the bombing outside the JW Marriott Jakarta. "So, while there have been encouraging signs of increasing confidence in the final quarter of 2003, all of these can quickly evaporate in the wake of another major crisis.

"Certainly, the travelling public is becoming more resilient, but the higher-yielding business is particularly fragile."

Miguel Ko, president Asia Pacific of Starwood Hotels & Resorts, believes one of the biggest challenges of 2004 is to rebuild confidence in the industry.

Unhealthy competition

"During the hard times, there has been some unhealthy competition, and we need to regain our discipline," he says. 

"Other than the uncontrollables such as SARS and terrorism, the major challenges are to rebuild a healthy industry, beginning with the right rate strategy."

His sentiments are echoed by Patrick Imbardelli, MD, Asia Pacific, of InterContinental Hotels Group (IHG).

"Given the constant shifts in the operating environment in Asia Pacific triggered by health and security issues, there have to be ongoing efforts to rebuild confidence in source markets such as Japan, Europe and America. 

"In these markets, there needs to be cohesive industry efforts to communicate to travellers the measures that the industry has taken to provide assurance and to educate them on how to travel safely." 

Imbardelli is also concerned about the "unjustified additions" to the supply of hotel rooms available which, he says, has caused a decline in occupancy and room rates, and the resulting inconsistent cashflow to meet commitments. 

"This makes it difficult for bankers and investors to part with funds and provide undertakings."

Safety concerns

Safety and security are also major concerns for Koos Klein, Hilton International's president for Asia Pacific and the Middle East.

"Like every hotel operator and every multi-national business around the world, our concerns are with threats to world peace," he says. 

"The safety of our guests and staff is always our top priority and full protective measures, heightened security and vigilance are required to maintain consumer confidence.

"International hotel groups such as Hilton, which have operated for dozens of years and sometimes in tumultuous environments, will be drawing on their past experiences to meet this challenge and create the safest-possible environment."

Despite the challenges ahead, there is wide optimism for the industry in the region, with the major operators aiming to both consolidate their positions and continue to build their presence - particularly in China.

Accor will increase its network in China by the end of the year to 31 hotels under the Sofitel, Novotel, Zenith, Century and Ibis brands. 

"Our overall aim is to have a balanced portfolio of hotels, with the major emphasis being to satisfy the rapidly growing domestic and intra-Asia markets," says Issenberg. 

The company also sees potential for expansion in Thailand. "There has been impressive infrastructure development in the country, making major city, resort and regional areas more desirable and receptive for tourism," he says. [The group currently has two hotels under development in Pattaya and other hotels are under consideration].

Its expansion throughout the region will be largely through management contracts though, with the development of Ibis in China and economy hotels in Australia, it will continue to invest if projects are "strategic" to its network. "Our overall aim is to have a balanced portfolio of hotels, ranging from first-class to economy," says Issenberg. "We have learned from our past experiences in Asia, and that is why we are broadening our hotel base here with the launch of the Ibis and Formule 1 brands. 

"Iraq and SARS brought home only too clearly the dangers of relying almost solely on a network of 5-star hotels and a largely international clientele. But such a policy also ignores the most obvious change to travel and tourism in recent years - and that's the increasing significance of domestic markets.

"Ibis was designed three decades ago to cater for the domestic markets of various European countries, and we believe it will have a similar impact in Asia. 

"It has already been successful in Indonesia, Hong Kong, Australia and New Zealand. Now we are looking at a similar impact in Korea and China." [The first Ibis in China will open in Tianjin in early 2004, followed by Chengdu in Q3. A third will be finalised in the next few months.]

Starwood is focusing on consolidation in Southeast Asia, except for Thailand and Vietnam, where the group plans to increase its presence, together with expansion in North Asia - excluding Japan.

"We are concentrating on getting our base business in better shape, then working on expansion, particularly in China and Thailand," says Ko. China clearly will be the largest opportunity for everyone, but the resort market in general will be interesting. Certainly, we want to grow the corporate sector, or at least stabilise back to 2002 levels.

"We also plan to recapture disrupted Japanese outbound business, and work on the longer-term growth of the MICE sector. Operationally, labour and energy-cost management and containment will be Starwood's priority."

Strong start

2004 will "definitely be a year of expansion for Hilton in Asia Pacific", says Klein. The group got off to a strong start with the January 15 rebranding of Trident Hilton hotels in nine locations in India, while two Hilton WorldWide Resorts in Phuket will be rebranded in October.

The Hilton Sydney, which is undergoing an A$400 million (US$294 million) rooftop-to-basement rebuild, is scheduled to reopen at the end of the year. The property is Hilton's largest investment in any single property to date and, says Klein, "it will be our most dazzling hotel ever". 

The group is also working with owners to open five new properties throughout 2004 in China, Indonesia, Malaysia and the Philippines. It is also "preparing the foundation for another 12 properties to open in 2005 and 2006".

IHG's Imbardelli says 2004 will be a year of "both consolidation and expansion for our business and our hotels". 

"It will certainly be an exciting year for us, with new hotels in our pipeline. For China alone, we are doubling the number of hotels from the current 43 hotels by 2005 for all three hotel brands." 

The group is also continuing to look at new ways of working as it focuses on "business advantage work" that will contribute to the growth of its business and drive value to shareholders and owners. 

"To ensure that we deliver the ultimate guest experience under each of the hotel brands, we will review the service standards at our hotels and ensure that this is maintained at a satisfactory level, adhering to the respective brand standards. "Those that constantly do not deliver will be taken off the brand network, as we cannot afford to have a hotel that does not deliver on its brand promise." 

Expansion

All four groups are seeking expansion opportunities in all sectors. Starwood's Ko foresees growth in both the luxury and budget segments. "In the longer term, as more and more Chinese, Indian and other Asians travel domestically and intra-Asia, I think the mid-market sector will outgrow the upscale, but still there will be plenty of room for the upscale," he says.

Klein sees continued growth in the upscale segments for the core Hilton brand, but also envisions opportunities for more mid-market hotels with the emergence of large domestic markets, particularly in China and India. 

"In China, the question is timing and whether this is the right moment to be bullish about top-end hotels, particularly in locations outside the two major cities currently frequented by the international business traveller," he says.

Hilton is also expanding its WorldWide Resort portfolio and sees huge potential in the upscale-resort sector. It currently has four WorldWide Resorts in Asia Pacific, which will increase to 13 by 2006. 

"Hilton has a large group [6.4 million] of loyal guests, and it makes good sense to tap into this membership base and offer them a different Hilton experience," says Klein. "It has the highest brand recall of any hotel group in major European markets, and we will use this to our advantage to develop classic resort experiences in exotic Asian destinations. 

"Also, as the Asian leisure traveller matures, we are seeing a shift from group series tours to more frequent, short-break, short-haul holidays - with the single goal of choosing one destination in which to restore and recharge. We need to position our group to capitalise on these changing trends."

The group also plans to increase its reach to the MICE segment, with two purpose built meetings properties opening in 2004 - the Hilton Sydney and Hilton Kuala Lumpur. It is also renovating meetings facilities at a number of properties, including the Hilton Adelaide, Hilton Beijing, Hilton Phuket Arcadia Resort and Spa, to meet Hilton Meetings standards.

China

IHG intends to leverage its strengths and maximise its presence in China. "We will continue to grow our three brands, drive revenue growth and reach out to potential customers through our dedicated Chinese website, as well as our call-centre in Guangzhou," says Imbardelli. 

Another priority is to maximise its major channels, such as Priority Club Rewards, to reach out to its 18 million members to build brand loyalty. "This channel allows us to talk directly to our guests and have a deeper understanding of their requirements and preferences, which give us the opportunity to create personalised services and innovative initiatives," says Imbardelli. 

"More importantly, it will help us drive revenues from hotel to hotel and region to region."

He says there is great potential for its Crowne Plaza "luxury corporate" brand, particularly in China. "Holiday Inn will also remain a favourite among travellers, both international and domestic, as it is a brand that is familiar and consistent in its service. In China, it is the number-one hotel brand and will continue to be prominent among corporate and leisure travellers."

The group will focus on growing InterContinental, Crowne Plaza and Holiday Inn in the region in 2004, while looking for resort-development opportunities in key destinations, including Thailand and Indonesia. 

"We want to be where our customers want to be and, with that in mind, we are constantly searching for the right partnerships in the right locations with the right brands. 

"As travel intensifies and new gateways are created, we have what it takes to provide travellers with different options of quality accommodation in an extensive brand network, which will be increased from 150 to 236 across Asia Pacific in the next few years. "With encouraging economic indicators, we are seeing a return of travellers to Asia Pacific, and the focus will be on corporate and long-haul leisure sectors."

Imbardelli also sees "burgeoning growth" of hotel brands providing limited service without F&B, following social shifts and changing travel needs. "We also see the opportunity for hotels to differentiate themselves from the competition. As we adapt to the changing dynamism of our operating environment and shorter recovery cycles, our hotels need to be more innovative in attracting business and, at the same time, create and deliver unique touch points for our guests during their stays."

On the business front, it remains a priority for IHG to "provide assurance to overcome the apprehensiveness of developers, investors and bankers". 

"Demand for hotel rooms is usually expected to experience year-on year growth. But, since 1997 and with increasing frequency, the hotel sector continues to battle with industry-wide challenges such as SARS, war and terrorism.

"It becomes pertinent that hotel-management companies have the ability to deliver in difficult times and be effective in system delivery, sales and marketing and cost-control capability, and provide assistance with cashflow, whether in the form of loans or restructuring of fee repayments. 

"We have recently restructured our group to align with our growth strategy and to be more focused in driving returns for our stakeholders. We are also determined to become the preferred hotel-management partner for our owners."