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HotelBenchmark Survey by Deloitte

Asia Pacific: Hotel profitability levels affected by SARS crisis

Latest data from the HotelBenchmark Survey by Deloitte reveals that hotel profitability levels at Income Before Fixed Charges…

Latest data from the HotelBenchmark Survey by Deloitte reveals that hotel profitability levels at Income Before Fixed Charges (IBFC) fell across the whole of the Asia Pacific region by 8.9 percent during 2003. There was a marked variation in performance across the region with hotels in Australasia significantly outperforming hotels in northeast and southeast Asia.Not surprisingly, cities affected by the SARS crisis were the region’s poorest performers as the double-digit revPAR declines reported in these markets directly translated into a fall in profitability. Hong Kong was hardest hit with profits down 37.9 percent, but Beijing and Singapore also suffered with profits down 33.7 percent and 29.0 percent respectively.

Hotels in Shanghai managed to limit the fall in profitability to just 6.7 percent. As the financial centre of China, Shanghai has benefited from increasing corporate demand which helped drive up average room rates by six percent during 2003. This improvement in average room rate has directly helped the hotels alleviate the fall in profitability caused by the significant decline in demand that was evident at the height of the SARS crisis during the first half of 2003.

Hotels in Bali were the regions worst performers experiencing a 70.8 percent drop in profitability as the market continued to suffer from a significant decline in rooms revenue (down 41.3 percent). The island is still reeling from reduced demand following the bombings in October 2002 and there appears little prospect of a change in fortunes in the short term.

Hotels across Australasia performed particularly well with profitability levels increasing markedly in US dollar terms – up 35 percent. Hotels in both Australia and New Zealand have clearly benefited from increased demand fuelled by interest in the Lord of the Rings trilogy and various sporting events such as the Rugby World Cup and the America’s Cup sailing regatta.Helped by the strength of the Australian dollar to the US dollar in particular, average room rates have improved 24.4 percent. This has translated into increased profitability conversion rates for hoteliers.

Australasia’s strong performance came despite energy costs rising by 38.1 percent due to the increasing cost of crude oil. Indeed most hoteliers across northeast and southeast Asia managed to impressively control their costs with direct costs falling by 1.3 percent. Undistributed operating expenses were also generally well managed. Marketing costs were disproportionately higher (up 7.9 percent) as hoteliers invested heavily in trying to attract business during these tough times.

Commenting on the results, Julia Felton, Executive Director of HotelBenchmark at Deloitte said:

“Given the tough deal dealt to hoteliers last year, 2003 was always going to be a difficult year for the industry. The 8.9 percent fall in profitability reverses the seven percent growth experienced in 2002, with Phuket being the only Asian market outside of Australia to report any positive growth in profitability. Savvy leisure travellers continued to seek last minute deals during 2003 and this combined with reduced corporate demand kept average room rates under pressure, which translated into the decline in profitability. Encouragingly both demand and average room rates appear to have improved during the first quarter of 2004 and we remain cautiously optimistic as to a future recovery in profitability later this year.”

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