Govt move to reduce functions won’t hurt hotels much

WHILE certain quarters in the hospitality sector are making a hue and cry over the Government's recent move to reduce its functions at hotels, the situation may not be as bleak as painted, judging from the views of industry observers.

According to the Malaysian Association of Hotels (MAH), three- and four-star hotels have lost about RM120mil in revenue up to the middle of July since the Government issued a directive on June 9 to its departments and agencies to reduce the number of events at hotels.

Executive director B. Sarjit Singh said the association was appealing to the Government “to be more relaxed” on the ruling.

“We have written to the Tourism Minister asking her to help rectify the circular to civil servants to stop using hotels for functions,” he said,

Kumar Tharmalingam

The minister indicated she would take up the matter, but there has been no result as yet, he said.

Something that may weaken MAH's argument is the huge growth in foreign tourist arrivals that has boosted hotel occupancy and average room rate growth this year so far.

Occupancy rates in Kuala Lumpur for the second quarter ending June 30 stood at 74%, up from 66.5% in the first quarter.

Average room rates have grown to RM221 per night for the second quarter from RM168 in the first quarter.

However, Sarjit Singh said three- and four-star hotels that depended on government functions for up to 70% of revenue were currently seeing a dilution in revenue.

If the situation were prolonged, he said there was a possibility of the industry reducing its manpower and not recruiting more staff.

At the same time, with high fuel prices and inflation, hotels were seeing a rise in operating costs.

For instance, electricity rates for hotels had gone up 26% in June, he said.

Inflation was also beginning to hurt domestic tourism that was also a substantial component of earnings, he added.

However, continuing high occupancy and average room rates have led property consultants to conclude otherwise.

Property and real estate consultants Hall Chadwick Asia Sdn Bhd chairman Kumar Tharmalingam sees only the “top 10 hotels” being impacted by the austerity drive.

Previndran Singhe

But even so, five-star hotels are currently benefiting from a tourism boom continuing from the past 18 months to two years.

“There isn't such a significant loss. Maybe a slight drop but not too severe,” Tharmalingam said.

“Despite the Government's austerity drive, it would still need to hold functions,” he said.

He added that a more likely scenario was for government departments to switch from five-star venues to three- and four-star venues.

“Of the 36,000 (hotel) rooms available in Kuala Lumpur, fewer than 10,000 are five-star,” Tharmalingam said.

“Three- and four-star, and older hotels in the city would be the beneficiaries,” he said.

At the same time, the private sector would still need to do business at hotels, he said.

Private sector conference budgets might rise, as companies need to spend more on marketing on concerns of a downturn.

Zerin Properties chief executive officer Previndran Singhe was equally bullish on the sector.

“Tourism and hospitality industries in Asia are growing at a whopping 10% annually, four percentage points higher than the world average.

“Among Asian countries, Malaysia recorded one of the highest growth rates at 20%.”

He said Malaysia was among the tourist magnets of the region with soaring tourist arrivals.

A survey showed that in the first five months this year, Malaysia registered tourist arrival growth of 23% compared with the previous corresponding period.

China showed a 5.6% increase, while tourist arrivals in Hong Kong, Singapore and Thailand were up 9.5%, 12% and 15% respectively.

Singhe said there were clear indications of future success of the hotels and resorts industry in Asia, with a projected 1.6 billion international travellers to the region by 2020, almost twice last year's figures.

“Although it is fair to assume that this rate of growth cannot be sustained due to the increases in fuel prices and other 'mega crises', the number of potential travellers is so huge that the long-term growth prospects will remain substantial by any measure,” he added.

What is also interesting to note, according to Singhe, is that tourism profitability in Asia has also improved significantly and is already exceeding that achieved in Europe and the Middle East.

“In addition, 18 Asia-Pacific countries are expected to receive US$110bil in additional tourism revenue over the next three years,” he said.

Source : STAR
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