Yields versus volumes

Hoteliers hesitate to heed the government’s call to increase room rates in the country. 1 Why have hotels struggled to raise occupancies? Tourist arrivals may have been increasing year-on-year but national occupancy has been hovering in the 60s for years. Malaysian Association of Hotel Owners (MAHO) vice president Eddie Tang attributes this to supply outstripping demand, making it difficult for hotels to adjust rate levels upwards. The opening of new hotels in areas where occupancy is less than 70 per cent is further eroding volumes. MAHO has thus sent in a proposal to the government to restrict approval of new hotels in main cities where occupancies are below 70 per cent.  The mushrooming of one- and two-star hotels in tourist areas and boutique hotels with fewer than 100 rooms are also indirectly diluting the market as they compete for clients with budget three-star hotels as well as their four-star counterparts.  Malaysian Association of Hotels (MAH) vice president Ivo Nekvapil said: “Malaysia needs more international promotions to build demand. We need world-class attractions and international events to create interest in the destination and attract more tourists.”  The country could also do with a strong national convention bureau and private-government partnerships to secure more business events, he added. 2 Why is the government pushing hotels to raise rates? Since the beginning of the year, the government has been advocating hotels to raise rates and be on par with their regional counterparts. This would enable properties to amass funds to refurbish and maintain their facilities. “Improved rates mean (hotels) have more to invest on staff training, and this will elevate service standards to meet the demands of today’s sophisticated international travellers,” said Ivo. 3 Why are hotels reluctant to do so? Christine Toh, another MAH vice president and Dorsett Regency Hotel Kuala Lumpur general manager, said hotels were generally apprehensive about raising rates as they were afraid of losing marketshare to competing properties with lower tariffs in their vicinity. Ivo added that some hotels placed greater emphasis on high occupancies as they did not understand yield management. “It is better to have 40 per cent occupancy at RM320 (US$103) than 90 per cent occupancy at RM150,” he opined. Betty Lim, director of sales of Hard Rock Hotel Penang, cited pressure from travel agents, the hotel’s “bread and butter”, for lower rates. She added: “The five-star brands are dropping their rates, even during the high season. So we, as a four-star brand, are also forced to lower rates to remain competitive. But we stick to our rates during our high season, which are weekends and Malaysian school holidays.” 4 Will hotels benefit from the current national focus on high-yield tourists? Toh likened it to a domino effect where a quantum leap in five-star rates will allow lower-category hotels to also bump up tariffs. Shangri-La’s Tanjung Aru Resort & Spa Kota Kinabalu director of sales and marketing Suzaini Ghani said high-yield tourists tended to spend more time in the hotel, while average-income ones preferred to go sightseeing. “(Upscale tourists) also tend to purchase higher-category rooms and spend more in the hotel’s F&B outlets,” she added. Malaysia aims to bring national occupancy up to 80 per cent by 2020, with average five-star room rates at RM600 a night. 5 What kind of hikes will be implemented in 2011? Three- to five-star hotels are expected to increase rates by eight to 20 per cent next year. Sri Sutra Travel group general manager K T Foo said a 20 per cent hike was not as steep as it seemed since some hotels had dropped their rates so low in 2009 and only managed to bring these back to 2008 levels this year. Ping Anchorage Travel & Tours CEO, Alex Lee, believed the rate increase was reasonable but hotels had to ensure that services were up to par. -TTG Asia.