Hotel room rates come under pressure

Hotel operators are feeling the heat from an increasingly competitive industry landscape, which is hitting mid-tier hotels the most.

Several listed operators say a recent flood of new hotel rooms - with more to come - tighter corporate travel budgets and higher labour costs have put pressure on room rates.

They are stepping up their efforts to address these challenges.

Far East Hospitality Trust, which owns mid-tier hotels like the Rendezvous Grand Hotel Singapore, Village Hotel Albert Court and The Quincy Hotel, reported a gross revenue of $31.5 million for the three months to Sept 30. This was down 9.4 per cent from its forecast of $34.7 million.

The firm's average revenue per available room (RevPar) for the same period was also 8.9 per cent below its forecast at $167.10. RevPar is a widely used indicator tracking hotel performance.

Far East said it will address the competition by increasing the number of direct bookings from its website, as well as strengthening its central sales force.

It was a similar picture for CDL Hospitality Trusts, which has the Copthorne King's Hotel, Novotel Singapore Clarke Quay and M Hotel and reported a 6.4 per cent decline in RevPar to $191 for the three months to Sept30. It also recorded a 0.8 per cent slide in gross revenue to $35.9 million.

Experts say most of the new hotel rooms coming onstream are in mid-tier hotels, placing pressure on that segment. In the first half of the year, eight new hotels were opened, including the Carlton City Hotel, Dorsett Singapore and the Parkroyal on Pickering.

Mr Robert McIntosh, executive director at CBRE Hotels (Asia-Pacific), estimated 1,400 mid-range hotel rooms would have come onto the market by the end of the year. This is out of a total supply of 3,629 new rooms this year.

In contrast, only about 440 rooms will be added to the luxury segment this year. "As new hotel room supply enters the market, it is inevitable that existing hotels will be under some competitive pressure as the new players seek some of their business," said CDL spokesman Gerry De Silva.

Mr Gerald Lee, chief executive of Far East Hospitality Trust, added that demand for rooms from regional travellers dipped on the back of a stronger Singdollar.

Bloomberg data shows the Singdollar strengthened against the ringgit from 2.4973 at June 30 to 2.5946 at Sept 30. It rose even more dramatically against the rupiah from 7,843.37 to 9,094.89.

CIMB economist Song Seng Wun said supply-side factors are also hitting hoteliers' profits. "It's also about how (they) manage operating costs from pressure that the Government is applying by restricting foreign labour."

But some experts welcome a stabilising of room prices as high rates could drive away tourists.

The tourism market, which makes up about 5 to 6 per cent of Singapore's economic output, could be hurt if high room rates start to cause a slowdown in arrivals.

"The bulk of our arrivals come from the ASEAN region, so we want to ensure that we are competitive," said Mr Song.

"If you want to plan for Singapore to be a destination for meetings, incentives, conferences and exhibitions, then you would consider how much goes into room rates to support that market."

However, hoteliers are expecting to benefit from the opening of the Sports Hub and the Women's Tennis Association Championship held here for the first time next year.

"Major events, such as the Singapore Airshow and Food and Hotel Asia 2014, will also bring demand for hotel rooms," said general manager of Royal Plaza on Scotts Patrick Fiat.

ocheryl@sph.com.sg

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