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Maldives hoteliers ride out demand drops
January 3 2013

Despite reports of political instability that led to decreases in occupancy, hoteliers in the Maldives managed to increase ADR, which speaks to the country’s potential, sources report.

Highlights
  • Through October, occupancy for the Maldives was at 64.4%, a 5.1% drop over the previous year, while ADR increased 10.1% year over year, according to STR Global.
  • “The Maldives has seen a decreasae of 13.7% in terms of arrivals from the U.K. whereas the W Maldives has seen a decrease of 11%,” said Natacha Pouzin of the W Retreat & Spa Maldives.
  • The Maldivian government recently provided operational resorts the option to extend their 25-year leases on their respective islands to 50-year leases.

GLOBAL REPORT—The Maldives made global headlines and dominated social media throughout 2012 with news of political instability and an alleged coup. And the news took a toll on the occupancy of the country’s hotels.

Through October, occupancy was at 64.4%, a 5.1% decrease over the same period in 2011, according to data from STR Global, sister company of HotelNewsNow.com.

Hoteliers, however, did not let that drop in occupancy affect their pricing decisions and managed to increase rates, which speaks highly of the country’s potential, according to Nihat Ercan, senior VP of investment sales for Jones Lang LaSalle.

Average daily rate was $584.85 through October, a 10.1% increase over the same period in 2011, which drove a revenue-per-available-room increase of 4.4% to $376.47.

The drop in occupancy and rise in ADR was experienced at the W Retreat & Spa Maldives, said Natacha Pouzin, a marketing and communication executive at the property.

“The retreat has held a flat occupancy to 2011, however, we have seen a 10% increase in terms of room revenue,” Pouzin said.

Shifting source markets
In addition to the harrowing media reports of violence in the Maldives, a shift in the country’s biggest source markets might also help explain performance results.

“The Maldives has seen a decrease of 13.7% in terms of arrivals from the U.K., whereas the W Maldives has seen a decrease of 11%,” Pouzin said.
 
Traditionally, the market has been more of a European destination with the U.K., Germany and Italy accounting for most of the demand, Ercan said.

That demand has weakened as a result of the economic crisis in Europe, he said. However, demand from China and the Middle East is beginning to replace that lost business.

“The Asian customer has really become a major factor in all destinations and the Maldives is one of them,” Scott Booker, president of Hotels.com Worldwide at Expedia, told HotelnewsNow.com at the Expedia Partner Conference in 2012.

With the Chinese middle class gaining more disposable income, visa restrictions pulling back and low-cost airline carriers increasing flights in the region, these travelers are venturing into new markets, Booker said.

Investing in the region
The leisure demand stemming from the Chinese market bodes well for the future of the Maldives’ tourism market, Ercan said. And investors are taking notice.

The Maldivian government has been extremely supportive of foreign investment entering the country, he said. Because of that, the government recently provided operational resorts the option to extend their 25-year leases on their respective islands to 50-year leases.

Adding to that, the first open market transaction of an operating resort in the Maldives was completed in 2012 by Jones Lang LaSalle Hotels on behalf of the seller, Ercan said. “The process generated strong interest from Asian investors and on the back of this sale we are currently advising several other owners on their strategic divestment options,” he said.
 
“We are seeing healthy interest from investors, particularly out of Asia,” Ercan said. These levels of interest are mainly development driven and coming from further expectations of growth in a market with limited supply,” he said.

“We are very bullish on the Maldives,” he said.

Development in the region
The Maldives tourism industry has come a long way since the opening of its first resort in 1972, Ercan said, referring to what is now the Kurumba Maldives.

There are now approximately 104 resorts each sitting on their own island, he said. Because there are more than 1,000 small islands, most of which are undeveloped, there are extensive opportunities for the hotel industry.

Ercan doesn’t expect to see a situation where the country will ever run out of room for new projects. While the government is facilitating the process and the investor sentiment strong, developing in the region is difficult and expensive, he said.

Being in the middle of the Indian Ocean, getting furniture, fixtures and equipment is challenging and more costly, Ercan said. Just one day of bad weather can have a huge impact on a developer’s timeframe.

“Nothing is manufactured (in the Maldives). It’s all brought in, so if you’re getting furniture from China … you better source it right,” he said. “That’s why the total cost to build is significantly higher.”

It’s difficult but certainly not impossible, Ercan said. “There is a pipeline of new resorts under construction and these will complete over the next couple of years,” he said.

Included in that pipeline is the 45-villa Maison—Cheval Blanc Randheli from Louis Vuitton Moët Hennessy Hotel Management, which is slated to open in 2013, and the 110-villa Centara Hudhufushi Resort & Spa Maldives, which is slated to open in 2014.

Outlook
There is major potential for visitor arrival growth to pick back up in 2013, despite recent reports that plans to build a new airport were cancelled, Ercan said.

Guests should be made aware if they inquire about the political situation that local issues have no impact on the hotel industry, he said. As each resort island is inhabited only by the hotel and its employees, guests will not be integrated into anything happening in the Maldivian capital, Male.

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