LONDON--International tourism started strong in 2008. According to the UNWTO World Tourism Barometer, the first four months of the year saw an average of 5.7 percent growth. However, this number fell to 2 percent between June, July and August, and we anticipate that it will continue to decline. UNWTO has forecasted growth for the year at 2 percent to 3 percent, thanks to the strong start. It projects international tourism to be flat to up 2 percent in 2009.
These statistics do not bode well for the hotel industry, and they are beginning to have a negative impact on many regions throughout the globe.
Among them is the Asia/Pacific region, which is experiencing the sharpest decline in tourism of all the world’s regions, especially throughout Oceania and Northeast Asia. For 18 consecutive months ending in March 2008, tourism grew at an average rate of 7 percent. It has dropped to 1.5 percent during the last few months and, if the downward trend continues, will soon turn negative. At present, the drop-off is having a severe impact on hotels in the region as occupancy, revenue per available room and average daily rate experience corollary declines.
An unfortunate mix of events relating to the financial crisis—including fluctuating oil prices, increasing inflation, and extreme market volatility—have created an unhealthy economic environment that has negatively affected the tourism and hotel industries throughout the Asia/Pacific region. Tourism is starting to buckle under the pressure, and travel budgets have declined rapidly. At least for the short to medium term, this crisis will strongly affect international tourism.
Consumer and business confidence are not as strong as in previous periods. According to the MasterCard Master Index of Consumer Confidence, consumer confidence in Asia/Pacific for Q2 2008 is 56 percent, down from 69.3 percent during the first quarter. It is expected to be worse when third-quarter and fourth-quarter numbers are released. With the exception of August, during which the Olympics took place in Beijing, occupancy and RevPAR have taken a huge nose dive.
Corporate travel is also playing a huge part in the lower rates of tourism and hotel performance. Amid a turbulent economy, companies have taken a much stricter stance on travel, requiring employees to provide rationale for their trips and expenses. Many companies also require employees to choose the lowest airfare and share both hotel rooms and rental cars. In addition, there exists huge pressure to decrease corporate rate agreements for 2009.
Affect on hotels
Due to such uncertainty, hotels worldwide are taking a hit in RevPAR, occupancy and ADR. Those in the Asia/Pacific region are experiencing occupancy that has declined steadily during the year and is continuing in a downward path. Despite positive increases during the first half of the year, ADR and RevPAR are starting to mirror occupancy; both figures saw a decline of about 20 percent from August to September.
It will be extremely important at this time for hotels to find ways to reduce costs while still meeting consumer expectations. The only way to be successful during this downturn will be to make sure customers believe they are getting value for their purchase. Unlike previous crises, such as 9/11 and the SARS epidemic, the concern is not the desire to travel, but whether consumers can afford it. However, as in other crises, a decline in the length and expenditure of a trip will be more pronounced than the volume of travellers. Still, portraying value is essential for hotels to remain above water in these turbulent times.