Manage mega events in context to reap results
20 OCTOBER 2014 8:37 AM
Industry experts weigh in on mega events, which can drive hotel performance—but only if they are managed properly.
DUBAI, United Arab Emirates—Mega events, such as the Olympics, FIFA World Cup and World Expo, can drive hotel performance but have to be managed properly, according to hospitality experts at the Hotel Show’s Vision Conference in Dubai.
The biggest pitfall is the temptation to peg average daily rates too high, sources said.
“All these big events are difficult to manage. As hoteliers we tend to get carried away a little.
Looking at the Olympics cities’ performance, for example, we need to take into account it’s just a couple of weeks of an event,” said Philip Wooller, area director of the Middle East & Africa at STR Global, referring to rate hikes. Wooller spoke during a presentation titled “Mega events and their legacy.”
STR Global, sister company of Hotel News Now, looked at hotel performance trends leading up to, during and after mega events. The results, Wooller said, aren’t clear-cut, depending on the timing and place in terms of global economy, as well as country-specific political and development conditions.
“Ultimately, every place and event is different, which makes it hard to come to a conclusion on a unified way forward to perform. The reality is that these big events are catalysts for investment, generating business for hotels indirectly rather than just the direct benefits of the event period,” said Guy Wilkinson, managing partner at Viability Management Consultants.
He said most events tend to take place in the summer, a traditionally high-performance season, and hoteliers have to be careful not to drive rates too high because that could turn tourists away.
A case in point is South Africa, which hosted the World Cup from 11 June to 11 July 2010. Occupancy, according to STR Global data, on 10 June 2010 was nearly 63.7%, which was up 10.3% over year-to-date May 2010. Johannesburg performed best, and Durban experienced an 8.6% drop in occupancy. The ADRs were racked up by 100.9%, thus increasing revenue per available room by approximately 121% for South Africa, while Durban’s RevPAR increase was significantly lower at 60%.
Wooller saw erratic performance behavior during World Cups, particularly with matches dispersed over several cities. Data showed hotels were down year on year, peaking on certain nights.
“From a hotel performance point of view, the World Cup in South Africa was quite disappointing, and in Brazil the occupancies and room rates were up and down. Rio (de Janeiro) did very well, but other cities’ performance was rather paced; there is no consistency,” he said.
Wilkinson said that while London got it right for the Olympics, South Africa made the error of block-booking rooms at a high rate.
“Instead of staying at these hotels people looked for cheaper (bed-and-breakfasts), resulting in empty blocked rooms,” he said.
In the case of the 2012 London Olympics, rates were actually capped at around 5% above the average rate of four years prior to the event, and double than August 2011. It still led to a more balanced performance. Occupancies were up by 1.8%, and post-event the ADR weakened only little in the year-end results, according to STR Global.
Donna Taylor, who was the head of accommodation for the London Olympics, said during the “How to achieve full occupancy—case study London Olympics” presentation that she endured a tough task to convince hoteliers that these games were a fantastic thing to have.
“The London bombings didn’t help. The important part was to have transparency and get the contractual terms right; participating hotels cannot work with tour operators to prevent double bookings,” she added.
“Don’t expect to meet your budget in 16 days, but look at the whole year pre- and post-games business. It’s massive, from sponsors’ corporate hospitality, over media, visiting VIPs, etc., all potential guests working at the games, which can result in new client relationships, like a spider’s web,” Taylor said.
According to STR Global year-end results, London, Athens and Sydney achieved occupancies of more than 80% during their respective Olympics years. In Beijing, occupancies peaked pre-event at 70% in April 2008, with only 57% during the event, to grow again later.
“Sometimes data with these big events is a little surprising. Looking at the trends and peaks, even with a very concentrated period of a few weeks, there was no time when the hotels were full. Beijing and Athens didn’t cap rates, but they went up tremendously. Yet, with the exception of Athens, all the markets dropped a little in occupancy,” Wooller said.
“The dynamics of the market change quite dramatically with big events in the city. They mask over the original business that is coming in anyway, as well as displaced business—something hotels need to bear in mind,” he said, adding that Doha, Qatar’s 2022 World Cup could be an interesting situation.
Compact Qatar, with stadiums closer together and taking place in a traditionally low season, should provoke a more concentrated business and increased occupancies for hotels, according to Wilkinson.
“One of Qatar’s plans is to become a niche sport tourism market,” he said, pointing to post-event business.
The World Cup served to brand the country with millions watching on TV, a catalyst to diversify its economy, according to Christopher Sims, deputy chairman at Savills Northern Gulf.
“From a hotelier’s perspective, as we’ve seen from STR Global, these events don’t really make much of a difference to ADR or occupancy levels over the long term, but diversifies the hotel stock into the mid-market, as it isn’t the luxury client who visits these events,” Sims said.
The effect of World Expos might be more poignant because of their six-month time span. However, like the other events, their significance in terms of performance depends much upon whether they take place in a mature or developing market.
“The Olympics data makes clear that it is not just a period where one can drive rates and expect it all to come in as a concentrated period; the Expo has to be planned far differently. For me, the impact of the Dubai Expo is just another catalyst for general development,” Wooller said.
Comparing Milan, a developed market, to developing Shanghai and Dubai, seems futile. However, Wooller pointed out that the highest average room rate achieved in Shanghai during the six months of the Expo at $148 was probably responsible for the high visitor numbers.
“This is considerably lower than where Dubai rates sit now. Yet, hotels in Shanghai didn’t fill at any point,” he said.
Wilkinson said that in hoteliers’ minds the Expo is just the icing on the cake.
“In less-mature markets, like Qatar and the UAE, there is a lot of pre-event business as well, due to construction. However, planning has to start well in advance for everyone to make the most out of the event and not risk the displaced tourist scenario,” he said.