Hotels ready for post-Expo operations
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When the Expo 2010 Shanghai ends, will it mark a period of economic gloom? That's the question many hotels are asking as the six-month carnival in the minicipality draws to a close on Oct 31.
In the months before the opening of the Expo on May 1, a total of 5,976 new rooms, an increase of 18 percent, were prepared by internationally-branded upmarket hotels to cater for the expected surge in demand by visitors flocking to Shanghai from around the country and abroad, according to figures provided by Jones Lang LaSalle Hotels. Now, these new hospitality establishments are bracing for leaner times ahead.
"Most established hotels are expecting a decline in occupancy in the year ahead as indicated by the drying up of forward bookings," said Sue Gan, executive assistant manager of InterContinental Shanghai Puxi.
Sammy Ng, general manager of the Renaissance Shanghai Putuo Hotel, agreed: "With the Expo coming to an end, we have to face the cold reality that there is going to be a glut in hotel rooms in the municipality," Ng said. "I can predict that there is going to be a serious price war in the months ahead."
A price war "is inevitable because of the expected fall in demand, estimated to be around 20 percent", Gan said.
Both InterContinental Shanghai Puxi and Renaissance Shanghai Putuo were built for the Expo. Referring to Renaissance's performance since it opened in May, Ng, who has the experience of opening five hotels, said without the Expo windfall, it would have been impossible for a newly-open hotel in a remote part of the municipality to achieve an occupancy rate of 76 percent.
"As a matter of fact, you can't find any star-rated hotels that have achieved such good occupancy rates during the whole year of last year in the Putuo district," he said.
In July, the third month of the Expo, Shanghai's star-rated hotels enjoyed a rise in occupancy rates of 29 to 81 percent compared with July last year. The city's average room rate also increased by 30 percent.
Many established hotels raised their rates to take advantage of the influx of visitors to the Expo. For example, the Wyndham Grand Plaza Royal Oriental Shanghai, which was opened in 2008, increased its average room rate this March to 1,200 yuan per night from 800 yuan, in an "upgrade" that involved nothing more than a name change.
A Wyndham executive confided that improvements to her hotel's facilities were minimal. "Only two things have changed: the hotel's name and the room rates," she said. The current rate for a standard room is 1,587 yuan.
After three years of renovations, Shanghai's landmark Peace Hotel opened its doors to guests at the end of July under the new name of Fairmont Peace Hotel. It charged new rates ranging from $300 to $400, well above the previous $100 a night.
However, Dai Bin, vice-president of the China Tourism Academy, said it was not a good thing. "Learning from the lesson of Beijing after the Olympics, there's no doubt the room rate will fall (after the Expo). The needs of the market are flexible. New rooms can enter the market with new hotels but it's difficult for them to exit."
Lily Ng, executive vice-president at Jones Lang LaSalle Hotels, said two factors were significant: The Expo will have finished so there won't be visitors to it and there are concerns of a double-dip in the global economy, discouraging travel.
Zhao Huanyan, a researcher at Shanghai Academy of Social Sciences who majored in tourism research, agreed and said budget hotels will suffer more than high-end ones. According to Zhao, Shanghai's budget hotels have been involved in a fierce price war three times in recent years. The first time was in 2007 when leasing costs rose by 29 percent because of rent, electricity, gas and water rate rises. Following that, salaries rose amid the 2009 financial crisis. Finally, new franchises started battling for trade.
"A thousand eyes are paying attention to the highest rates during the six-month event but not many care about the lowest rate afterward," said Zhao. "Unless there is a nationwide trade union to settle the agreed bottom price, it's almost impossible to avoid a price war in the future."
If there's any good news for hoteliers in the post-expo market, it will be the meetings, incentives, conferences and exhibitions (MICE) segment.
"My understanding is that hotels are tackling the potential downturn on many fronts. Some are preparing to price aggressively after the Expo to retain and attract hotel demand. Some are marketing to the MICE sector to attract new demand, riding on the success of the Expo," said Lily Ng.
Ritz-Carlton Shanghai Pudong is in the latter position, said general manager and area vice-president Rainer Burkle. "We don't anticipate any price war given that some international companies would not have come to Shanghai until after the Expo because of the expected high volume of visitors. In consequence, we expect a build-up of MICE business in November and December."
Gan agreed. "MICE figures overall may increase instead of declining as the business climate in China remains positive. There is increased interest from many countries and industries keen to look to China for growth and using Shanghai as a stepping stone or starting point," he said.
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