Cover story: Hospitality sector to see signs of recovery by year-end

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Now that the country’s vaccination rate has reached 90% and interstate travel is permitted for those who are fully vaccinated, things are indeed improving for the travel and tourism industry.

Zerin Properties Managing Director and CEO Previndran Singe is optimistic the industry will see signs of recovery by December. “Domestic tourism will flourish, as we saw when the borders reopened after the first period of movement control orders (MCO),” he notes.

As for a full recovery, he expects it to come sooner than expected. “We envision a full recovery of the travel and tourism industry by the end of 2022,” he said.

Likewise, Knight Frank Malaysia’s Executive Director of Capital Markets James Buckley is optimistic that domestic tourism will rebound by 4Q2021. “The International Air Transport Association predicts that the number of passengers worldwide is expected to return to 88% of the pre-Covid number in 2022 and exceed them by 105% in 2023,” he said.

“Here in Malaysia, we anticipate an upturn in international tourism from 2022. Singapore, which is right on our doorstep and was the largest visitor group with 10 million visits in 2019, is expected to give tourism a welcome boost. local to the reopening of borders. . “

Buckley says the Malaysia Tourism Promotion Board is playing a very important role in the industry’s recovery and should look to two years. “He should look to 2022 and 2023 and plan some big eye-catching promotional activities, particularly targeted at our main visitor markets. There are a lot of pent-up requests from people all over the world to travel again after many months of being stuck at home.

“We have to make sure they choose Malaysia, whether they are domestic travelers wanting to make the most of the amazing destinations on our doorstep or international travelers seeing Malaysia as a place to do business or wanting to explore this country. spectacular on vacation. “

However, he notes that a wide range of factors could influence the recovery of the hospitality sector, such as the pace of vaccine deployment in other countries, the impact of social distancing on capacity, the impact of the pandemic. on the discretionary purchasing power of consumers, the threat of potential variants of worry emerge and lingering doubts among consumers about their safety when on the move.

Malaysian Hotel Association (MAH) CEO Yap Lip Seng is slightly more cautious, but expects some recovery in the first half of 2022. Listed hotels. With this, the industry can expect the reopening of national tourist destinations, targeting the high number of fully vaccinated adults, ”he said.

“With these factors in play, 1Q2022, or by 2Q at the latest, will be a good target for the industry to see a recovery in domestic travel, driven by pent-up demand as a key factor.”

Nonetheless, Yap notes that for a full recovery, domestic tourism alone would be insufficient. “We have to take into consideration the reduced purchasing power of Malaysians in general. Eventually, international arrivals are needed, and with plans in place, we look forward to the return of international tourists by 4Q2022.

“For a full recovery, we also need to consider the entire international travel landscape. Currently, although various countries are trying to standardize international travel, the coverage rate is still low. The global Covid-19 situation has not yet stabilized. “

MAH’s June 2021 Hospitality Industry Survey Report indicates that the industry anticipates an average occupancy rate of 21% and 28% for 3Q and 4Q2021 respectively, and 35% for 2022, which would indicate another year of losses. “This will remain until the international borders reopen,” Yap said.

This year, the average occupancy rate was 21% in January; 17% in February; 27% in March and April, driven by quarantine requirements; and 18% in May. The hospitality industry is said to have lost more than RM 5 billion in revenue in the first half of 2021, according to the report.

In terms of the average daily rate (ADR), the report notes that the industry expects the figure to remain between 180 and 190 RM, marking an average drop of 20-30% from pre-pandemic levels. . But he added that the industry had not recorded enough rooms sold to indicate its real loss in ADR. Meanwhile, mid-to-high-end luxury hotels have seen at least a 50% drop in ADR, having lost all international markets, which typically have higher purchasing power.

“Historically, Malaysia’s tourism industry has been heavily dependent on intra-Asian travel. It will be an advantage for Malaysia to return to pre-Covid levels. However, there is still a long way to go as the competition is fierce among ASEAN destinations, ”says Yap.

“With proper planning and strategies, Malaysia could see [a full] recovery at the end of 2023. But the next six months could be the decisive period. If it is not done well, the recovery could be postponed until 2024. “

Closures to facilitate, reduced labor

According to the MAH survey of the industry in the June report, two of the 320 hotels have closed permanently while 91 are temporarily closed. The report says this could lead to a massive talent drain, raising the larger question of how the industry will recover when the time comes.

“It is undeniable that the hospitality industry has been hit hard by the pandemic. However, I don’t think more hotels will close permanently as there is now light at the end of the tunnel, with the recovery likely to start in the fourth quarter of this year, ”said Buckley of Knight Frank.

Zerin Properties’ Previndran believes that while closures will always occur, they will not be as widespread. “We are coming to the end and cost rationalization in most cases has already taken place. I’m not saying we won’t see closures, but the rate will be lower. “

MAH’s Yap estimates that around 120 hotels have closed temporarily or permanently since the MCO.

Meanwhile, the survey found that nearly 28% of the hotels that responded had cut their workforce by more than half and 51% in one way or another. Of the total, 14% had carried out an entrenchment exercise.

“It will be quite a challenge to hire new employees when the recovery arrives and it will take time to train them,” notes Buckley.

In the short term, domestic tourism will really be the focus, he says. “It will be the first to recover with the lifting of restrictions on interstate travel. While Malaysians may not be able to travel abroad as easily, many will be willing to pay more for a luxury resort experience. We therefore believe that resorts in Malaysia are likely to experience a good commercial return in Q4, especially those offering villa concepts. “

He adds that when international travel resumes, foreign travelers can travel less often than before, but will go on vacation for longer. “As a result, hotels that can offer all-inclusive packages can be popular. “

The design of hotels, especially new ones, can also change, Buckley explains. “In a post-Covid world, maybe the open concept and buffet meals will become obsolete, with customers wanting more social distancing and separation from one another. Perhaps creating informal ‘living spaces’, where patrons can have drinks, meals or snacks, or just relax, will be more popular than gathering at the bar or in the dining room with everyone. world.

“Alternatively, hotels may need to consider peak meal times to provide guests with greater social distancing. However, this could have potential cost implications in terms of personnel. “

Resorts in Malaysia, especially those with villa concepts, are expected to see good deals in Q4 (Photo by Chai Yee Hoong / The Edge)

Previndran says the main changes the industry will face will be the implementation of standard operating procedures. “Everyone wants a compliant hotel. So the way hotels operate will change to ensure that a certain standard is met. Other challenges will, of course, be the same as before the Covid outbreak, such as staff, not enough flights to Malaysia, and cash flow to increase. “

More city hotels than luxury hotels, resorts for sale

JLL Property Services (M) Sdn Bhd Country Head YY Lau observes that assets for sale are typically two to four star hotels located in cities, rather than luxury hotels or resorts. “Some of these hotels were already on the market before the pandemic for various reasons,” she says.

Among the reasons was the intention of owners to rebalance their portfolio or to build or reposition, operate and possibly dispose of the asset after the hotel business stabilizes, she adds.

Lau notes that some of the hotels for sale are smaller family assets. “With the hospitality industry hit the hardest during this difficult time, the operating environment has certainly become difficult, leading to more hotel closures and more assets being put up for sale.

“This is significantly more evident among city hotels compared to resort hotels, as city hotels, especially those in Greater KL, rely heavily on international business and leisure travelers. And with the borders closed, occupancy rates and room rates have come under pressure. “

Resort hotels, though also affected, received greater support from domestic tourism, according to Lau when interstate travel was permitted last year. “From a funding perspective, lenders have generally been quite accommodating and take a wait-and-see approach with hoteliers, which again explains why there is still little visible distress in the market,” she adds.

Meanwhile, Lau is optimistic about the recovery of the industry. “We anticipate significant pent-up demand in the hotel industry. With the vaccination rate in Malaysia on track and the easing of lockdowns, the hospital industry recovery trajectory will be positive, at least nationally for now, ”she said.

Lau believes the first signs of recovery should be seen by the end of this year. “A full recovery, however, will be difficult to predict as it largely depends on the Covid-19 situation in Malaysia and the lifting of international travel restrictions.”


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