Hong Kong Negotiating For Transpacific Business

Hong Kong Negotiating For Transpacific Business

By Maria Vallejo

Hong Kong - An ideal corporate negotiations environment is taking hold in the Hong Kong hospitality industry as long-haul markets become increasingly vital to sustaining the city's occupancy and room rates.

Hotels in the "City of Life" are maintaining their high occupancies, despite the ongoing Asian financial crisis, by redirecting and strengthening their sales and marketing efforts to overseas corporate businesses, namely in the United States.

This can result in better leverage for U.S. travel buyers when negotiating for highly-demanded reduced rates and services, including last room availability, lower phone rates and transportation services.

"We're concentrating our efforts in the long-haul markets because that's where all indications are strong," said Joanne Watkins, corporate spokesperson for Shangri-La Hotels & Resorts.

"It is a serious crisis, Asia has never seen something like this before. She's been kicked from all sides. There's a drop in inter-Asian travel."

Large reductions of travel within the continent, especially in the Japanese tourist segment, has forced these hotels to reach out to the U.S. travel buyer. Fortune 500 companies with divisions stationed in Hong Kong, such as Hewlett-Packard, IBM and PepsiCo, are reaping the greatest rewards because of their ability to leverage their volume when hotels compete for their business, said Kent Maury, Marriott International's Washington D.C.-based vice president of sales and marketing for the Asia/Pacific.

"Japanese arrivals to Hong Kong are almost non-existent. It used to be the number one market," Maury said. "But, the long-haul markets in the Asia/Pacific are holding up and helping increase business. Hong Kong Island has been less affected by the Asian crisis in occupancies because it is a business center and we're seeing the long-haul market build up. We've seen an increase in the North American side."

Despite the financial crisis that has ripped through the continent, Hong Kong Island has maintained occupancies of about 72 percent this year, and Kowloon has about 75 percent, according to the Hong Kong Tourist Association.

The Island's occupancy rates have suffered from 77 percent last year and 88 percent in 1996. Kowloon decreased from 77.5 percent last year and 90 percent in 1996.

Although occupancies remain high compared to other markets worldwide, the city is feeling a greater loss given the influx of travel in the past two years. Many business and leisure travelers rushed to stay in the city before Great Britain handed it to Communist China last year.

"It's relative. Out here they're used to having high 80 to 90 percent occupancies," Watkins said. "They're expecting those occupancies and comparing themselves to those high flyers from before."

Island Shangri-La, located on Hong Kong Island, has reached 66 percent occupancy this year, decreasing 14 percentage points from last year, said Barbara Pang, Island Shangri-La's director of marketing. Corporate rates have decreased about 2 to 3 percent so far this year, fluctuating between HK$1,950 and HK$2,000.

U.S. corporate travel accounts for about 28 percent of the hotel's business, a slight increase since the crisis first hit. Sales and marketing executives are targeting repeat customers who contribute 47 percent of the business, most of whom are preferred corporate customers.

These executives are traveling more to United States cities to increase U.S. interest in Hong Kong. Last room availability is readily offered during negotiations, along with complimentary breakfast, local phone calls and AT&T service charges--the top requested services and amenities requested by U.S. corporate buyers, Pang said.

In its sister hotel in Kowloon, occupancies declined to 68 percent this year from last year's 75 percent and about 80 percent in 1996. The hotel relies strongly on its Elite and Executive programs to maintain its occupancy and overseas business. Property officials are trying to market the programs to long-haul travelers who make up about 70 percent of the hotel's business. About 40 percent of the property's business comes from the United States.

Golden Circle members, comprised of Elite and Executive members, are guaranteed availability. Elite members, those who stay more than 25 times per year in the hotel, have guaranteed availability up to 48 hours prior to checkin, while executive members with more than ten stays per year, are guaranteed up to 72 hours in advance.

Shangri-La officials added another marketing trip to the United States last year and now visit between seven and eight cities per trip rather than the traditional four to five cities.

"We're trying to work on other incentives because we don't want to put all our eggs in one basket," Pang said. "People understand that Hong Kong is getting more competitive, and they're starting to look around a lot more."

Unlike Shangri-La which has no United States properties, Marriott International's three Marriotts are using their name recognition and repeat-guest rewards program to maintain occupancies, while increasing their sales efforts to sell the city in the United States.

J.W. Marriott and Renaissance Harbor View on Hong Kong Island, and New World Renaissance in Kowloon also are strengthening their sales and marketing efforts for the U.S. About 25 to 30 percent of the J.W. Marriott and New World Renaissance's business comes from the United States, while Renaissance Harbor View has about 6 to 10 percent U.S. business.

Marriott has about 300 preferred corporate customers, including Digital Software, Hewlett-Packard, IBM and PepsiCo. Despite the opportunity for those companies to negotiate for extremely low rates, Maury said that "They realize that it's a buyer's opportunity, and that if they beat hotels on price they're diminishing the level of service. I think they're taking a level headed approach. They are looking for value for price."

Corporate rates for the two Island properties fluctuate between HK$1,250 and HK$2,000. Before the crisis, however, the hotels received corporate rates between HK$1,800 and HK$2,200.

New World Renaissance now receives between HK$850 and HK$1,100, compared with HK$1,200 and HK$1,700 before the crisis.

While most hotel officials expect the economy to turn around within the next five years, they expect to see occupancies and rates fall, creating an even larger vacuum for U.S. buyers to fill.

Marriott officials, for example, expect a 5 to 8 percent decline in occupancies and 10 to 12 percent decrease in room rates before a recovery period arises.