<B> Asian Pain Buyer Gain</B>
<I>Drop In Currency Plus Hotel Building Boom Equal Increase In Leverage</I>
By Maria P. Vallejo
In the wake of Asia's economic crisis, industry experts said travel managers in charge of international travel should be able to take advantage of the continent's temporary downfall, particularly in the hotel industry.
Asian hotels, which experienced a developmental boom during the past few years, recently suffered an unexpected blow by Asia's currency devaluation. With the threat of large-scale price wars and fierce competition for international guests looming, hotels may soon be offering business travelers deals of a lifetime.
"We've all read about the economic turndown and the problems that they've had there that have certainly led to a devaluation of their currency, so travel budgets will go further now than they did six months ago," said Jim Olson, senior vice president of development for Carlson Worldwide. He said some of the 28 Carlson hotels in the region already have dipped below the standard 70 percent occupancy.
After Korea's stock market plummeted and its national bank declared bankruptcy, a wave of economic uncertainty stretched across the continent. A domino effect of economic tribulations soon followed throughout the Asia Pacific region, especially in Southeast Asia. While companies struggle to keep their businesses afloat, the ripple effect has been stifling intra-continental travel.
Meanwhile, in the airline industry, a noticeable drop in vacation travel originating in Asia is not yet having a major impact on business pricing--and instead airlines are adopting a cost-cutting strategy. But some Asian carriers are stepping up their efforts to bring in U.S. dollars. Korea's Asiana, for example, for the first time is offering corporate accounts full coach to first class upgrades in volume agreements.
"From the U.S. carriers' perspective, U.S.-Japan traffic has held up reasonably well. That's the driver of their profitability in Asia," said Sam Buttrick, Paine Webber's airline analyst. "Intra-Asian markets, however, have seen some severe traffic decline."
A number of airlines now are focused on reorganizing their route structures, and those based in Asia also are deferring aircraft orders and even laying off personnel. But there is no U.S. corporate sales frenzy, since the drop in traffic is most evident intra-Asia or to the beach and island markets of the Pacific. JAL and United, for example, this quarter are reducing service between Tokyo and Hawaii.
"I think business travel will hold up," said Patrick Khoury, Asiana's general manager of marketing and sales for the United States. "Business people are going over there to consult and invest and stabilize. There's a lot of financial opportunity."
Northwest's executive vice president of marketing and international Michael Levine agreed. "The Pacific has been a somewhat challenging environment for quite a while and we have adjusted to it. Transpacific business travel is holding up pretty well," he said. Still, Northwest announced last week that it will suspend Detroit-Seoul service and will serve only Seoul through Tokyo.
The story is notably different among Asian hoteliers, who plan to focus their attention on North American travelers, responsible for 10 to 20 percent of total occupancy, and European travelers, comprising about 20 percent. Traditionally, 70 percent of rooms are filled by Asian guests, and those figures are dropping off.
"Travel is really suffering," said Ravi Saligram, president of the Asian-Pacific division of Holiday Hospitality of Atlanta, parent of Holiday Inn. "Domestic has really dropped off. A key focus for us now, especially with intra-continental travel, is to leverage our worldwide sales office and our strong ties with U.S. corporations."
Holiday Hospitality has 84 open hotels on the continent. About 70 percent of the hotels' occupancy in Asia comes from intra-regional travelers, and 10 percent from North Americans.
The crisis "has really set things back," agreed David Crowl, vice president of Toronto-based Four Seasons. "It's affected our hotels. We just need to get through this challenging period of time. We have seen a considerable amount of negative impact on our business in Asia, particularly from the regional markets. The biggest challenge is the regional customer."
Rumors of "price wars" among hotels were disputed by some hoteliers, who nonetheless acknowledged that prices have decreased and negotiating power for international travelers improved. Previously negotiated corporate contracts can possibly be revised for better room rate packages or better amenities, they said.
"Now that occupancy has dropped, which has opened up a lot more availability, hotels are a lot more willing with wheeling and dealing," Olson said. "If a company has any volume, there are certainly much more favorable deals available."
In light of the recent economic problems throughout Asia, Regent Hong Kong, a Four Seasons hotel, this month launched three business traveler packages, saving travelers at least $258 per night. The hotel, with a 40 percent North American guest occupancy, plans to focus its marketing energy on American travelers as Japanese travel continues to decrease.
Included in the packages are such amenities as guaranteed early checkin and checkout, free local calls, waived long distance access charges, free mobile phone usage, free meeting space and discounts on business center services.
While most travel managers said they have not witnessed rate discounts in Asia/Pacific, they agreed some hotel companies are aggressively marketing their product to the North American business traveler. Some of these companies plan to send representatives out to U.S. corporation to aggressively solicit more business.
"We haven't seen a lot of discounts out there, but a couple of hotels have approached us to talk about discounts because they're seeing a reduction in business and leisure travel," said Jeff Kurn, a travel manager at Palo Alto, Calif.-based Hewlett Packard. "With the devaluation of their currencies and reduction in travel, they would like to fill up more rooms. We have been able to take advantage of some travel discounts that take advantage of their currency fluctuation."
Other corporate travel managers who did not see reduced price quotes in their 1998 corporate contract agreements plan to revisit the negotiation process. Since the hotel bidding process started before the economic crisis, negotiated rates did not take into account the leverage that falling occupancies have created for travel managers.
"Having just completed our RFP process, we didn't see a lot of effect on our proposed rate," said Rebecca Bailey, travel services coordinator at Seattle-based Microsoft Corp. "They didn't seem much lower than last year, but hotels may be willing to renegotiate some rates."
Hotel officials agreed with travel managers' analysis of the economic situation. "Asking the question is a prudent thing to do," Olson said. "Volume business is extremely sought after these days and negotiations can be in the form of either a concession or additional amenities for guests."
Hoteliers suggested that the best deals are in Southeast Asia, while other areas, including Australia, Hong Kong, Osaka and Seoul, are still seeing reasonable occupancies and rates.
Lower corporate rates and higher discounts can be attributed to the wave of hotel construction in the region and difficulty using a standard currency for rate quotations. In the past few years, hotel companies concentrated their international expansion efforts in Asia, opening new hotels at breakneck speed. Some hotels that planned construction, which takes several years to plan and complete, were forced to either take a loss by terminating the construction or continue with the projects and risk low occupancy. Most of the projects were started years ago when the economic climate was much stronger.
Carlson Worldwide, for example, still plans to complete seven new hotel constructions. "There has been a considerable increase in hotel inventory in the last few years, and there continue to be hotels under construction," Olson said. "Many have been halted, but some are being completed. The hoteliers are in an unfortunate situation with too many hotel rooms and less regional travelers."
Other companies with new hotel openings said the novelty of their hotels drew attention away from the older properties, giving them better occupancies. "Our prices were rising because our hotels were new," acknowledged Jim Schultenover, Ritz Carlton's vice president of sales and marketing. "Once you've been stabilized in a market, then you'll see some more downward pricing."
Travel managers in search of bargains also can bet on the effect of currency devaluation by seeking out hotels that are quoting rates in their national currency rather than in U.S. dollars.
According to Saligram, all of Holiday Hospitality's Asian hotel rates are quoted in the countries' local currencies, except for those located in Manila and Jakarta.
Some hotel companies, such as Marriott Hotels & Resorts, are following the trend of other five star hotels in currency quotations. Each hotel's rates are quoted according to precedents set by hotels of similar stature in the same destinations.