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The hotel Industry Is Pinning its Hopes on Gold at the Beijing Olympics in 2008 – But Is it a Sure Winner?
Dec 09, 04 | 4:06 am
Staying ahead of the Games
By Kieron Ritchard, VP Development, Le Meridien Hotels & Resorts
The hotel industry is setting a breakneck pace as it jostles for position in the run-up to the Beijing Olympics in 2008. But the real tourism impact that a host city derives from the Games is a much-debated topic - and one that is already raging, four years before the Games begin in Beijing.
Not every host city has won gold once the Games have ended and faded into memory.
No doubt, the Olympic Games present a tremendous opportunity for host cities to accelerate inbound tourism demand. Indeed, they are a showcase for a destination on the world stage when the city looks its best, all dressed up for the big party. Yet recent history has demonstrated that their impact on inbound-tourism growth can range from a moderate blip on the visitor-arrival charts to an unequivocal inflection point which triggers significant long-term growth.
While each Olympic city is unique, recent Games have highlighted the hit-and-miss nature of creating an international tourism buzz following the event.
As these different experiences demonstrate, sustained inbound tourism growth in the post-Olympic era is not always achieved.
It is interesting to note, though, that the two most successful cities in creating post-Olympic inbound growth, Seoul and Barcelona, both had low-profile tourism industries at the time of hosting the Games.
Arguably, coming from a lower visitor base meant that these two cities had the most to gain from Olympic-related infrastructure investment, in turn leveraging the opportunity to position the city on the world tourism map for the first time through the Games' marketing machine.
The cornerstone of the Olympics-impact argument is, generally, one of "leverage". In inbound-tourism terms, the key is the extent to which the host city is able to leverage its huge investment in infrastructure and the once-in-a-lifetime marketing opportunity to create travel bookings.
Beijing 2008 will be supported by world-class facilities and logistics planning. The city is well underway in developing its Olympics-related facilities, including a new airport, magnificent stadia, convention centre and a much-improved transport network. Construction is reported to be on time and, in some cases, ahead of schedule.
Several new hotels are under construction or in the final stages of planning, and China is absolutely committed to ensuring the success of the Olympic Games - whatever it takes.
While all the key physical elements of a world-class tourism product will be in place by 2008, the greatest potential of the Beijing Games will be the marketing opportunity which will instantly create global consumer awareness of "China - the brand".
In the marketing sense, Beijing - like no other previous Olympic city - has a fascinating extra dimension: the unveiling of what China really is and what it can achieve, showcased to a global audience which, generally, knows little about the country.
As such, Beijing 2008 is an incredible coincidence of timing which presents a once-in-a-lifetime opportunity to affirm the opening up of the nation to the world in every conceivable way.
Despite being the capital of the world's most populous nation and steeped in fascinating ancient and modern history, Beijing 2008 will be the source of many "first impressions". The Games will be the most comprehensive [and nicely packaged] up-close look at China in half a century, and history will judge the event as the vehicle responsible for demystifying the world's image of the country in two short weeks.
When the Beijing Olympic images are beamed around the world to more than two billion TV viewers [perhaps with China on top of the medal table on Day 14], the spectacle will be sufficiently impressive to convert public curiosity into travel bookings for conferences, leisure tours, city breaks, business, business and more business.
When they come, they will see a city with incredible tourism infrastructure, experience a unique and rich culture and, above all, marvel at the warmth of the people who, through their Olympic experience, quickly learned how to welcome visitors to their homeland.
Beyond the inbound-demand stimulus, Beijing 2008 also represents impeccable timing in the context of domestic and outbound-tourism growth potential, as growing personal wealth and a political trend towards easing travel restrictions for Chinese nationals combine to create a huge new market.
The coincidence of all these factors will ensure that Beijing 2008 will be hailed as the most successful Olympics in 20 years in terms of tourism-growth impact.
So what does this mean for Beijing hoteliers in the years ahead? Like all Olympic cities, supply will be impossible to predict for a few years yet.
While many of the mooted hotel projects floating around the city today will not be built, availability of credit, government approvals and the city's building moratorium which comes into effect at the end of 2006 will keep us all guessing as to which hotels will actually make it.
Demand, in its purest sense, will not be a problem as there will be enough people wanting to travel to Beijing. Rather, the challenge will be ensuring that the demand can actually be satisfied [at the right price] and new source markets that emerge post-Olympics can be effectively tapped.
The highly regulated air-travel industry is the key variable here - restrictions that prohibit the channelling of airlift capacity to Beijing and Shanghai may be damaging. Hotel-operating conditions surrounding the Olympic Games are often misunderstood. The biggest challenge for hoteliers during the years surrounding the Games will be staying focused on yield-management strategy in a fast-moving and unusual market environment.
If history is anything to go by, occupancy will be stronger in 2007 than 2008 due to event-displacement effects in the months surrounding the Games.
Occupancy levels will then slide lower in 2009 as the market starts to absorb the new supply. Rates will typically spike by 15% to 20% in the Olympic year [as they did in Sydney and Atlanta, respectively] but Beijing should be expected to outperform these levels given the low relative average daily rates that exist in the market today.
In the year after the Games, rates will likely fall back to 2006 levels as the market waits for the Olympic demand stimulus to get some traction.
Market-segmentation trends will also experience wild fluctuations in the years ahead. The Beijing hotel market is, today, dominated by low-yielding group-tour business, and tour operators typically demand significant inventory control over an extended period.
In 2007, there will be an emergence of corporate contracts associated with Games organisers [not the sponsors - they fly in the week before!]. So in the 2007 tour-operator-contracting season, hoteliers will need to do some advanced thinking on how much inventory they wish to keep available for this short-term, but lucrative, Olympics-preparation business.
In the post-Olympics era, Beijing is expected to experience accelerated-demand growth from higher-yielding corporate, conference and independent leisure travellers. Branded 5-star hotels supported by strong global-reservation networks will be the first to capture growth in these segments. Hotels in this leading set will, therefore, be able to squeeze out cheaper sources of demand into lower-category properties and re-balance their yield strategies before the rest of the market picks the trend.
No doubt, 2009 will be a difficult year for some hoteliers in Beijing as these complex yield-management issues are worked through.
By 2010, however, the benefits of a much larger, more differentiated accommodation market will crystalise, and those hotels with sophisticated distribution and clever yield-management strategies should expect to outperform their Olympic-year revPAR results.
Copyright: HOTEL Asia Pacific . The latest edition of the mulit-award-winning HOTEL Asia Pacific (60 pages) can be downloaded in PDF format from www.hotelasiapacific.com . It is free to industry professionals, and requires a simple, one-time registration.
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