Global Hospitality News: eHotelier Newsletter

Hotel Loan Problems On The Rise Again - Prolonged Hotel Market Weakness Taking a Toll - PKF Consulting Reports

Atlanta, GA, Hotel performance has been on a downward spiral over the past two years, putting a strain on the ability of many property managers and owners to cover expenses. The Hospitality Research Group of PKF Consulting (HRG) examined over 3,900 financial statements contained in the Trends in the Hotel Industry database and found that the number of deficient hotels, those with insufficient operating income to cover interest expenses, rose significantly in both 2001 and 2002. The percentage of hotels in HRG's Trends database that were unable to cover interest expenses with the property's operating income over the period 1992 through 2001 are presented in Figure 1.

In 1992, 23.9 percent of the hotels in HRG's Trends database, the highest percent recorded, were deficient, while 19.8 percent of properties in the database are estimated by HRG as deficient in 2002. The financial institution environment in 2002 is completely different than what it was in 1992 so more lender forbearance is possible today. During the current industry recession, hotel owners and lenders worked together to manage interest expenses and temper the number of hotel loan problems. "Some hotel owners have paid interest shortfalls out of their own pockets, while others refinanced loans to lower interest rates," notes Jack Corgel, PhD, Managing Director of HRG. "Both strategies helped avoid financial stress in the industry thus far, but we are now seeing a resurgence of loan problems."

Figure 2 presents monthly hotel loan delinquency rate data from Trepp and JP Morgan, and shows the percentage of properties that have actually missed interest payments from June 1998 to January 2003.

The delinquency rate increased sharply through the beginning of 2002, but then decreased in the spring and summer months. After a slight increase, the delinquency rate generally fell each month starting in the summer of 2002, which seemed to signal that although the delinquency rate was higher than past years, hotel loan problems were at least being kept in check. As reported by Trepp, the 2002 year-end delinquency rate for hotel loans was 5.1 percent. However, toward the end of 2002 and into 2003, the delinquency rate has been rising, indicating renewed loan problems in the industry. The hotel loan delinquency rate is forecast by JP Morgan to jump to over 7 percent by year-end 2003.

While the HRG forecast for interest deficiency rate for 2003 is expected to decrease slightly to 18.5 percent, the hotels in this deficient pool are generally older, tired properties with serious income shortages. These lower-quality hotel assets are likely to continue to experience greater shortages in cash flow than high-quality, well-known, branded properties. Fears of war with Iraq and estimates of an industry rebound not to begin until the second half of 2003 are expected to cause these problematic properties to become delinquent.

For more information on the forecasts and management tools offered to hotel owners and operators, please contact HRG at (404) 842-1150, ext 223.

The Hospitality Research Group (HRG), headquartered in Atlanta, is the research affiliate of PKF Consulting, the international consulting and real estate firm specializing in the hospitality industry. PKF Consulting has offices in New York, Boston, Philadelphia, Washington DC, Atlanta, Houston, Dallas, Los Angeles, San Francisco, and Singapore.

PATA is calling for accurate, restrained and sensible travel advice and media reporting following the outbreak of severe acute respiratory syndrome (SARS) in certain cities. In a press release issued March 17, PATA said that the travel industry in the Pacific Asia region should follow the advice of the World Health Organization (WHO). PATA is urging that all travel and health advisories and media coverage be as geographically specific as possible, and not make alarmist general statements about the region. Further, it should be noted that the vast majority of suspected cases have been confined to hospital staff or family members in "close contact" with infected people. On March 15, the WHO issued a travel advisory that said: "There is presently no recommendation for people to restrict travel to any destination." The WHO's position has not changed since then. For further information on PATA's policy position on SARS, contact communications@pata.th.com. For WHO advice, visit http://www.who.org/int/mediacentre/releases/2003/pr23/en/

Conferences are going ahead as usual in Hanoi, Vietnam, the venue for the 8th Mekong Tourism Forum, March 28-30, 2003. The Hanoi Daewoo Hotel, the Forum venue, is today and tomorrow hosting a German Education Fair. The International Francophone Day, an international event with 200 delegates, is also going ahead as planned on March 19. PATA Vice President, Mr. Peter Semone, said: "Delegates who have registered for the event should take a cautious wait and see position. We still have time on our side. PATA is closely monitoring the situation and will keep delegates informed on a daily basis." The Hanoi Daewoo Hotel is a self-contained five-star property in the north of Hanoi city. Incidents of SARS have been confined to the Hanoi French and neighbouring Bach Mai hospitals in the south of the city. For World Health Organization advice, visit http://www.who.int/mediacentre/releases/2003/pr23/en/.

PATA and Warner Brothers Home Video are working together in a cross-promotion featuring the Kangaroo Jack!/See You in Pacific Asia 2003 Sweepstakes. The grand prize of the sweepstakes is a trip for four to Australia (the setting of the movie Kangaroo Jack!). The sweepstakes will be promoted in more than four million VHS and DVD packages, as well as in a special print advertising campaign. The sweepstakes will be hosted on the See You in Pacific Asia (SYIPA) Web site, and contestants can choose to opt-in to more travel information about Pacific Asia destinations. The home video release of Kangaroo Jack! is scheduled for June 10, 2003. The sweepstakes will run May-August 2003. For more information about SYIPA, contact PATA Marketing Advisor, Mr. Paul Cohen. Tel: (1-410) 224-7688. E-mail: paul@pata.org.

Air India is offering delegates to the 52nd PATA Annual Conference 75 percent off economy or business class fares on flights between India and Singapore and India and Jakarta. For accompanying persons the discount is 50 percent off economy and business class fares. Delegates who wish to take advantage of these fares should contact Air India Tourism & B.D. Division. Tel: (91-11) 461-8271. Fax: (91-11) 469-7673. To register for the Conference, please e-mail conference@pata.th.com.

Three PATA Task Force reports are now available: 1) PATA Macao, China Task Force: Learning from the Past, Re-engineering for Future Success 2) PATA Hangzhou, China Task Force: Gearing-up for International Tourism 3) PATA Bali Recovery Task Force Report. The reports provide practical advice for their respective host destinations and serve as useful case studies for others. Each report is priced at US$25 for PATA members and US$35 for non-members. For information and to order, please contact PATA Coordinator-Publications, Ms. Patcharin Hongprapat. Tel: (66-2) 658-2000 ext. 121. Fax: (66-2) 658-2010. E-mail: publications@pata.th.com.

PATA is inviting eligible executives to apply for one of four PATA scholarships to the 25th Executive Development Institute for Tourism (EDIT) programme in Honolulu, Hawaii, June 9-27, 2003. The three-week programme features lectures, class discussions, case studies, group presentations and field visits conducted by experts. The course is designed for travel industry professionals with managerial responsibilities. If your organisation is a PATA member, you are encouraged to apply. You may also apply on behalf of your employees. The application deadline is April 20. For programme and application details visit www.tim.hawaii.edu/edit/. E-mail: aye@pata.th.com.

PATA will soon launch a special section on www.pata.org where PATA members may extend exclusive deals on their products and services to other PATA members. The list of specially-priced products and services will be hosted in the members-only area of www.pata.org. PATA members should send information on their special-price offers to communications@pata.th.com.

** The new US$5.3 billion, 2,500 km railway link from Beijing to Kowloon in Hong Kong SAR has led to a faster and more efficient train service. Express trains typically run at 120-140 kph on the link, compared to an average 60 kph for trains in China (PRC) in 1999.

** Provisional figures from the International Air Transport Association (IATA) for January 2003 show all major regions posting positive results. January saw total scheduled international passenger traffic (in Revenue Passenger-Kilometres (RPK) terms) increasing 10.97 percent over January 2002. Overall capacity (expressed as Available Seat-Kilometres (ASK)) improved from 8.45 percent to 10.22 percent.

** Malaysia Airlines will inaugurate three-times weekly flights between Kuching and Kota Kinabalu, Malaysia and Guangzhou, China (PRC) on May 2, 2003. Garuda Indonesia has announced that services between Denpasar (Bali) and London Gatwick and Amsterdam Schiphol will resume on June 1, 2003. Garuda will also inaugurate Jakarta-Hong Kong SAR and Surabaya-Singapore-Hong Kong SAR services on June 2, 2003.

Sunday Express - Richard North, Six Continents' finance director, looks set to be forced out of the pubs-to-hotels group by its largest shareholders.

His ousting is the price they demanded for backing the board's demerger plan last week.

North had been lined up to become chief executive of the demerged hotel business but shareholders have been gunning for him. Last night one of them told the Financial Sunday Express: "North has failed miserably and the sooner the company gets a new CEO the better.

"He proved how poor he is at the EGM, where he gave a totally uninspiring, appalling performance."

Hugh Osmond, who failed on Wednesday in his attempt to postpone the demerger, has ruled out a second foray unless other bidders enter the fray.

This appears increasingly unlikely and Six Continents has already rejected a bid from CVC Capital Partners. Last week, the venture capital outfit told the Stock Exchange it was in talks to form a consortium to bid for the group.

But during a meeting last Thursday Tim Clarke, Six Continents' chief executive, told CVC the shareholders had given the board a vote of confidence to push ahead with the demerger so he would not consider its bid.

This is despite assuring shareholders last Monday that bids would still be considered and a committee of non-executives set up to vet them.

AFP - Strategic Hotel Capital, the US hotel investment group, is looking at the hotels arm of Six Continents, due to be demerged in April, the Financial Times reported.
Chief executive Laurence Geller told the paper: "We remain interested. The company is very much in play and we would like to be a player."

HVS International's London Office has released the latest edition of its annual review of European hotel value trends, the Hotel Valuation Index (HVI). The European HVI has tracked trends in hotel values in key regional markets since 1993. The survey covers upscale hotels in 28 gateway cities across the continent.

International tourist arrivals in Poland have been declining for five years but the Warsaw-based Institute of Tourism forecasts that some markets will begin to pick up in 2003 or 2004. Higher-spending west European countries will generate more visitors, and Eastern countries fewer. By 2007, the volume of tourist arrivals should have almost regained 2001 levels, with 14.8 million tourist arrivals forecast.

The Institute estimates that arrivals from Germany - Poland`s major market in terms of spending - will start to pick up this year, although visits from its eastern neighbours will not bottom out until 2004. Tourist arrivals from other international countries should also pick up a little this year and will grow steadily over the next four years. By 2007, Poland should receive a total of 14.8 million tourist arrivals.

City tourism is the major form of leisure travel, representing over 60 per cent of tourist arrivals. But stays in the various regions of Poland should increase as the range of tourism products grows and facilities improve.

There will be more business and leisure trips, says the Institute, and fewer VFR (visiting friends and/or relatives) and shopping trips, with a corresponding change in source markets. The Institute forecasts 3.8 million leisure trips to Poland for 2004 rising to 4.7 million in 2007. Business visitors will also grow to the same levels, say the Institute.

The tourist arrivals count (ie visitors spending at least one night in Poland) declined by 12 per cent in 2001, down from 17.4 million in 2000 to 15.3 million. Preliminary figures for 2002 point to a further 5.3 per cent decline.

The downward trend in tourist arrivals began in 1998, but the decrease in 2001 was larger than previous years - 2000`s count was down just 3 per cent in on 1999.

The chapter leadership of the Hospitality Sales & Marketing Association International`s (HSMAI) Americas division will meet in Chicago from April 2-4, 2003 for its Annual Leadership Forum.

"The HSMAI Chapter Leadership Forum is one of our most important initiatives in that it provides executive directors and presidents of the HSMAI chapters with the tools, ideas and inspiration to better serve and provide greater value to its members - a constituency of professionals in the hospitality and travel industry involved in the sales and marketing disciplines," states Robert A. Gilbert, CHME, CHA, president & CEO of HSMAI.

The meeting will focus on leadership, chapter management, education and membership, featuring: "Attributes for Success," a general session with Dr. Lalia Rach, associate dean and director of the Tisch Center for Hospitality, Tourism & Sports Management; "Leadership Success One Day at a Time" by Mark Levin, CAE, CSP, B.A.I. Inc.; "Winning the Value Battle: Selling Your Organization and HSMAI Affiliation" presented by Wayne Outlaw of The Outlaw Group; "Distinguish Marketing by Generational Segments" from Jim Gilmartin, president of Coming of Age, and remarks from Sal Dickinson, CHME, chief executive, Dickinson & Associates and HSMAI chair of the Americas.

Additionally, interactive sessions will focus on community involvement, communications, fundraising, awards and recognitions, leadership development, partnership development and web sites. The HSMAI "Best of the Best" Chapter Awards will be presented at a dinner hosted by American Express, recognizing chapters with the highest overall performance in nine disciplines.

Major sponsors of the Chapter Leadership Forum are American Express, Hotel & Travel Index, Newmarket International and USA Today.

TravelWeeklyEast.com - Armed with a new product and an aggressive sales and marketing team, Shangri-La Bangkok is set on becoming the leading hotel on Bangkok’s Chao Phraya river.

General manager Adrian Mueller said that despite the fierce competition in the Bangkok market, the new product, US$20 million later, and smart marketing will enable the hotel to claw back market share.

The renovation programme took two years, longer than expected as the hotel maintained full operations throughout the work.

This had its inevitable impact on business, particularly from European tour operators.

This year, the hotel is out to regain its position in tour brochures as well as corporate books.

Mueller said it was difficult to estimate the market share it lost over the last two years because “we had so many events that happened. September 11, Bali and now the threat of war”.

“But we are now focused on winning the business – we are going to every trade show this year. We had a good start to the year, the leisure segment for the first eight weeks of this year was up 30 percent over last year.

“In February, we did 78 percent occupancy and I know most of our competitors did well too.”

Competition
He is mindful of the competition, particularly from the Peninsula across the river, which has gained from the past two years of a weakened Shangri-La and has emerged as a formidable competitor.

Said Mueller, “They are a fierce competitor but also a friendly neighbour. We work together to make the case that the river is something special. But, of course, we compete. If I can steal one room night, I would. There would be no scruples.”

All work on guest rooms and public areas has been completed. The Horizon Club rooms and lounge have been re-designed to reflect a more contemporary feel.

A new spa is planned and will be completed by end of this year. Said Mueller, “We are very excited about our spa project, Chi, which we will manage by ourselves. We did not want to do it with someone and have another brand.

“We have taken a different approach by not following the South-east Asian/Bali-type spa in terms of design and treatments. Ours will incorporate European wellness with our Chinese heritage.”

Mueller said the Bangkok spa would become the showcase for other Shangri-La spas – the group is planning five to eight spas in the next couple of years.

“It means you can do it right and learn from others’ mistakes. The ones that are three or four years old already will have to reinvest. We will be launching our spa squarely in the five star segment.”

TravelDailyNews.com - In the tourism year 2002 4.75 million visitors from inside and outside Germany were registered in the accommodation sector in the city of Berlin: 3.6 percent fewer than in 2001. The number of overnight stays, at around eleven million, was 2.9 percent lower than the previous year.

The reason for these declines is the reticent travel behaviour of indigenous visitors: the ongoing despondent economic climate in the country was the main reason why hotels and guesthouses in the city on the river Spree last year welcomed 5.7 percent fewer domestic visitors (3.55 million) than in 2001. The number of nights which Germans spent in their capital (7.8 million) also fell by 6.3 percent. "During difficult financial times city trips, the classical second or third trip in a year, are cancelled in order to relieve the burden on a family`s finances", were the words used by Hanns Peter Nerger, Managing Director of Berlin Tourismus Marketing GmbH (BTM), to describe the regrettable current development.

By contrast, the results from the international markets are positive: last year 1.2 million foreign visitors to Berlin checked into the accommodation sector in the city: 3.2 percent more than 2001. The number of registered overnight stays even rose by 6.3 percent to a total of 3.2 million. Hanns Peter Nerger commented, "Whereas in 2001 the terrible events surrounding September 11 led to significant losses from foreign markets, the positive increase in numbers of arrivals and overnight stays by international guests in 2002 confirm that the negative trend in cross-border tourism has been overcome." This is also underlined by the proportion of overnight stays by foreign visitors of all registered overnight stays, which at 29.2 percent is 2.5 percent higher than last year.

This positive trend is particularly clear in the results for December 2002, as confirmed by the recently published figures of the Statistical Regional Office. The number of international visitors to the Spree in that month compared to December 2001 rose by 17.3 percent to 69,982. But Germans also paid more frequent visits to the Spree metropolis - in December 2002 a total of 238,624 (+2.5%). Overall, last December the Berlin hotels and guesthouses attracted 308,606 travellers from Germany and abroad (+5.5%). They spent 646,984 nights in the city (+0.4%). Moreover, the Spree metropolis in the twelfth month of 2002 proved to be extremely popular with hotel guests from Japan (+42.5%), Spain (+41%), France (+40%) and Italy (+25.4%).

The 560 Berlin hotels and guesthouses offered around 66,900 beds in December 2002, 3,900 more than in the same month last year. The average occupancy rate in 2002 of 45.6 percent was below the previous year level (49.9%). BTM Managing Director Nerger, "The results for the month of December still do not point to a breakthrough. The current political and economic situation has led to uncertainty amongst end users."

TravelDailyNews.com - The travel and tourism industry in the Arab region represents an annual economy valued at more than US$60 billion, which makes it the largest sector after oil. The World Tourism Organization (WTO) estimates that the region will generate more than 60 million travelers by the year 2020, a significant increase from 2002 level of 20 million travellers who spent over US$29 billion. Oil prices have surged, hitting a 26-month high on 10 February, but the consensus forecast is for the price to fall again to below US$30 by summer 2003 and perhaps to US$25 by this time next year.

But in the short term, in the last three months of crisis, the US Department of State has issued travel advisors in respect of Iraq, Bahrain, Qatar, Saudi Arabia, Syria, Lebanon, Jordan, Israel, Kuwait and Yemen. The advice is for Americans to avoid those countries. Other governments have also issued advisories in respect of some of these countries to their nationals.

It is interesting to note, nonetheless, that in January 2003 several Middle East destinations achieved excellent levels of demand - hotels at Cairo Heliopolis, Kuwait, Qatar, Dubai and in regional UAE all achieved occupancies in excess of 75 per cent. Indeed, there were only a few locations where demand was lower than last year - only in Manama, Alexandria and Abu Dhabi were occupancies significantly below those of 2002.

Generally speaking, average rates grew in January 2003 compared with January 2002 - by almost 50 per cent in Hurghada, by more than 40 per cent at the Egyptian Red Sea Resorts and by more than 35 per cent at Jumeirah Beach.

At two Egyptian locations revpar doubled over 2002 levels - Cairo Pyramids, and the Red Sea Resorts of Safaga, El Gouna and El Quseir - and doubledigit growth in revpar was the norm. Notwithstanding this growth, revpar levels in several destinations remain very low - the Red Sea Resorts only achieved US$15, Hurghada US$16 and Luxor and Alexandria only US$18.

This compares with revpar of US$167 achieved by the hotels at Jumeirah Beach and US$14 in Kuwait

FVW - TUI will continue to expand its hotel portfolio in 2003 with 21 new properties in nine destinations. TUI Hotels & Resorts, currently with 150,000 controlled beds in 287 properties, increased turnover last year to EUR 1.5 billion through 285 hotels and clubs in 30 countries from EUR 1.3 billion in 2001.

Openings this year include the first Riu hotels in Croatia and Rumania, 10 other Riu properties, two Grecotels and new Robinson and Magic Life clubs. In Greece, TUI and partner Grecotel will also invest EUR 53 million in a new resort complex at Kyllini on the western Peloponnes where three new or modernised hotels will open in 2004.

In Egypt, TUI is shaking up its hotel portfolio by selling off its 25% stake in Swiss Inn Hotels & Resorts, which operates eight hotels. "We did not have the opportunity to increase our holding and thus decided to dispose of the minority stake," said TUI Hotels & Resorts chief Peter Seeger. Instead, the German group has bought 50% in hotel chain Sol y Mar, which has nine four and five-star properties in Egypt with 3,162 beds.

Newsletter - March 19, 2003