Bali Bombings: Devastating blow to Bali tourism

CNN-- The tourist island paradise of Bali could take years to recover from the devastating blow to its image caused by the weekend bomb attacks, travel agents predicted.

Britain's Foreign Office advised Britons not to travel to Bali and thousands of Europeans as well as Australians and Americans were expected to cancel their bookings, with many on the island leaving straight away.

Drawing on the experience of a militant Muslim terror attack in Egypt's Nile resort of Luxor five years ago, British agents said tour operators would scale down operations in Bali in the immediate future and the full impact of the attacks could last much longer.

"It will take a couple of years to get back to normal," Keith Betton, spokesman for the Association of British Travel Agents (ABTA), told Reuters.

Bali, one of the world's most popular destinations, attracts everyone from jet-setters to student backpackers, especially from Australia. But its reputation as a safe haven has been shattered by the weekend blasts.

"What I've heard from one or two people is October 12 is the new September 11," said Simon Calder, travel writer on London's Independent newspaper.

"People are thinking if tourists are targets for terrorists in places like Bali, then where in the world is safe? The short answer is these days nobody can be sure," Calder told Sky News.

European tour operators said it was too early to tell what long-term effect the bombings would have.

"Some travellers will naturally go out and cancel their travels to Bali on Monday," said Robin Zimmermann, spokesman for Europe's biggest travel group TUI of Germany. "But... there is a process of getting back to normal after a certain time."

Zimmerman said TUI had decided not to send any customers to Bali for a week as a precautionary measure.

"We are breaking the contract with our clients," Zimmermann said. "We are doing this as a measure until the foreign ministry issues guidance."

Markus Ruediger, spokesman for Thomas Cook, the European travel giant, said measuring the impact on travel to Bali would take more time.

Ruediger said his company had so far not received a flood of requests from its approximately 500 customers on Bali who wanted to return home.

"At the moment it's too early to say who will be flown out," he said. "We're in contact with the foreign affairs ministry and we'll decide about further flights to Bali in the next 24 to 36 hours."

Switzerland's biggest tour operator, Kuoni, said it was not taking Bali off its list of destinations, pending further information.

Kuoni would allow its customers to cancel trips to Bali without penalty while the 81 of its customers on the island could return early without additional costs, a spokesman said.

British tour operators said they were heeding Foreign Office advice against travelling to Bali. (Full story)

"They will certainly be downscaling their operations in Bali, because clearly for a while it's going to suffer from an image problem," ABTA's Betton told Reuters.  

Hotel Investor Interest Remains Strong, Despite Lack Of Transaction Activity

London — Jones Lang LaSalle Hotels’ latest Digest research reveals that hotel investment activity across continental Europe in the first half of 2002 has been subdued in comparison with the first half of 2001. Many potential sellers appear to have chosen to keep their transaction plans on hold until the trading outlook improves. According to the Digest the situation is similar in the UK hotel investment market, although interest remains strong. The research suggests that this situation will continue in the short term, although there are signs that more assets are being brought to the market.

This latest Digest research has revealed that despite the depressed economy, real estate has remained a solid investment, with hotel investment increasingly being accepted alongside other, more traditional forms of real estate. “Many investors see opportunity in the current environment but are understandably very thorough in underwriting deals”, says Nick Marsh, Executive Vice President, Jones Lang LaSalle Hotels.

Activity in the London market in the first half of the year was restrained. The only significant single-asset transactions were the sale of 47 Park Street by the Accor/Blackstone/Colony Capital consortium, and the sale of a stake in the freehold interest in the London Hilton on Park Lane. More single-asset sales may take place towards the end of 2002 as owners rationalise their portfolios after the spate of corporate deals that took place in the second half of 2001. “Gaining or strengthening representation in the strategic London market continues to be vital for many operators”, adds Nick Marsh.

The regional UK market has also been illiquid, with the only significant transaction over (£10m) to date being the transfer of ownership to Six Continents of the turnkey Crowne Plaza project in Birmingham. A number of smaller transactions, involving mainly private purchasers took place during the year as operators such as Corus, Regal and Six Continents have rationalised their portfolios after the events of 2001. “Trading in regional UK markets has remained largely stable, with operators concentrating on increasing distribution in key markets”, states Nick Marsh.

In 2002 the sale-and-leaseback structure has been more widely adopted, not only in the UK, but increasingly also across Europe. Investors have recognised the potential benefits of investing in the hotel industry through these innovative structures. “The pressure for operators to deliver maximum value to shareholders and to free up capital for growth has fuelled this trend and, while this pressure exists sale-and-leaseback structures will continue to grow in popularity”, continues Nick Marsh. Consequently, a number of operators have found themselves with significant war chests of available capital. They will use this capital to reduce borrowings, make strategic acquisitions or return cash to investors.

If trading stabilises in 2003 and pricing begins to converge with investor expectations, investment activity in Europe may also begin to gain momentum. Property remains an attractive asset class compared to shares and gilts, and cash inflows to German funds and Private Equity should remain high. Private Equity firms, for example are currently leading the bidding on Travelodge. Banks are currently willing to lend to established buyers, albeit retaining an air of caution, and interest rates look set to remain at historically low levels. In the coming months buyers will look to invest in markets that have been identified as being at the low point in the present cycle.

Peace talks for WTM

World Travel Market will be playing host to the International Institute for Peace through Tourism (IIPT) on November 11.

The event is the platform for outlining details of the Second Global Summit on Peace through Tourism organised by IIPT in partnership with the World Travel & Tourism Council (WTTC), taking place at the UN Conference Centre, Geneva, Switzerland from February 5-8 2003.

The goals of the second summit will be to continue building a culture of peace through tourism in support of the UN Decade of Peace and Non-violence for the Children of the World; to develop a coordinated strategy for poverty alleviation through tourism and to nurture partnering relationships focused on initiatives in support of the first two goals.

IIPT president Louis D'Amore said, ÒIt is in the travel industry’s enlightened self interest to work towards the realisation of a peaceful and stable socio-political environment in which world travel and tourism can thrive.

The Second Global Summit will build on the achievements of the Amman Summit endorsed by tourism leaders from more than 50 countries, and incorporated as an official UN document

Marriott has become Air China's co-pilot

China Daily  - Hotel giant Marriott International and Air China, the nation's largest airline, have teamed up to find new ways of building customer loyalty.

They announced the alliance in Beijing last Friday.

Guests of Marriott's 2,300 hotels will receive air miles, while Air China customers will receive discounts on their hotel accommodations.

"Because of Marriott's worldwide fame and number of hotels, the partnership will make Air China more attractive to our foreign business passengers," Zhang Chunzhi, general manager of Air China's marketing department, said.

The partnership, she said, will not be limited to the frequent-guest programme. For example, Marriott will manage hotels owned by Air China.

A new luxury Marriott hotel, in which Air China has invested, will open in Beijing later this year.

Air China is considering having Marriott manage Air China's solely-owned towers that include offices and luxury hotels in Beijing, Zhengzhou, Henan Province; and Hohhot, Inner Mongolia Autonomous Region, Zhang said.

"In accordance with market demand, we are examining with Marriott further areas of co-operation," Zhang said.

The deal is expected to help Marriott enhance its expansion in the Chinese market, Daniel Lai, Marriott's director of sales and marketing in China, said.

Marriott International last year realized a global turnover of US$20 billion.

Marriott has 27 hotels in the Chinese mainland under six of its 12 brand names - including Marriott, Renaissance, New World and Ramada.

The Ritz-Carlton, a super luxury hotel under the Marriott Group, will soon open a five-star hotel in Beijing's Financial Street.

It will be the first - there is one in Shanghai - Ritz-Carlton in Beijing.

Marriott trails Six Continents Group, its main competitor, on the Chinese mainland. Six Continents has 40 hotels throughout China.

Six Continents is reportedly planning to introduce its Holiday Inn Express chain - which features comfort at economy rates - in the Chinese market.

That could increase to 100 the number of Six Continents' hotels in the Chinese mainland.

Marriott has yet to open any of its mid-level hotels, such as Fairfield Inns, in China.

But, Lai said, Marriott is looking at that option. He did not provide a timetable.

Demand in China for economy hotels is rising, says Liu Chenxing, general manager of Shenzhen-based Silver Glory Tourism Consultancy.

Domestic travellers, in particular, want such accommodations, Lai said, which creates great market opportunities for foreign hoteliers.

"For them, an important resource to be utilized in China is the numerous existing two-star hotels," Liu said.

China has more than 6,000 hotels designated as one-star or greater, indicate official statistics.

Rest houses controlled by government departments and large State-owned companies such as Air China is another valuable resource for China.

Many travellers, however, feel services at these facilities are far from satisfactory.

Marriott could turn Air China's rest houses into major sources of revenue, and subsequently help the airline improve its accommodation services, industry analysts said.

Poor management has been blamed for an April accident involving an Air China flight in South Korea that left more than 120 people dead.

Air China last Thursday infuriated passengers when it would not apologize for cancelling a flight from Shanghai to Beijing due to mechanical reasons.

Domestic China travel hits 80 million this month

The China National Tourism Administration (CNTA) reports 80.71 million mainland Chinese travelled throughout the country throughout the weeklong October National holiday, up more than 26 percent over last year.

The holiday period also brought in a 22.4 percent increase in tourism revenue.

CNTA vice chairman Sun Gang says a number of Chinese travellers have learned from past experiences and are learning to avoid the holiday rush by departing earlier and extending their days of leave.

Public Entities & New Hotels –  A Fine Balance

Written By:  Michael T. Sullivan &
Marshall A. Bendelac  HVS International

In today’s real estate development and capital market environments, developing new hotels may be the toughest and most complicated projects to complete.  Debt and equity markets are often very restrictive in terms of access and cost.  Depending on the scale of a proposed hotel development project, deal economics (development costs versus cash flow potential) often inhibit the investor’s ability to achieve an adequate return on capital.  

Unlike other real estate assets, hotels are unique in their intensive management requirements, daily lease turnover, high operating and financial leverage, time to stabilization, and capital markets liquidity.  Additionally, operator agreements, development contracts, franchise agreements, and land leases can cause the capital structures of these projects to become quite complex endeavors.

Newly built (or expanded) convention centers and airports typically require additional hotel rooms, in order to house the forecasted increase in localized human traffic.  Due to logistical purposes, the proximity of available hotel rooms to these publicly-owned facilities is imperative.  As such, ideal convention center headquarters hotels are usually built adjacent to their convention halls, and airport hotels are built either in-terminal or only a shuttle’s distance away.  

Therefore, when planning the development or expansion of convention centers and airports, sponsoring cities and counties are faced not only with their public facilities’ issues, but also with various questions and concerns regarding new hotel supply.

Most public entities have traditionally solicited private interest for new hotel developments utilizing an RFP/RFQ process.  Although this process has, at times, been managed internally, because of the difficulties in actually transacting a deal, public entities have begun seeking out third-party consultants in greater frequency to assist them with their new hotel projects.  This is generally due to the frustration in understanding all of the construction, financial, and operational aspects inherent in new hotel projects, leading public entities to draw on the broad expertise of seasoned hospitality professionals.

Prior to a new convention center or airport hotel breaking ground, several hurdles typically must be cleared.  First, the public entity must have confidence in, and an understanding of the economic, political, and legal soundness of the project.  If, for example, a project’s economics add up, however, the risk of serious adverse effects to the local hotel industry is significant (potentially due to the introduction of a publicly-funded hotel, below market rents, etc.), a public-private hotel development project may not move forward.  

Likewise, if it is determined that the local hotel community will benefit from a convention center hotel (indirectly due to an increase in overall tourism in a city or county), but financing alternatives to develop the hotel are too expensive to yield a profitable project, the end result might likely be the same.  This leads to several key issues regarding financial sponsorship that a public entity should consider when planning a hotel development project.  These include the amount, form, duration, and financial return (to the municipality) of the public support, but most importantly, a public entity needs to evaluate the necessity for such consideration. 

In order to resolve these issues, a public entity will first engage an advisor (usually external) to perform a feasibility analysis.  This study will recommend the optimal size for a given project, identify competitors in the market, and present a financial proforma for the new-build hotel from which financial modeling can then begin.  Such forecasts of income of expense help to determine the economic strength of the project, and are critical in establishing the appropriate method of financing for the project.  Once the economic aspects and expectations of the development project are understood, various capital and ownership structures should be analyzed. 

Typically, third-party consultants, investment bankers, etc., will be hired to generate financial models that should cover the broad spectrum of available options to a public entity.  This should include an all-encompassing presentation of financing alternatives (public, private, and public-private) accompanied by quantifiable analyses outlining the advantages and disadvantages of each.  Because a large portion of the financial return from a hotel is derived from tax revenues, project tax analyses illustrating the net benefit to the city, county, and state should be built into these models.  Proposed methods of capitalization must also take into account the appropriate sharing of risks and returns, given their capital and ownership structures. 

This is to ensure that all options presented to the public entity are “real world,” and can be transacted if required.  Should the requirements of one piece of the financial puzzle not be satisfied, the entire project may be jeopardized.  As such, it is crucial that the financial modeling process be performed meticulously, while adhering specifically to the public entity’s economic, political, and legal capabilities.

While the studies and analyses discussed above deal mainly with the objective facets of a hotel development project, a municipality’s resolution after evaluating its options may be heavily imparted with subjectivity, due to the environment in which such an entity operates.  This may suggest one reason why these transactions may extend beyond the average timeframe for regular hotel development deals.

Once the project economics have been thoroughly analyzed and approval is given by a public entity to move forward, the next stages include the selection of, and negotiation with a qualified developer and hotel manager.  Depending upon its involvement in the project, a public entity may participate closely in these processes or rely on its financial advisor to act in its best interest.  This heavy or light involvement in a hotel development project on behalf of a municipality will continue through the stabilization period of a completed project, again, based upon the public entity’s elected involvement. 

Often at this point, specialized asset management benefits the municipal entity.  Such asset management not only oversees the physical structure (ensuring that the hotel is maintained and operated at desired levels), but also closely monitors the deal’s financial agreements.  Public entities usually have a long-term, financial exposed position or benefit from a new hotel project.  Frequently, some aspect of public debt is utilized to provide financing for a project.  Alternatively, public entities may be entitled to lease income, etc.  Due to this, careful monitoring and compliance with the financial aspects of these transactions, by the asset manager, is a necessity.

We have explored several of the critical moving parts involved with public-private hotel development projects.  By nature, these transactions tend to stretch over extended periods of time and require consulting based upon various fields of expertise.  As public entities continue to seek out the required assistance from qualified experts in order to produce the most cost-efficient and financially viable hotels for their cities and counties, competition for such engagements is only strengthened in this niche business market.

Michael T. Sullivan    /   Marshall A. Bendelac
HVS Capital Corp.

Hanoi venue for 8th Mekong Tourism Forum

The Pacific Asia Travel Association (PATA) will hold the 8th Mekong Tourism Forum from March 28-30, 2003 at the Hanoi Daewoo Hotel, Hanoi, Vietnam.

National tourism offices, government officials, airline leaders, hoteliers, tour operators, travel agents and media from Cambodia, Lao PDR, Myanmar, Thailand, Vietnam and Yunnan, China (PRC) will meet to discuss key issues of selling the Mekong and mutual cooperation within the Greater Mekong Sub-region.

The theme for the Forum is Innovation: Selling the Mekong in a Dynamic Marketplace. Panellists will debate issues such as customer and market needs, Mekong destination cohesion in tourism development and the role of local tourism associations. Breakout sessions will focus on market intelligence, customer relationship management and niche markets.

Despite global tourism passing through a challenging period, the Mekong region has shown great resilience. According to the PATA 2002 half-year report, Myanmar and Vietnam received visitor arrivals increases of 12 percent and 10.1 percent respectively for January-June 2002, compared to same period 2001. Cambodia increased 7.8 percent, Thailand 6.4 percent (January-July) and Lao (PDR) 34.6 percent (January-March).

"The region is really starting to raise its tourism profile," said PATA vice president-development, Peter Semone. "As a venue, Hanoi offers an intriguing mix of old and new, with many well-preserved old buildings. We expect a strong turnout."

The 8th Mekong Tourism Forum is organised by PATA in collaboration with the Asian Development Bank (ADB) and the Economic and Social Commission for Asia and the Pacific (ESCAP). The Forum is being hosted by the Vietnam National Administration of Tourism.

Registration for PATA members is US$120 per delegate, US$200 for non-members and US$50 for spouses for social functions only. Earlybirds will receive a US$20 discount for registering before February 28, 2003. A late fee of US$20 will be levied for registrations received after March 1, 2003.

For more information, please contact PATA Manager-Support Services, Aaron Tan. Tel: (66-2) 658-2000 ext. 125. Fax: (66-2) 658-2010. E-mail: aaron@pata.th.com. Or visit PATAnet at .

AH&LA's President Joe McInerney Updates

Dear Friends & Colleagues:

With Election Day less than a month away, Washington is buzzing about which party will control the House and Senate when the 108th Congress begins in January. As you know, both the House and Senate are very narrowly divided between Republicans and Democrats. As the election nears, it is very important that you are informed about where the candidates stand on issues affecting your business. Also, it is absolutely critical that you vote on November 5. If you are not registered to vote, you may do so via a Web site that the U.S. Chamber of Commerce has put in place at .

Another big November event is AH&LA's Fall Conference, held in conjunction with the International Hotel/Motel & Restaurant Show® and the International Hotel & Restaurant Association Congress. The International Hotel/Motel & Restaurant Show® is a premier trade event for the hospitality industry. Each year, over 45,000 attendees and 2,000 exhibitors meet for four days of concentrated and intense business. Exhibitors showcase the newest products and services available to the industry.

Additionally, AH&LA's Fall Conference includes meetings of AH&LA's committees and its Board of Directors. Decisions affecting our industry will be made during this conference. AH&LA is also hosting an Inaugural Gala Dinner honoring Michael K. Handlery, senior vice president of Handlery Hotels, who is AH&LA's incoming chairman for 2003. Don't miss this opportunity to voice your opinion and mingle with other lodging industry leaders. Register today for the Fall Conference and the Inaugural Gala Dinner!

I will update you again in two weeks with all that AH&LA is doing to strengthen the lodging industry and your business.

Thank you,

Joseph A. McInerney, CHA
President, AH&LA