Business travel drives Hong Kong hotels

China Travel Services

Tuesday, September 7, 2004

(Reuters) -- A rise in corporate travel is boosting occupancy rates at luxury Hong Kong hotels, but a surge in mainland China tourists has yet to fuel hotel profits across the board, said industry experts.

"Corporate clients will stay in top-end hotels but those hotels focusing on mainland tourists are not yet benefiting in terms of room rates," said Alvin To, research director at international property consultant DTZ Debenham Tie Leung.

To said Hong Kong hotel demand rose only four percent in the first half of the year compared to the last quarter of 2002, the period before Beijing freed up travel rules to allow residents from a handful of Chinese cities to visit Hong Kong on their own.

Many industry watchers had expected a hotel supply crunch with over six million mainland tourists visiting Hong Kong in the first half of this year to shop and dine out. But most tourists currently visit from neighbouring Guangdong province and make short hops into Hong Kong leaving hoteliers with more empty rooms.

Hotel occupancy rates dropped to 85 percent in the first half year versus 86.2 percent in the final 2002 quarter, according to DTZ.

To, however, expects Hong Kong hotels to gain more mainland China business in the near future with nine cities in northern China now eligible for the individual travel scheme. He estimates over 21 million mainland China tourists will visit Hong Kong by the end of the year.

Hong Kong's tourism promotion body expects the number of visitors to grow by 32 percent from SARS-hit 2003 to a record high this year.

Strong demand from corporate travelers is fuelling profits for deluxe hotel chains as Hong Kong's position as a gateway to China spurs visits by an army of investment bankers, lawyers and China sourcing agents.

Deluxe hotel operator Shangri-La Ltd., which operates two hotels in the city, has posted record first-half profits driven by strong demand in the China region.

It posted an 11-fold increase in first-half net profit to $68.69 from $5.60 in the year-ago period.

"We expect room yields to continue growing through the end of the year," said Giovanni Angelini, CEO of Shangri-La Hotel and Resorts at a press briefing.

Angelini said room yields in Hong Kong rose 18 percent in the first half to (U.S.)$145, compared to $123 in the first half of 2002.

Hoteliers prefer to use 2002 as a comparative measure this year after SARS devastated travel to the region in the first half of 2003.

Shangri-La, which makes the bulk of its profits from the Greater China region, said the hotel group had yet to witness a resurgence in long haul leisure guests from Europe and the United States.

"They are here but not back the way we expected, but occupancy rates by the second half of the year are on their way up," Angelini said.