Pandemic Affects Hotel Sector Unevenly

Photo: Shangri-La's Far Eastern Plaza

Urban hotels dependent on global travelers are struggling with low occupancy rates, while rural properties catering to the domestic market are doing a brisk business.

By late May, Taiwan had corralled the coronavirus. With no sign of local transmission and minimal imported infections, people began venturing out again. Aside from temperature checks at the door and masked employees, a semblance of normalcy returned to many restaurants and bars.

That impression was reinforced during a recent visit to the Okura Hotel’s lobby lounge in Taipei’s Zhongshan district. Arriving at 9:15 p.m. after an excellent Japanese meal nearby, I figured there would be ample time for a shochu nightcap. Alas, the staff told me that last call would be at 9:30. The reason: “Because of the pandemic, we’re closing at 10 now instead of midnight.”

That made for a quick nightcap indeed. Still, it was an improvement over a visit to the W Hotel’s Yin Bar a few weeks earlier. When I arrived at 10 p.m. that evening, they were already shutting down. Usually, Yin Bar is buzzing at that hour.

The pandemic has hit Taipei’s five-star hotels hard. They rely on international visitors, usually a combination of business and leisure travelers. The domestic market usually accounts for no more than 20%-30% of their business.

Taiwan’s borders have been closed to foreign tourists since March 19. “Hotels reliant on international business are really struggling,” says CK Cheng, founder and chief executive officer of AsiaYo, a Taipei-based vacation rental platform. “Some have occupancy rates as low as 3 to 5%, compared to more than 60% normally.”

To be sure, Taiwanese are traveling again as fear about COVID-19 within Taiwan’s borders subsides. But they are choosing far-flung locales like the unspoiled offshore islands of Matsu (population 12,716) off the coast of mainland China’s Fujian Province, or the idyllic Penghu archipelago, which has Taiwan’s best white-sand beaches. Taiwan’s scenic east coast is also a top destination.

“When Taiwanese go on holiday, they don’t usually go to Taipei,” says Chen Ming-ming, founder and chief executive officer of Taipei-based travel activity booking platform kkday. “It’s not where you go to get away from it all.”

In addition, properties in Taiwan’s rural areas are usually smaller than the city hotels, which may have hundreds of guestrooms to fill. A typical bed-and-breakfast has anywhere from 5 to 15 rooms. It doesn’t take much for them to reach capacity.

The abundance of B&Bs in places like Penghu and the southern beach town of Kenting – it previously seemed to be oversupply – is coming in handy as Taiwan approaches summer vacation. Young people who would ordinarily travel overseas will hit the beach at home instead, Chen says.

Colorful B&Bs at Penghu’s Shanshui Beach. Photo: Matthew Fulco

Matsu, which is geographically much closer to mainland China than Taiwan, will attract adventurous travelers. Many of its lodgings are homestays a stone’s throw from quiet beaches. Some units lack air conditioning, Wi-Fi, or even proximity to a convenience store. But the lack of amenities does not appear to be a deterrent. For the four-day Dragon Boat Festival holiday weekend last month, 98% of Matsu properties on were occupied.

For the same period, Kenting and Taitung were 100% booked, Hualien 99%, Tainan 97%, and Penghu 85%. In contrast, rooms for the entire holiday weekend were available in 568 Taipei properties.

For AsiaYo, bookings have risen steadily early April, when a surge in domestic travel during the Tomb-Sweeping Festival holiday weekend prompted the government to recommend that travelers who had visited crowded places during the holiday practice self-health management for 14 days and avoid public spaces. Fear of community transmission lingered throughout the month, which also saw a coronavirus outbreak on a Taiwanese navy ship. Fortunately, only 24 sailors were infected and community transmission did not occur.

By mid-May, AsiaYo’s bookings were up compared to a year earlier on the back of demand for non-urban vacation rentals. Cheng expects positive year-on-year growth in June of up to 100%, with inventory running low for the Dragon Boat Festival holiday.

Survival of the fittest

For hotels in Taipei, 2020 has been the toughest year in memory. It didn’t start out that way, though. January was largely unaffected, as the coronavirus outbreak in China only became apparent late in the month. Occupancy in Taiwan’s tourist hotels was 62.5% in January, down 8.3% over a year earlier, according to property services consultancy CBRE. The decline can be attributed largely to China restricting its citizens from visiting Taiwan except in tour groups, a rule that came into effect last summer.

By February, as the virus tore through China, occupancy in Taipei’s tourist hotels had plunged to 30.5%, a 40% decrease over the same period a year earlier. At that point the situation began to look grim. “The cancellations started to accumulate in February and March as countries closed down, one after another,” says Randy Zupanski, general manager of the Shangri-La Far Eastern Plaza Hotel Taipei.

By March, the occupancy rate in Taipei had fallen to just 11.3%, down more than 70% year-on-year. Total visitor arrivals fell 93% that month from 1,079,000 a year earlier to only about 78,000.

In March and April, business was so slow that some five-star hotels used their restaurant kitchens to produce lunchboxes for office workers in nearby office buildings, says kkday’s Chen. “It was a way to generate revenue, especially as business was slow at the restaurants.” 

Several five-star hotels have not survived the pandemic. Thus far, those exiting the market tend to be laggards that were already struggling amid an oversupply of rooms in Taiwan’s major cities. The Landis Hospitality Group shut down its Taichung hotel in March. That property had rarely broken even, reaching the black only once in its 13-year history, according to media reports.

On April 30, the Tayih Landis Hotel Tainan announced it would permanently shut down on June 30, citing a steep decline in business caused by the pandemic.

In late May, the Mandarin Oriental Taipei, one of the capital’s top luxury hotels, announced it would suspend guestroom operations starting June 1 and lay off 212 employees. Its restaurants remain in operation. In a statement, the Mandarin Oriental said the timing for reopening guestrooms would depend on when international tourism in the region recovers. Japanese and Hong Kong business travelers are among Mandarin Oriental’s largest sources of customers.

Mandarin Oriental could have applied for financial relief from the Tourism Bureau, which has prepared bailout funds for distressed hotels. The luxury hotel may have decided against doing so because international business travel and tourism will not rebound in the short term.

The tourism aid program that the Executive Yuan rolled out in April offers up to NT$18,960 (US$629) to each hospitality-industry worker furloughed during the pandemic. Loans of up to NT$50 million are available to hotels, travel agencies, and amusement parks, while B&Bs can apply for loans of up to NT$16 million.

In June, the Ministry of Transportation and Communications, which oversees the tourism industry, announced a new NT$3.9 billion subsidy plan for the travel sector, effective from July 1 to October 31. The ministry estimates that the plan will generate NT$23.5 billion in business.

As part of the plan, every Taiwanese national is eligible for a NT$1,000 subsidy for one night’s stay at a hotel on Taiwan’s main island. The subsidy can be used a second time for travel to Taiwan’s outlying islands.

While government support will help the overall tourism industry, Taipei hotels are unlikely to reap much benefit. Occupancy rates at Formosa International Hotel Corp’s flagship property, the Regent Taipei, averaged just 20% in June compared to 80% a year ago, group chairman Steven Pan said at a shareholders’ meeting.

Each of the to-go meals that The Regent Taipei sells is accompanied by a card guaranteeing the safety of the food’s preparation. Photo: Regent

Waiting on a recovery

For Taiwan’s hotel sector to recover, the pandemic must be brought under control. Otherwise, Taiwan’s borders will remain closed, and occupancy rates in the large cities will hover at 20-30%. Some hotels cannot survive another six months without international guests, even if the government offers generous support.

There is some cause for measured optimism. In East Asia and Oceania, the virus is ebbing. Taiwan itself has not had a locally transmitted case for more than 60 days as of this magazine’s publication time. Vietnam, Thailand, Hong Kong, Macau, Australia, and New Zealand have also contained the coronavirus and are taking measures to reopen their economies.

From June 22, business travelers from countries and territories Taiwan deems low and medium risk for COVID-19 are permitted to visit Taiwan without undergoing a 14-day quarantine – it will be reduced to five days – provided they meet certain criteria. Besides the usual documents needed for a business trip, they will need to submit a negative COVID-19 test certificate from a test conducted within three days of their flight to Taiwan, a “disease prevention plan,” and a travel itinerary.

Hong Kong, one of Taiwan’s largest sources of business travelers, is considered low risk. Other key Asia business traveler markets are considered medium risk: Japan, South Korea, Singapore, and Malaysia.

Shangri-La’s Zupanski sees the economic downturn adversely affecting business travel, even after the pandemic ends. “A recession will have as much if not more impact on the corporate travel market,” he says. As companies look to tighten their belts, “business travel slows down.”

Another factor affecting business travel is the rise of virtual meetings. “Business travel could decline because of webinars and Zoom [the video-conferencing software], especially if costs are a major consideration,” says Achim von Hake, general manager of the Sherwood Taipei.

He expects the MICE (meetings, incentives, conferences, and exhibitions) market to be slow for some time, while the global FIT (free independent traveler) market could recover relatively fast once travel restrictions are lifted.

In Taiwan’s case, a so-called “travel bubble” in which regular travel is restored between the island and some of its key tourism markets – for instance, Hong Kong, Japan, South Korea, and Singapore – could provide a huge boost to the beleaguered hotel sector.

However, politics could prove to be as big a stumbling block as concerns about the virus. Reportedly, China has pressured countries to include Taiwan in a travel bubble only if the PRC is also included. It remains to be seen whether other countries will bow to Beijing’s pressure. A new coronavirus outbreak occurred in the Chinese capital in June, suggesting the virus remains at large in the world’s most populous nation.

 Even if Taiwan lifts restrictions on Chinese travelers, Beijing’s regulations currently allow visits to Taiwan by tour groups only. Given the tense cross-Strait relations, China might extend the ban to FITs. 

It could be six months to a year before Chinese tourists return to Taiwan, says Ping Lee, CBRE Taiwan’s head of research. “Some Taiwanese hoteliers will be disappointed, because they feel it’s an easy market to develop.” In the long run, however, Taiwan’s tourism market will reap substantial benefit from the nation’s success containing the coronavirus, says von Hake. “Taiwan will gain global recognition as a safe destination.”

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