The COVID-19 outbreak that began in mid-May has brought hotels to their knees. Without a larger relief package, some may not survive.
For most of the coronavirus pandemic, domestic tourism has been a bright spot for Taiwan’s hotel industry. Many hotels and B&Bs outside of Taipei – which is more reliant on the international market – had a record year in 2020 as Taiwanese vacationed at home instead of overseas.
All that changed overnight in mid-May, when the government implemented a Level 3 national alert in response to a sharp uptick in COVID-19 cases. The measures do not forbid travel, but they do ban indoor dining and require cultural and entertainment venues like museums and amusement parks to close. Since the alert was announced, occupancy rates at major hotels have plunged into single digits, an unprecedented nadir. Worse yet, hotels cannot fall back on their restaurants for relief as they had done prior to the outbreak. Food and beverage revenue is just a fraction of the normal amount.
Room occupancy at The Sherwood Taipei, for example, is 8-9%, while F&B revenue is down 80% from the pre-outbreak period, says the hotel’s former general manager Achim von Hake.
“What really, really hurt was the ban on indoor dining. That was the last straw,” says Steven Pan, executive chairman of Formosa International Hotels Corp. (FIH), which owns the Regent, Silks, and Just Sleep brands. The restrictions have forced FIH to temporarily suspend operations at some of its hotels, while others are being used to accommodate medical personnel or for quarantines.
“Right now, the hotel industry might as well be on Level 4,” says Pan, referring to Taiwan’s highest COVID-19 alert level. “The only thing we can do is food delivery and takeaway.”
Randy Zupanski, general manager of Shangri-La’s Far Eastern Plaza Taipei, says that the hotel’s event business has ground to a complete halt for the foreseeable future. “Weddings for July and August are all canceled.”
He asks how hotels can maintain staff if there is no business coming in and no work for them to do. For a time, “they [staff] can use their annual leave and they can take voluntary unpaid leave. But at a certain point, what do you do?”
CK Cheng, founder and CEO of vacation-rental platform AsiaYo, says that hotels in Taiwan currently fall into three categories. “25-30% have suspended operations, another 25-30% have drastically reduced operations, and the rest are thinking about choosing one of those two options,” he says.
After Taiwan entered Level 3, AsiaYo’s bookings fell 95% year-on-year. More than one-half of the B&Bs that use the platform have temporarily shut down. “What really surprised us is that some B&Bs are not taking bookings through August, which shows they are not optimistic at all about the situation,” Cheng says.
Even quarantine hotels, properties that have rejiggered themselves to accommodate overseas arrivals who must spend 14 days in quarantine, are suffering now. On the one hand, there are fewer overseas arrivals. The Level 3 alert bans foreigners without a residence certificate from entering the country, and given that Taiwan is no longer COVID-free, Taiwanese living abroad are reluctant to visit. The government did relax home quarantine rules for a period, permitting one person per room rather than one person per household. Given the choice of spending the 14-day quarantine at home or in a hotel at a typical cost of NT$1,500-NT$3,000 a night (depending on the property), many people will choose the former option.
Yet the Ministry of Transportation and Communications (MOTC) pushed ahead with a plan to make 20,000 additional hotel rooms available for quarantine purposes, creating a supply glut. According to The Taipei Times, the average occupancy rate at quarantine hotels fell to 39% in early June from 59.7% on May 19, the day Taiwan implemented the Level 3 restrictions. Occupancy may begin increasing again, however, as several confirmed cases of the coronavirus’ more transmissible delta variant forced the government to nix the home quarantine option altogether in late June. All international arrivals will now need to stay in quarantine hotels or government quarantine centers.
Stronger relief needed
Amid these tough circumstances, hoteliers say that they need substantial government support to help them stay afloat. Yet thus far, the relief package for the tourism industry is no higher than in the spring of 2020, when the situation was less dire. At that time, the government offered up to a 40% wage subsidy – a maximum of NT$20,000 per employee – for hotels (as well as tour operators and restaurants) that maintained normal operations and provided vocational training to their staff.
Shangri-La’s Zupanski suggests that the government evaluate hotels’ subsidy needs by location. “The overhead cost of operating a hotel in downtown Taipei is much greater than in a less prime location. A one-size-fits-all solution doesn’t make any sense,” he says.
FIH’s Pan urges the government to provide subsidies covering 75-80% of employee salaries, rent reductions for hotels on state-owned land, and tax breaks of 18 to 24 months. He says that because businesses have been hit so much harder this year, a massive support package is called for.
“The relief package should cover double the number of people because indoor dining has shut down,” he says. The current support package, which lasts through July and provides the same 40% subsidy wage subsidy as last year, “is not even close to enough.”
Pan worries that unless a large relief package is forthcoming, the nation’s hotel industry could see a wave of closures that foments a broader unemployment spike. Temporary suspensions of operations could become permanent, he says. “A lot of hotel owners will be thinking, ‘Hey, should I just stay shut?’ It might make more sense” from a financial perspective.
By the end of May, 40 hotels in Yilan County had shut down and 50 in Hualien County had either partially or completely suspended operations, according to The Taipei Times.
Chen Ming-ming, founder and CEO of travel activity booking platform KKday, says the government needs to financially support the hotel industry until a recovery begins. He acknowledgesthat it could take several months, as Taiwan has to first get the COVID-19 outbreak under control before it can ease restrictions. It will take still more time before most Taiwanese feel comfortable traveling again.
Like FIH’s Pan, he advises the government to substantially increase the relief package. “Many countries provide 80% of an employee’s salary, while Taiwan has given only 40%,” Chen says. If the subsidies are not increased, hotels that are not fiscally fit may go bankrupt, he adds.
Waiting on a recovery
To contain the current outbreak of COVID-19, Taiwan has relied primarily on restricting people’s movement and contact with one another while ramping up testing and contact tracing. The strategy has borne fruit, with case numbers steadily falling from a daily peak of nearly 600 in late May to mostly double-digits by the end of June. However, vaccination – likely the only way to effectively end the pandemic in Taiwan – remains a work in progress. Delivery of vaccines to Taiwan has been slow. As of late June, only about 8% of the island’s 23.5 million people had been inoculated.
The slow rate of vaccination has some hoteliers concerned. “Before this outbreak, many people didn’t even want to take the vaccine,” says Shangri-La’s Zupanski. “Now everybody wants to take it, but supply is inadequate.
“The Food & Beverage business and events won’t come back until the population is somewhat vaccinated,” he says. “We might be in this situation for a while.”
During Taiwan’s long COVID-free streak in 2020, when it did not record a local case for more than eight months, Shangri-La’s event business did well. However, it dropped off sharply in December 2020 and January 2021, when the virus crept back into the country. Although Taiwan managed to avoid a large outbreak – notably by containing a cluster of infections at a Taoyuan hospital – events at the hotel took several months to recover.
Based on that experience, even if Taiwan contains the COVID-19 outbreak in July and some events are permitted again, “we won’t see any buildup of events until October,” Zupanski says.
For hotels in Taipei, business levels will return to a “manageable situation” only when border restrictions are eased, and international travel is restored. He expects that to happen in mid-2022.
Indeed, Taipei hotels could not take full advantage of the domestic tourism surge that took place between last year and early 2021. Since the pandemic began in early 2020, “Taipei hotels have had a really tough time,” says Ping Lee, head of research in Taiwan for property consultancy CBRE. “Without international guests, they can only fill so many rooms.”
For instance, The Sherwood Taipei reached about 50% occupancy on weekends with its popular staycation packages, but weekdays were not as busy, says general manager von Hake.
The Regent Taipei’s overall occupancy was 50% in 2020, compared to 80% in 2019, says FIH chairman Pan.
Data compiled by CBRE show just how dependent hotels in the capital city are on the international market. In the first quarter of 2019, occupancy in Taipei hotels was 74.68%. By the first quarter of 2021, it had fallen to 30.24%. CBRE estimates Taipei hotels will suffer their worst year on record in 2021. In contrast, occupancy in Tainan, a popular domestic tourism destination, had slightly increased to 64.49% in the January-March period from 63.16% two years earlier.
While the restoration of international travel remains integral to Taipei hotels in the long run, a revival of the domestic market would likely be sufficient in the short run to ward off disaster. Once the outbreak is contained, the question becomes, when do people feel it is safe to travel?
“It is true that Taiwanese are very risk averse,” observes AsiaYo’s Cheng. Yet based on past experience, he says there is reason for cautious optimism. He notes that Taiwan’s travel market cratered during the SARS outbreak in the winter and spring of 2003, but recovered by June. Last year, it plummeted in March and April as the pandemic’s severity became clear, but picked up in May and by June was on a record-setting pace.
“When the rebound comes this time, it will be strong and fast,” he says.