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Mr Peter Gowers: "New dynamics" will drive types of hotels built and the rates they set.
A note of "cautious optimism" was sounded during the recent Jones Lang LaSalle (JLL) Hotels Investment Conference held in Singapore, with hotel chiefs hedging their bets on the fallout on business from the rise in fuel prices and its consequent effects on the airline business.
JLL Hotels' Global Chief Executive Officer, Mr Arthur Haast, said investment activity had slowed down on a global level and the first quarter of 2008 saw the effects being felt in Asia Pacific, particularly Japan. "The cycle has turned the corner. The effects are being felt across the regional markets."
The RevPAR (Revenue Per Available Room) was pretty patchy though, he said. While it was slowing down in North America and London, it was doubling in the Middle East and was still healthy in most of Asia.
While he predicted that investment volume would be down this year, he noted the irony that equity was in plentiful supply. "Investment managers are sitting on piles of cash," he said. "Buyers and sellers are waiting for market direction. The market is not distressed, just inactive."
Giving his outlook on the Asian economy, Professor Helmut Schutte, Professor of International Management at INSEAD, called it "an uncertain world" in which new terms have surfaced – terms such as sub-prime lending crisis, commodities price boom, food shortages, inflation, as well as stagnation and sovereign wealth funds.
While he said direct foreign investment into Asia would slow down in absolute numbers, Asia would get a larger share of the funds as investors seek shores outside Japan and the US.
He said that perhaps the old phrase "when the US sneezes, Asia catches a cold" could now be changed to "when the rest messes up, Asia may come to help".
Mr Richard Hartman: “I think the days are over when you said to make money, you need to build expensive hotels.
"Almost like a phony war"
InterContinental Hotels Group's Chief Executive Officer, Mr Peter Gowers, said that, since October, the group has been "cautious but optimistic".
The company is still signing lots of contracts and has not yet seen a slowdown in the pace of growth. "Cycles come and go, it's almost like a phony war – it's like a war but it's not happening yet."
Mr Richard Hartman, CEO of Millennium & Copthorne Hotels, said: "No one really knows what will happen and if anyone predicts, they will be wrong. You just have to keep watching what's going on and be prepared to act very quickly."
Mr Michael Issenberg, Chairman and CEO of Accor Asia Pacific who, a few months ago in P@SSPORT, had forecasted a "tough second half of the year" said some markets remained strong, including Singapore, Bangkok, Indonesia and India.
In Australia, the strong Aussie dollar has taken its toll on both international and domestic leisure business with hoteliers taking a hit in both sectors. But the news is good for destinations receiving Australian visitors as outbound traffic is healthy, noted Mr Issenberg.
Singapore, for instance, saw a 22% increase in visitor arrivals from Australia in the first quarter of 2008 versus the same period in 2007. In 2007, Singapore received a total of about 770,000 visitor arrivals from Australia, a growth of 11.1%.
More than 50% of China's business travellers are Generation X and Y. Hoteliers need to meet the needs of this emerging market.
Expect a big structural change
Meanwhile, Mr Gowers, who took up the CEO position for Asia last October, said he not only saw a rosy future in Asia but also a different one. Indeed, the 35-year-old executive believes the Asian travel industry might be in for a bigger structural change than it expects.
"We are about to see the next generation of travellers and the rising of China" that will create "new dynamics that will drive rates".
"More than 50% of business travellers in China earn less than 6,000RMB a year. Forget China as a market for luxury hotels," he said, further adding: "More than 50% of China's business travellers are Generation X and Y. They are under 40 and they are very different from the Americans and Europeans."
Quoting another statistic, he said: "25% of China's business travellers played a video game in the last week. When we are building hotels, are we respectful of these changes? Have we built the right hotel? Our research tells us there are a lot of unmet needs out there."
He said these changes had to be filtered down to the way hotels operate. In the past, he said, brand standards were set by hotel executives and their personal tastes where they'd sit around a room and asked, what colour do you like? But today, with changing customer profile, brand standards had to be reviewed to meet both customers' and owners' needs. For example, he said: "the difference between a 250 and 180 thread count (in bedsheets) could mean $15 million to an owner".
Not just China, there's also intra-Asia
Accor Mr Issenberg retorted that his group had never seen China as a luxury market. "We are building Ibis and Novotels and our hotels in China have limited food & beverage.
"I think the days are over when you said to make money, you need to build expensive hotels. China is growing but it is not, by any stretch of the imagination, dominant. Intra-Asian traffic is the bigger market."
Mr Hartman had his bit to add to the discussion. True, he said, the days of the high-spending Americans are over. The US dollar is on parity with the Australian dollar. There's a whole change in the way people travel.
"The hotel industry in Asia has matured and as it matures, the big hotel with 25 restaurants which serves as the social heart of the city will change. The optimum size will be smaller over time."
