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Asia’s tourism sector reels as companies slash travel budgets

Asia’s tourism sector reels as companies slash travel budgets
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First Published: Wed, Apr 22 2009. 09 35 PM IST

 Rare sight: A traveller at the Hong Kong International Airport. As firms globally cut back on travel, Asia has been feeling the pinch with hotel room rates falling for the first time in five years an
Rare sight: A traveller at the Hong Kong International Airport. As firms globally cut back on travel, Asia has been feeling the pinch with hotel room rates falling for the first time in five years an
Updated: Wed, Apr 22 2009. 09 35 PM IST
Hong Kong: At a plush Hong Kong airport hotel, the only sign of activity comes from the dining room where a queue of locals fill up their plates at a dinner buffet offered at a promotional rate to Hong Kong residents.
Rare sight: A traveller at the Hong Kong International Airport. As firms globally cut back on travel, Asia has been feeling the pinch with hotel room rates falling for the first time in five years and airlines suffering. Reuters
Before the slowdown, the hotel lobby would have been filled with business travellers working on laptops or having a drink at the bar. These days, the empty lobby bears testament to the effects of the global slump on Hong Kong’s $20.4 billion tourism sector.
To get through the slump, the airport hotel has had to resort to promotional buffets and cheap spa packages for locals.
As dwindling earnings prompt companies globally to slash travel budgets, Asia has been hard hit with hotel room rates falling for the first time in five years and airlines suffering.
“Companies are now looking at what business travel is revenue generating and are cutting non-revenue producing travel,” said Susan Gurley, executive director of the US-based Association of Corporate Travel Executives.
It’s not just hotels that are feeling the pinch, long-haul business travel has declined along with business activity.
Asia-Pacific carriers are among the worst affected airlines from the global economic turmoil, according to the International Air Transport Association. They stand to lose $1.7 billion this year, it said.
Singapore Airlines Ltd has cut some of its business-class only flights to the US, and demand for Japan Airlines Corp.’s premium cabins has fallen by 20% on long-haul routes.
Besides business trips travel for regional in-house meetings and company retreats has been slashed. Such non-essential travel constitutes up to 40% of an average corporation’s travel budget, said Gurley.
Investment banks and other firms have forced executives to forego club class for economy on short-haul flights, and Gurley says employers are combing expense accounts, refusing to pay mini-bar charges and downgrading staff to cheaper hotels.
Hotel room rates in Seoul have dropped by at least 20% in the past year. In Manila, they plunged by at least 30%, the most marked decline across the region.
With Japan, Hong Kong, Singapore and Taiwan in recession, and some companies asking employees to defer travel to Thailand following violent anti-government protests in Bangkok, the outlook for travel in Asia is not promising.
Hong Kong and Singapore, with no domestic travel, are being hit by declining participation at conferences and trade fairs.
Tourism constituted 7% of Hong Kong’s gross domestic product in 2008 when the territory, which serves as a gateway into China, drew 3.6 million business travellers out of a total of 29.5 million visitors.
Yet, some experts say that while cutting back travel might seem like an easy way to reduce costs when business slows, it could take a toll on future competitive advantage, especially if rivals don’t take similar cost-cutting steps.
In a survey released by the US Travel Association last month, 72% of respondents said they saw an opportunity to capture market share by increasing travel as others cut back. As many as 53% said companies that reduce business travel will give an advantage to competitors who maintain their travel commitments.
“It’s...clear from our survey results that the old maxim remains true: If you don’t take care of your customers, someone else will,” Suzanne Cook, the association’s senior vice-president of research, said on releasing the study.
Travel to China and India, in contrast, is holding up much better because those markets are too important and competition for market share is intense, analysts say.
Shanghai is one of the few cities globally where hotel rates are actually higher than a year ago, by 2%, according to Hotels.com, though room rates in Beijing have dropped 13%. Pressure to cut costs is encouraging firms to adopt video teleconferencing, a global trend that research firm Gartner Inc. estimates will replace 2.1 million airline seats annually by 2012, costing the travel industry $3.5 billion a year.
Cutbacks on first and business class travel and rooms at top hotels also reflect an unwillingness by managers to be seen enjoying luxury fringe benefits at company expense when employees are losing their jobs, analysts say.
Demand for private jets, which was at an all-time high at the beginning of 2008 has crumbled, according to consulting firm Deloitte Llp, ironically triggering thousands of job losses at corporate jet makers including Canada’s Bombardier Inc. this year.
“At a time of political scrutiny of non-essential corporate spending, the mere appearance of spending on ‘extravagant’ corporate jets can have damaging consequences,” said Deloitte in a report on the aviation industry.
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First Published: Wed, Apr 22 2009. 09 35 PM IST