Hong Kong, Macau, China and Taiwan Update
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2ND QUARTER 2012 THE HVS QUARTERLY HONG KONG, MACAU, CHINA AND TAIWAN UPDATE Cathy Luo Associate Daniel J Voellm Managing Director HVS Global Hospitality Services | Level 21 The Center, 99 Queen’s Road Central, Hong Kong An HVS Quarterly Hotel Market Update Demand growth softened in the first quarter of 2012 after a phenomenal 2011, as global demand contracted amid the unresolved European debt crisis and the slowing of China’s economy. HONG KONG HONG KONG VISITOR ARRIVALS Hong Kong welcomed more than 11.2 million 14 35% visitors in the first quarter of 2012, reflecting a 12 30% Millions 15.6% year-on-year (YOY) increase. Visitor arrivals 10 25% from mainland China rose by 21.1% YOY and remain the key driving factor behind robust 8 20% growth. Total visitor arrivals from China set a new 6 15% record by topping 7.89 million, driven by the 4 10% Chinese New Year holidays. In January 2012, Hong 2 5% Kong implemented the e-Channel service for 0 0% eligible frequent mainland travellers at certain 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 border control points, shortening border crossing Oth ers USA Taiwan Japan Mainland China South Korea YOY Change times. Apart from China, regional countries also contributed to visitor arrival growth. Visitor Source: Hong Kong Tourism Board arrivals from South Korea grew by 17.2% YOY, driven by its strong economy and currency. Indonesia and the Philippines also recorded double-digit growth at 13.0% and 17.9%, respectively. Japan recovered from the Tōhoku earthquake and grew by a modest 5.3% YOY. Taiwan, the second- largest source market for Hong Kong, registered a 2.3% decline YOY, attributable to the presidential elections and a struggling economy that suppressed travel activities. The mature US market registered 1.7% growth YOY. The UK posted 10.1% growth YOY – the strongest in the first quarter among long-haul markets. This increase is partially attributable to travel packages that featured the popular annual Rugby Sevens event. HONG KONG OVERNIGHT VISITOR ARRIVALS Visitor arrivals to Hong Kong showed no signs of 7 35% slowing in the first quarter of 2012, despite the 6 28% Millions slowdown in Hong Kong’s economy (0.4% GDP 5 21% growth YOY). However, the lingering European debt 4 14% crisis and the slowing of China’s economy cast 3 7% doubts on Hong Kong’s tourism industry. To drive visitor arrivals, the Hong Kong Tourism Board 2 0% (HKTB) will continue to focus on the vibrant Chinese 1 -7% market. The HKTB plans to spend 30% of its HK$182 0 -14% million marketing budget on the Chinese market in 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2012. The HKTB forecasts full-year visitor arrivals Oth ers USA Taiwan Japan Mainland China South Korea YO Y Change for 2012 to reach 44 million, representing a modest Source: Hong Kong Tourism Board 5.5% growth. In the first quarter of 2012, 49.5% of visitors to Hong Kong stayed overnight – a trend that is further declining as a result of increasing numbers of same-day visitor arrivals from China and a hotel market running at capacity. Notably, overnight visitor arrivals from China were at the lowest level in the first quarter, at 43.8% of total Chinese visitor arrivals (compared PAGE 2 An HVS Quarterly Hotel Market Update — Hong Kong to 48.0% in 2011). Overnight visitor arrivals from South Korea and the Philippines registered the strongest YOY growth at 20.9% and 20.0%, respectively, in the first quarter. China, Indonesia and the UK also recorded above 10.0% YOY growth. Japan registered healthy growth of 6.5% YOY, while the US market remained resilient. HONG KONG HIGH-TARIFF A MARKET PERFORMANCE 3,000 100% 95% 2,500 90% 85% 2,000 80% 75% 1,500 70% HK$ 65% 1,000 60% 55% 500 50% 45% 0 40% 10 11 10 10 10 10 10 11 11 11 11 11 11 12 12 10 10 10 10 11 11 11 11 11 12 - - - - - - - - - - - - - - - - - - - - - - - - - Jul Jul Jan Jan Jun Jun Apr Sep Oct Feb Apr Sep Oct Feb Dec Dec Aug Nov Aug Nov Mar Mar Mar May May Average Room Rate RevPAR Occupancy Source: Hong Kong Tourism Board RevPAR performance of the high-end hotel market in Hong Kong reached HK$2,023 in the first quarter of 2012, the best first-quarter RevPAR performance on record. The pricing strategies of high-end hotels in Hong Kong shifted from a relatively volume-focused strategy in 2011 to a price-driven strategy in 2012. Average occupancy for the first three months of 2012 was 81%, dropping two percentage points YOY. However, a strong occupancy level above the 80% mark allowed hoteliers to adopt aggressive yield strategies to drive average rate. For each of the first three months of 2012, the high-end hotel market achieved record-high average rates. March ended with a record-high average rate of HK$2,608, supported by the Rugby Sevens event that drew a large international crowd. Overall, the first-quarter average rate reached HK$2,487, a 13.6% increase YOY. In 2012, an estimated 29 new hotels offering a total of 5,854 rooms are expected to enter the Hong Kong market. The outlook for occupancy levels remains positive, given the healthy demand from China. The slowing of China’s economy and a soft global economy will prevent rapid expansion in corporate travel budgets. Reliant on market compression, average rate growth in 2012 is anticipated to remain healthy but is likely to show resistance in the second quarter, when demand is generally softer, before regaining momentum during traditional peak seasons in the third and fourth quarters. MACAU Macau recorded more than 6.9 million visitor arrivals in the first quarter of 2012, a 7.9% growth YOY. Approximately 61% (4.2 million) were mainland Chinese visitors. Strong visitor arrivals from mainland China were supported by increased capacity at gaming tables and the appreciation of the Renminbi. The mainland Chinese market is primarily driven by residents of Guangdong, Zhejiang and Fujian provinces. An HVS Quarterly Hotel Market Update — Macau PAGE 3 MACAU VISITOR ARRIVALS Demand from Japan continued to rebound in the 8 30% 7 25% first quarter, posting 8.7% YOY growth. The South Mi lli ons Korea market registered strong growth in the first 6 20% quarter, benefiting from a strong Korean won. 5 15% Korean visitor arrivals expanded by 18.0% YOY. The 4 10% Philippines also saw visitor arrivals increase by 3 5% 15.7% YOY. Likewise, Indonesia and India saw 2 0% healthy growth in visitor arrivals of 8.4% and 6.8%, 1 -5% respectively. However, travel demand from 0 -10% 4Q09r 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 Singapore dropped 14.4% YOY and 47.0% quarter- Taiwan Others Hong Kong Japan Mainland China South Korea YOY Change on-quarter. This decline is attributable to favourable airfares from Singapore to other Source: Macau Government Tourism Office destinations such as Japan and Hong Kong, which lured Singapore visitors away from Macau. Macau’s share of overnight visitor arrivals is relatively stable, ranging from 45% to 49%. In the first quarter of 2012, more than 45% of visitors sought hotel accommodation. Total overnight visitor arrivals increased by 8.5% YOY. This increase was primarily driven by the mainland Chinese market, which contibuted to 60% of total MACAU OVERNIGHT VISITOR ARRIVALS overnight visitor arrivals. The Chinese market expanded by 14.2% YOY, topping 1.9 million. 4.0 35% Japan recorded 12.2% overnight visitor arrival 3.5 30% Millions growth as the market recovered from the 2011 3.0 25% 2.5 20% earthquake. Taiwan and South Korea also saw 2.0 15% double-digit growth in overnight demand, 1.5 10% driven by attractive package tours from the two 1.0 5% destinations. Regional markets such as India, 0.5 0% Indonesia and the Philippines also saw a 0.0 -5% healthy increase in overnight visitor arrivals. 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 Others Hong Kong Taiwan Japan So uth Kore a Mainland China YOY C han ge The Macau Government Tourism Office is confident that total visitor arrivals will increase Source: Macau Government Tourism Office by 10% in 2012, fuelled by robust demand from China. Gaming revenue for Macau totalled MOP7.4 billion in MACAU GAMING REVENUE UNSTOPPABLE the first quarter of 2012, reflecting 26.8% growth YOY. While the first-quarter growth rate is significantly 300 72% Billions lower than 2010 and 2011 rates, the robust growth is 250 60% nevertheless impressive, particularly as China’s 200 48% economy is showing signs of a slowdown. Some 150 36% analysts remain cautious about the gaming industry’s 100 24% prospects, forecasting mere 10% growth in 2012 amid concerns about cooling demand from China. However, 50 12% 0 0% some analysts have switched to a bullish outlook, 2004 2005 2006 2007 2008 2009 2010 2011 2011 Q1 2012 Q1 estimating 20% to 25% growth in gaming revenue for Revenue (MOP) Change 2012. Source: Macau Statistics and Census Service PAGE 4 An HVS Quarterly Hotel Market Update — Macau CHINA Momentum of total international visitor arrivals CHINA VISITOR ARRIVALS* (excluding Hong Kong and Macau) to China picked 10 30% up in the first quarter of 2012, with visitor arrivals 9 25% Millions growing 7.3% YOY, the fastest growth rate since the 8 20% fourth quarter of 2010. Regional markets remain the 7 15% 6 10% main feeder markets to China.