Hotels struggle to resume operation after lockdown

Hotels and resorts reopened almost everywhere

Social distancing lasting 22-days ended April 23 and hotels and resorts could resume operations by complying with specific containment measures. To understand the extent of re-opening, Savills Hotels surveyed 635 four- and five-star hotels and resorts across Vietnam.

Around 78 per cent or 493 properties reopened, most with full room inventories and facilities and a few limited facilities to better manage costs. 22 per cent of respondents indicated they would remain closed until the international market recovers.

Mauro Gasparotti, director of Savills Hotels Asia Pacific, mentioned that the decision to reopen so many properties is a remarkably bold move by Vietnamese owners especially when compared to other countries, such as Thailand where most hotels are holding off until international travel resumes.

The majority of Ho Chi Minh City and Hanoi properties wanted to retain key personnel and avoid losing market share in the event of an early rebound. Those in the main coastal destinations were a little more prudent with lower reopening rates such as 58 per cent in Phu Quoc or 55 per cent in Quang Nam.

Overall business will be slow in the upcoming months even if average occupancies increased to around 16 per cent during the first few weeks of May showed initial sign of rebound. However, that increase was mainly driven by drive-to destination such as Ho Tram Long Hai, Da Lat, and Ba Ria Vung Tau which in certain cases reached full occupancies during weekends with travellers still trying to avoid airports.

Upscale to luxury city hotels that were heavily reliant on international and corporate demand still have single digit occupancies, with some running as low as five per cent. Properties with long term guests are able to maintain higher occupancies.

The anticipated local demand, although representing 83 per cent of total tourists last year, is a much more price sensitive cohort than international leisure and corporate guests. Their accommodation needs are typically captured by budget and midscale properties and have little impact on 4 and 5-star city hotel performance.

However, some local leisure demand may be captured by upscale resorts if the right promotions are in place and we look forward to seeing this in the upcoming summer season.

Properties prioritise promotions

Most hotels and resorts resumed operations with attractive promotions in May. Savills’s survey revealed almost half were offering deals and lowering rates. Upscale or luxury segments targeted local demand with value deals, combined with free F&B, transportation. Adjusting pricing and using clever and ideally integrated promotions is a smart way for resorts to increase competitiveness until recovery drives room rates back up.

Mauro commented: “A consequence of the steep demand drops in April saw room rates drop in properties that previously relied on international visitors. Average room rates appearing to fall by 29 per cent. That said, most upscale properties are reluctant to lower rates, anticipating recovery once international routes start to re-open and corporate business resumes.”

The survey found coastal destinations like Danang, Phu Quoc, Quang Nam and Phan Thiet have the most aggressive promotions. These have been heavily impacted by the precipitous drop in foreign tourists and are relying on promotions aimed at local guests to stay afloat.

Reopening of meeting facilities

Around 95 per cent of opened properties reported meeting and conference facilities are ready for MICE business.

Mauro added that hotels and resort representatives report MICE demand has been low since reopening. Regulations will need to stay in place after lockdowns are lifted and companies will have to reduce the size of their events for now. Most properties offer meeting facilities with Hanoi and Ho Chi Minh City remaining the key MICE markets.

April’s lockdown affected upcoming projects

Covid-19 containment measures have hit most sector business activities. Developers have been challenged to meet construction timelines hit by related supply shortages, locked-down workers and tightened financing availability.

Savills Hotels survey also considered lockdown impacts on under construction and pre-opening projects. Vietnam has one of the largest pipelines in SE Asia with an astonishing 20% compound annual growth rate (CAGR) of supply over the past three years.

There are 49 under construction projects with a total 16,900 rooms expected to enter in 2020. The survey discovered 53 per cent reported although struggling with delays, are still on track to be open by the end of the year.

The remaining 23 have postponed opening to 2021, of which, more than 60 per cent delayed to the first and second quarter of 2021, and the rest unable to confirm. Of those reporting longer delays, 90 per cent are in coastal destinations.

Mauro Gasparotti said that the lockdown effects felt in projects under construction and in-planning is less significant than impacts on operating assets. Hospitality developers appear to be approaching this short-term slowdown with a longer-term outlook.

There is still a possibility development will be affected because of the inevitable global economic impact, however, so far, the majority of projects in-planning are still going ahead and there appears a very limited intention to slow down.

The only short-term brake is in the launches of second home projects and condotels where developers are holding back until they are confident local demand is on the rise again.

“This year we are expecting to witness remarkable openings of some projects such as JW Marriott Danang, Regent Phu Quoc, or Zannier Bai San Ho, which confirms Vietnam’s potential as an emerging luxury destination,” he said.