HOTELS are struggling to fill their rooms due to a high supply coupled with the economic slowdown and less government and corporate business. And most hoteliers do not see this problem going away anytime soon.

Owners of four- and five-star hotels in the Klang Valley expect average occupancy rates to fall 10% this year from 2015, with the growth of home-share companies like Airbnb putting further downward pressure on occupancy. The outlook for 2017 does not give much hope either, given the planned introduction of a tourism services fee (TSF) and the impending hike in the passenger service charge (PSC) at airports.

Malaysian Association of Hotels vice-president Mohamad Halim Merican says the four- and five-star hotel segment in the Klang Valley saw a 10% decline in business in the first nine months of 2016, compared with the same period a year ago. He expects the year to end on a similar note.

“Business was slow in the first few months, then there was a pick-up in July and August. But this month (September), the occupancy rate is down again. Year to date, the average occupancy is in the mid-50s [percentage] and mid-60s,” Halim tells The Edge over the telephone. This compares with the January to September 2015 period when some hotels saw occupancy touch a high of 85%.

“With average occupancy lower than expected, so are the ARR [average room rates],” says Halim, vice-president of the Malaysian Association of Hotel Owners and general manager of Seri Pacific Kuala Lumpur. He points out that the current influx of tourists is mostly from China and India and these groups are largely in the mid- to low-yield category.

“Next year [the outlook] does not look promising … It is not expected to be very different from this year,” he says. Halim says the five-star Seri Pacific is seeing a slowdown in government functions such as meetings as well as in the fully independent traveller category.

Depressed oil prices are also having an impact on hotels that have traditionally relied on the oil and gas (O&G) market segment to help fill their rooms. This is particularly noticeable among hotels and serviced residences near Petronas Twin Towers in Kuala Lumpur.

Asked to comment, Impiana Sdn Bhd chief operating officer Azrin Kamaluddin tells The Edge that year to date, occupancy at Impiana KLCC Hotel has declined by 10% compared with two years ago. The hotel’s ARR also suffered during the period.

“We are heavily reliant on the O&G sector, given our location. The impact on our occupancy started in 2015. Added to that is the slashing of corporate budgets.”

Nevertheless, a change in Impiana KLCC’s marketing strategy is starting to bear fruit. “We are 2% better off [in occupancy] during the January to September 2016 period than we were in 2015, and we are forecasting a better 2017,” she says, adding that the hotel has diversified its target market from the O&G segment.

Another hotel operator, who declined to be named, describes the current year’s performance at the four-star hotel where he works as “not hot”. The hotel, located in the city centre, has been experiencing an average occupancy of 60%.

“June was a very bad month while July and August were very good. September is average. There is still business, but it is not high-yield business such as the meetings, incentives, conventions and exhibitions segment. The hotel is able to fill more rooms because many guests who used to stay at five-star hotels are now opting to stay at four-star hotels instead,” he says.

In March this year, hotel owners and operators in Kuala Lumpur were relieved that Dewan Bandaraya Kuala Lumpur (DBKL) decided to freeze approvals for new hotel licences. The freeze, which came into effect on March 4, is applicable to all categories including budget hotels, backpacker lodges and serviced apartments.

At the time, City Hall said it was imposing the freeze because it felt that there was a sufficient number of rooms, over 56,000 (built and approved for building), to meet demand for at least a year.

But, in August this year, the Urban Wellbeing, Housing and Local Government Ministry said Airbnb is legal as long as there is no foul play or fraud involved. This move will essentially add more guest accommodation to the hotel market and potentially see hotel operators taking a further hit.

Adding to an already difficult hospitality environment is the proposal by the Tourism and Culture Ministry to impose a TSF of between RM5 and RM30 per night on anyone — local or foreign — who stays at a hotel. The fee, which was initially scheduled to come into effect on Sept 16 this year, will be used as a means to increase funds for Tourism Malaysia’s promotional and marketing activities. The proposal was to collect RM30 from guests for each night’s stay at a five-star hotel, RM20 at a four-star hotel and RM10 at a three-star. The proposed TSF for two-star, one-star and Orchid category was RM5. The date of implementation has been postponed for now.

Hotel operators could be hit by yet another whammy as last week, the transport minister announced that a new PSC will come into effect from Jan 1 next year. It was reported that the PSC for domestic flight departures may be increased to RM11 from RM9 and that for flights to
Asean countries may be RM35. The PSC for international flights out of Kuala Lumpur International Airport may rise to RM73 from RM65 and RM32 from klia2 currently.

This article first appeared in The Edge Malaysia on Sept 26, 2016. Subscribe here for your personal copy.

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