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Hotels facing meltdown blues

By Zhang Qi (China Daily)
Updated: 2008-11-18 11:08

InterContinental Hotel on Beijing's Financial Street. [China Daily]

Zheng Ling, who works for a multinational company in Beijing, had been worried about a visit to China by her boss, who is based in the United States, but she was relaxed when she heard it would be replaced by a conference call as the company strives to cut travel costs.

"Our boss told us that the switch to the conference call was due to budget controls amid the global economic meltdown," said Zheng. "She said travel expenses were always one of the first costs to be cut amid bad economic conditions."

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Such cost-cutting moves amid an economic slowdown are overshadowing the hotel industry, which is highly connected with business travel.

According to the national tourism administration, the number of foreign visitors fell 6 percent year-on-year to 10.56 million in September.

"The hotel occupancy rate in Beijing also dropped significantly in October, partly because there were fewer exhibitions," said Ni Lei, director of Beijing Tourism & Hotel Association. "But the world economic downturn is the main reason for the current lull in China's tourism market."

Beijing now has 56 five-star hotels and 133 four-star hotels, up from 33 and 117 respectively in 2007.

These high-grade hotels target mainly multinational companies which are now cutting significantly travel costs.

Hotel class and flight class policy remained the same due to global contract or company policy, so there will be less traveling rather than a lowering of standards, a source familiar with the procedures said.

"Hotels at Financial Street have been more greatly affected by the global economic downturn, and we estimate an average 10 to 15 percent drop in the hotel room booking rate at this area over the past two months," said Lu Jun, a manger at InterContinental Hotel located on Beijing's Financial Street, home to many upscale hotels.

Hotels have already embarked on promotions to cope with the downturn. "Discounts usually kick off at the end of November, but many hotels already started promotions," Ni said.

Guangzhou Daily reported that some five-star hotels have already joined forces with travel agencies to attract domestic tourists with cheaper packaged offers. For example, one night at the city's Sheraton Hotel usually costs 1,380 yuan, but customers can now enjoy four nights at 999 yuan each by booking through travel agencies.

Despite the economic downturn, some in the hospitality industry remain optimistic.

7 Days Inn Group, one of China's largest budget hotel chains, secured a venture capital investment of $65million in October.

"I believe budget hotels are less impacted in China by the financial crisis as people will become more cost sensitive," said Alex Zheng, CEO of 7 Days Inn Group.