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S'pore hotel rates, airfares to take off in 2018

Thursday, July 20, 2017 - 05:50

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Costlier fuel, fare segmentation and new long haul routes were cited as factors for the increase in airfares come next year. Fuel typically forms a sizeable portion of operating costs for airlines.

Singapore

AIRFARES in Singapore are expected to rise by 3.9 per cent next year, outpacing the region, while hotel prices here are projected to see a 3.2 per cent increase as the hotel industry picks up pace, according to a report.

In comparison, Asia-Pacific airfares are expected to grow at a slower 2.8 per cent in 2018, and regional hotel prices are expected to see a rise of 3.5 per cent, fuelled by higher demand from strong local economies such as China and India, the fourth annual Global Travel Forecast showed. The report was released by Carlson Wagonlit Travel and the GBTA Foundation, the research arm of the Global Business Travel Association.

Costlier fuel, fare segmentation and new long haul routes were cited as factors for the increase in airfares come next year.

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"Oil prices are expected to rise in 2018 and could directly impact airlines' fuel costs," pointed out Richard Johnson, director at CWT Solutions Group (Asia-Pacific). Fuel typically makes up a sizeable portion of operating costs for airlines, and fuel price volatility will be a factor in ticket price increases. However, airlines that lock in fuel hedges at lower prices may be able to mitigate some of that volatility.

Mr Johnson went on to say: "Segmentation of fares is becoming more prevalent, and this allows airlines to grow their revenue through the ancillary portions of the ticket cost. We already see this in Singapore for airlines such as AirAsia and Scoot."

Robust travel demand from emerging markets - and increasingly from second- and third-tier cities - is also likely to keep airfares buoyant, said Katrina Leung, executive director of trade show organiser Messe Berlin.

Where the meetings, incentive Travel, conventions and exhibitions (MICE) industry is concerned, Singapore is seen as an attractive destination, thanks to its infrastructure, transportation network and safe environment, she added.

Meanwhile, on the hotel front, easing supply growth in 2018 could help deliver a rebound for hotels in Singapore.

In a recent report on OUE Hospitality Trust, RHB analyst Vijay Natarajan estimated that the local hospitality market will see an injection of 5.9 per cent in room supply this year. While that will likely mean pressure on room rates for now, there are less rooms in the pipeline next year. A mere 0.1 per cent and 2.2 per cent of room supply growth is slated for 2018 and 2019, respectively, said Mr Natarajan, citing data from CDL Hospitality Trusts and Horwath HTL.

"Singapore is an established, high volume market for hotels in terms of demand," Mr Johnson added. "With mergers taking place between hotel groups, consolidation will likely lead to a decrease in competitive price options typically seen in more fragmented markets, and therefore contribute to hotel price increases in the market."

According to the Singapore Tourism Board's preliminary estimates, total room revenue for the local hotel industry slid 2 per cent year-on-year for January to April to about S$1.06 billion. Average room rates dipped 2.3 per cent to about S$233, with upscale and mid-tier hotel suffering the biggest declines, while industry-wide average occupancy rate inched up one percentage point to 85.6 per cent. As a result, softer room rates weighed down revenue per available room, which dipped 1.1 per cent to around S$199.

This was despite visitor arrivals for the four months growing by 4.4 per cent to some 5.8 million, with China emerging as the top source market.

Worldwide, the Global Travel Forecast report estimates that airfares are expected to cost 3.5 per cent more next year, even as airlines add 6 per cent in fresh capacity, thanks to higher crude oil prices. Meanwhile, global hotel prices are projected to increase 3.7 per cent on average in 2018, although actual performance will vary market by market.

In addition, the report highlighted that disruptive technologies such as artificial intelligence, blockchain and chatbots are likely to impact the travel industry going forward.

"Smarter hotels" are a growing trend, as hotels increasingly invest in technology. Tech-savvy guests are now using mobile apps to check in or out, lock their hotel room door as well as to remotely operate the television or air conditioning system.

Hotels are also turning to big data to customise offerings and drive ancillary revenue, as well as artificial intelligence to achieve more operational efficiencies, added Ms Leung.

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