Hotel revenues continue to rise in May to S$231.7m

HOTEL room revenue rose for the fourth straight month in May, as international visitor numbers continued to rebound strongly on borders reopening.

Singapore operators raked in S$231.7 million in May, going by the latest figures from the Singapore Tourism Board (STB), which also showed visitor arrivals climbing to 418,310 in the same month, from 295,100 in April.

The improvement in industrywide room revenue – which also increased month on month, against S$182.5 million the month before – came as both occupancies and average room rates (ARR) picked up further in May, pushing up revenue per available room (RevPAR).

May’s figures show that operators are still on an upward trajectory towards the peak in June, said DBS Group Research analyst Geraldine Wong, who noted that RevPAR and average daily room rates have recovered to about 84 per cent and 101 per cent of 2019 levels.

“Given that hoteliers now have a clearer picture with regard to forward booking, room rates for hoteliers are looking to start 2H22 on a very strong note,” she added.

Occupancies went up to 71.3 per cent in May, against 65.6 per cent in April, despite the ongoing manpower crunch faced by the industry.

“Whilst there is no concrete date for when we will see some reprieve in the labour market, hotel operators have become much more flexible as they have navigated the challenges of a leaner employee base,” said Gus McConnell, research manager for Asia-Pacific at CBRE.

Calvin Li, head of transaction advisory services for JLL Hotels and Hospitality Asia-Pacific, expects occupancy rates to continue rising in the short-term due to the lower base, “but it will be awhile before occupancies will return to pre-Covid levels and room revenue growth will still be primarily from ARR rather than occupancies”.

ARR inched higher to S$223.18 in May, from S$207.06 the month before. The growth in May was seen across all categories, with rates of S$96.51 in the economy segment; S$180.13 in the mid-tier segment; S$266.99 in the upscale segment; and S$445.89 in the luxury segment.

Li noted that the main driver of ARR in the luxury market has been the rise in higher-end leisure transient demand since February and March, especially from source markets such as Australia, the United Kingdom and the United States.

“Hotels are also adopting rate-driven strategies in general due to the manpower crunch, which further limits occupancy growth,” he added.

The pent-up travel demand has also benefited luxury hotels in particular, which are positioned to offer visitors a unique experience, said Wong Xian Yang, head of research at Cushman & Wakefield. “For many, this would be a first trip overseas in a long time, so there is a higher propensity to splurge on accommodation and experience”.

Overall RevPAR rose to S$159.20 in May, up from S$135.90 the previous month.

While the rebound took room revenue to more than twice the S$68.9 million recorded in the year-ago period, it is still far from the S$324.9 million recorded in April 2019, before the pandemic.

Industry watchers expect room revenues to return to pre-pandemic levels only in 2023 or 2024, especially as it remains unclear when the Chinese market will return.

Said Geraldine Wong: “China’s move to reduce quarantine days is a big stride in the right direction, but requirements on visas and testing still remain complicated and stringent as compared to inbound travel standards globally”.

On whether inflationary pressures will dampen the growth momentum, CBRE’s McConnell said it is unlikely to stop demand for travel altogether. “Whilst the prospect of a high inflationary environment has affected the outlook, we believe that this will mostly influence travel distance for international visitors”.

“Developed gateway markets, such as Singapore, Australia, South Korea, Japan and others, are still expected to see continued improvement in international arrivals, fuelled by intra-region travel,” he added.

“Inflation pressures will cut into profitability, but hotels – as a real estate asset class – have one of the best abilities to past through cost pressures to end consumers given the dynamic nature of room pricing,” said DBS’ Wong.

Nevertheless, operators are still likely to feel the effects of higher cost on the operational front, through a tight labour market and rising utilities cost, she added.