Vietnam promises lucrative business for 3-star hotels

The Vietnamese market is turning out to be promising for 3-star hotels of international standards as proved during the 2008-2009 global economic crisis that dealt a heavy blow to destinations for international travelers, according to Grant Thornton Vietnam.
“We will see a number of properties enter the market in the short term at the 3-star level but with international management, services, marketing and operations,” said Matthew Lourey, corporate finance director at Grant Thornton Vietnam.
Lourey used Grant Thornton’s Hotel Survey 2010 to support his view that 3-star hotels last year registered a pre-tax profit of approximately 32% of revenue on average, whilst 5-star hotels earned closer to 23%.
“The international (hotel) groups are certainly focused on this,” Lourey told the Daily after the assurance, consulting, development and finance services provider released the seventh edition of its comprehensive survey covering nearly 8,000 rooms across 69 hotels and resorts of 3- to 5-star ratings in Vietnam last year.
The survey shows room occupancy rates fell an average of 6.3% at 5-star hotels and 14.1% at 4-star properties last year, but increased 2.1% at 3-star hotels. This reflects the movement in customer demand during the year towards the less expensive categories.
In terms of room rates, the survey records a reduction of 33.5% at 5-star hotels, 12.1% at 4-star and only 2.9% at 3-star properties during 2009. “Last year was likely the most challenging year faced in recent times by the hospitality industry in Vietnam,” said Ken Atkinson, managing partner at Grant Thornton Vietnam.
“Room rates fell dramatically across most sectors,” Atkinson said, attributing the slide to a fall in international arrivals to around 3.8 million or by 11% over the year before.
Although the average room rate for high-end hotels in Vietnam plunged by 31.9% last year, the impact on occupancy rates was far less dramatic, with a 4.3% decrease overall. Lourey pointed out that the impressive growth in domestic travelers, which surged 33.5% compared to 2008, helped moderate the sinking.
“These domestic travelers are more focused on the 3-star hotel level, which is why we saw very little change in occupancy and room rates at 3-star hotels, but larger decreases at the 5-star level as they had to reduce room rates to try and capture these price-conscious travelers,” Lourey said.
Last year saw RevPAR, or revenue per available room, fall from US$68.5 to US$44.63, down 34.8% year-on-year. The biggest decrease happened in the 5-star hotel segment by 37.7% while 4-star hotels experienced a decline of 24.3%.
However, RevPAR for 3-star hotels increased 0.9% in 2009, again reflecting the more resilient nature of the mid-market during the year. “In past years the focus of international operators has been on 5-stars, and to a lesser extent 4-star properties. Now, the performance of 3-star properties has been noticed by the international managers, and they want to be in that segment,” Lourey said.
Lourey said new international hotel operators’ entry into the 3-star sector would put price pressure on the current participants and force some to change their ways or face reduced profit margins.
In 2009, hotels managed to increase the proportion of their revenue from non-room services as a way to offset the downturn in room revenue and cope with tougher competition. They reaped success.
The survey indicates food and beverage sales, as a percentage of total sales, was up 8.9% and other sales from spas, banquets, conferences, business centers and travel services increased 8.2%. These positive results helped hotels to achieve relatively similar profitability levels in 2009 to 2008 on average, despite the economic challenges.
The survey also unveils guests’ very low online bookings for hotel rooms in Vietnam, with only 12.1% of room stays were attributed to internet sales.