AN uneasy calm has descended on Hong Kong's hotels in the months after the handover euphoria. June was a relatively buoyant month; the restaurants, bars and lounges were doing near-record business. However, the new era in Hong Kong's history has failed to deliver good news for the hotel industry, whose occupancy rates reflect the hard times the local tourist sector is experiencing. Tourists are staying away in droves and the Hong Kong Hotels Association (HKHA) is only too aware of the scale of the problem. The post-handover slump has contributed to a 1.1 per cent decline in visitor arrivals in the first seven months of the year. The HKHA's July figures were a particularly painful pill to swallow, showing occupancy rates down 20 per cent, compared with the same period last year, to 60 per cent. The drop comes despite near full-occupancy registered at hotels during the handover holiday. Analysts see little room for improvement in the second half of the year. Among challenges facing the hotel industry are a steady slide in Japanese tourism, continued Chinese Government restrictions on mainland visitors to the SAR and a strengthening Hong Kong dollar although the surge in visitors for the IMF/World Bank conference later this month might provide some relief. So huge has been the impact of the slowdown in business that hotel managers have let nearly half their workers take holiday leave over summer. The absence of significant arrivals from Japan this year comes after most Japanese who wanted to visit did so on pre-handover holiday packages last year, which saw a spectacular 40 per cent rise in tourism from that country. 'In the past 12 to 18 months, Japanese tourist associations were marketing Hong Kong as a 'last chance to see before handover' destination,' said Nikko Research Centre analyst Mark Tsang. Ironically, last year's success bodes ill for the 1997 full-year prospects of luxury hotel operators such as Shangri-La Asia and Hong Kong and Shanghai Hotels. Both hotel chains have already reported weak interims. Industry observers say that as Japanese visitors frequent Hong Kong's five-star hotels more often than tourists from other countries, occupancy rates at Japanese favourites such as The Peninsula, which is operated by Hong Kong and Shanghai Hotels, would continue to disappoint in the second half. 'A number of hotels said pre-bookings for August were very weak . . . the biggest factor was the decline in Japanese tourists - 93 per cent [of whom] stay in hotels,' Mr Tsang said. Meanwhile, occupancy rates at Hong Kong's three- and four-star hotels have also been hit by drops in mainland visitors, according to analysts. In the run-up to the handover, the Chinese Government restricted the number of mainlanders receiving permits to enter Hong Kong. Analysts said relaxation of the quotas, in place since mid-June, would be gradual. Recent instability in regional currencies has dealt another blow to the hotel industry. Philip Chan, research analyst at Yamaichi International, said the depreciation of the region's currencies against the Hong Kong dollar reduced Asian tourists' purchasing power. This made the SAR's hotel room rates relatively more expensive for Asian visitors and hence less competitive, Mr Chan said. But observers did see some bright spots on the horizon. In the short term, occupancy rates should receive a boost from the arrival of more than 10,000 foreign delegates and journalists for the World Bank/Conference from September 20 to 25, according to SAR Government estimates. Tyler Mei, senior research analyst at Dharmala Securities, said hotels would see a modest improvement in earnings built on the conference visitors and also tourists attracted to the Hong Kong Tourist Association's '100 Days of Wonder' campaign. 'In the fall . . . Hong Kong will be in the news again, and people will realise that there is life after the handover,' he said. Another analyst said the increase in room yields during the conference was likely to be greater than that of room occupancy, because delegates would have to incur higher room rates during their stay. The opening of Hong Kong's new airport in April next year is expected to further ease the pressure on the beleaguered hotel industry by facilitating greater numbers of passenger arrivals. Mr Mei predicted more hotels would be built along the airport railway, and said the removal of height restrictions in Kowloon following Kai Tak's redevelopment would also encourage development. One project in the pipeline involves construction of two hotels at the new airport railway's Olympic Station in Tai Kok Tsui. Six consortiums vied for the development rights last month. However, with the number of hotel rooms in the SAR expected to rise 32 per cent between now and 2000, the extra supply could further trim hotel operators' margins. Still, analysts say that as most new rooms coming on to the market will be in the three- to four-star range, competition should not hit luxury hotels' occupancy rates too hard. Nonetheless, the hotel industry's poor first-half performance and unexciting second-half prospects have left hotel stocks very much out in the cold. The All Hotels Index, which tracks the performance of the 14 hotel companies listed on the stock exchange, has slumped 9.84 per cent over the year to date, consistently lagging behind the All Ordinaries Index, which has climbed 16.18 per cent in the same period. The two blue chips among the 14 stocks, Shangri-La Asia and Hong Kong and Shanghai Hotels, both reported weaker-than-expected interims of $471 million and $412 million, respectively. Both stocks have fallen more than 26 per cent over the year, making them among the three worst performers on both the blue-chip and hotel indices.