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Surge in arrivals brings temptation to push up prices

There seem to be few obstacles to continuing rapid growth of Hong Kong's inbound travel business. The main test is whether visitors will put a strain on services.

The task for the travel industry is to manage:

Prices. With demand equal to or stronger than supply, the temptation is to push up prices. Compared with most other cities in the region, Hong Kong's hotel prices are indeed high. But compared with, say, London or New York, they remain low. Last year, the average room rate here was US$140. It was more than $200 in London and New York.

Varied supply. Another temptation is to focus on the fast-growing mainland market and neglect others. Most of Hong Kong's visitor growth has come from the mainland (44 per cent of visitors in January), and much of that comes from China's July 2003 liberalisation of individual visas for travel abroad.

Previously, only group travel for leisure was allowed. So far, this individual visit scheme, or IVS, is only for Hong Kong and Macau. Eventually, though, IVS travel will be extended to other destinations. This could happen before year end - allowing individual leisure travel to, perhaps, Malaysia, Singapore and Thailand. That would remove some growth potential from Hong Kong.

Troughs and peaks. There are not so many monthly troughs now. The slowest month of the year is usually in the first quarter, depending on when the Lunar New Year falls.

But there are weekends, and IVS offers a wonderful opportunity for hotels filled with business travellers during the week to replenish with weekenders from Guangdong.

Push the hub. Attracting transit passengers is seen more of a job for the airlines and airports, as the rest of the industry may not benefit from transit travellers. But this is an important investment in the future that can benefit Hong Kong's travel industry.

For example, Cathay Pacific said its Zurich-Hong Kong flight was not profitable as a stand-alone service. But when transit passengers are added in, it becomes a viable route. As a result, Hong Kong gains from passengers attracted by a direct Zurich service, and from those transit passengers who stop over for a day or two.

forecast may fall short

How realistic is Hong Kong Tourism Board's forecast for this year? It is projecting 22.9 million visitors this year, against 21.8 million last year.

Targeting only one million more visitors this year (or 5 per cent growth year on year) when last year saw an additional six million over 2003 indicates uncertainty about the distortion caused by Sars.

But that one million rise looks wrong for other reasons as well.

Growth in earlier years - 2.8 million more visitors in 2002, 700,000 in 2001, and 1.7 million in both 2000 and 1999 - implies the board's outlook for this year is short by at least one million.

It may have been sobered by January's results, which showed a 5 per cent fall in mainland visitors. Just over 30 per cent for other markets resulted in overall growth of 8 per cent.

The mainland blip was caused by the Lunar New Year, which boosted mainland arrivals in January last year but was celebrated in February this year.

The rest-of-the-world January figure was remarkable, although there is a risk in reading too much into one month's data. Visitors from Singapore, for instance, more than doubled. Australian arrivals increased 50 per cent, and arrivals from the US and Korea rose 40 and 45 per cent, respectively. The Japan market jumped 70 per cent.

Another positive factor will be further liberalisation of the IVS, which has been extended to residents of Tianjin and Chongqing this month. Count on an additional 250,000 arrivals from those two cities.

When data is available for the first three months, reducing the distortion caused by the Lunar New Year, it will be easier to predict whether the industry will be housing more visitors than it is bargaining for.

a sobering comparison

Hotel results for last year were undoubtedly good, but there were also some sobering facts - when compared with pre-September 11 figures.

In the four-star category (not all five-star results have been filed), hotel occupancy was 84 per cent in 2000 - exactly the same as last year. The average room rate was $971 in 2000, not much below the $1,109 average last year.

Indications are that results were unchanged for three-star hotels as well. Occupancy has crept up from about 87 per cent to 90 per cent, but the average room rate is largely unchanged.

Hotel owners can be grateful, then, that costs have changed little in the intervening period.

Compiled by Murray Bailey, research director and editor, Travel Business Analyst

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