Hotel occupancy in Macau plunged in May to the lowest levels since the 2003 outbreak of Sars, affected by the outbreak of swine flu and a crackdown on 'zero-fee' package tours by the mainland government. Average hotel occupancy across the city was 59.4 per cent in May, down from 72.9 per cent a year earlier and far below the average of 73.3 per cent in the 12 months to April, according to data released yesterday by the statistics and census service. 'This is a negative factor for the major casinos, because they are all carrying a lot of room inventory that they cannot translate into revenue,' said an analyst at a European bank. 'I would expect to see more competition on room rates in the coming months as a result of the drop in occupancy.' May's figures were not as severe as the bleak 32.7 per cent occupancy rates seen in Macau at the height of Sars, but they represent the casino enclave's weakest showing since June 2003. The fall-off was spread across the hospitality sector: Three- to five-star hotels reported occupancy rates of 59.3 to 61.7 per cent during May, compared with average rates of 72.9 to 79.5 per cent in the 12 months to April. Occupancy rates at two-star hotels dropped to a dismal 38.5 per cent in May from an average 60.7 per cent in the 12 months to April. The more substantial decline in occupancy at budget hotels was likely exacerbated by recent government efforts targeting mainland tour operators offering customers zero-fee tours. May's figures also show the initial impact of fears of swine flu, which ramped up dramatically after Hong Kong reported its first confirmed case on May 1. Changes in room inventory were a non-factor during the period. At 17,529 units in May, the number of hotel rooms in operation has remained essentially unchanged in the five months since the grand opening of the 430-room hotel tower at SJM Holdings' Grand Lisboa in December last year. Macau's decline in hotel occupancy tracks a fall in tourist arrivals for the month. Visitor arrivals fell to 1.59 million in May, down 20.35 per cent from a year earlier and 14.77 per cent from the previous month despite dual holidays. Arrivals in package tours fell further still, plunging 42.5 per cent in May from a year earlier to 244,654 visitors. The figures were a sharp contrast to the first five months of the year, when package tour arrivals rose marginally by 0.9 per cent over the same period last year. The decline in visitation and hotel occupancy weighed on casino revenue carrying into last month. At 8.25 billion patacas for the month, it was down 17.3 per cent from a year earlier and 6.2 per cent from May's 8.8 billion patacas, according to preliminary data reported by Portuguese news agency Lusa. 'Considering that visitor arrivals were impacted by the lingering effects of swine flu and tighter visa restrictions [on the mainland, the June casino revenue figure still represented] a solid showing by Macau,' Citigroup said in a research note.