Four in 10 Hong Kong hotel staff may lose jobs as coronavirus outbreak deters the few remaining visitors still braving the city’s protest rallies

Unemployment rate in Hong Kong’s hotel industry could reach “up to 40 per cent” due to Wuhan coronavirus and protests, hoteliers say
While the larger hoteliers could afford to cut their rates, the smaller operators cannot afford to run their businesses below cost

Disease

Martin ChoiandLam Ka-sing

Published: 12:00pm, 3 Feb, 2020

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Four in 10 of Hong Kong’s hotel staff may lose their jobs in the coming months, as travel restrictions against the coronavirus outbreak could become the final nail for an industry that is already struggling from shrinking tourism after nearly eight months of anti-government protests.

The unemployment rate in the industry, which employed 44,500 people in the city as of the end of 2019, could soar to 40 per cent, said Edwin Leong Siu-hung, founder of property developer Tai Hung Fai Enterprises, who counts four hotels in his real estate portfolio. Small hotels and family-run inns would be particularly susceptible to the downturn in business, he said.

“Family-run guest houses and small hotel operators may be forced to close,” said Leong, Forbes magazine’s 23rd richest man in Hong Kong last year, with an estimated net worth of US$4.8 billion. “ Large hotel operators will find ways to cut costs.”

The downturn in the hospitality industry would add to the woes of a city that is already mired in its first technical recession in more than a decade, as tourists from mainland China – whose profligate shopping of everything from luxury goods to insurance make up an estimated 5 per cent of Hong Kong’s economic output – stayed away during the eight months of anti-government protests. The latest 14-day quarantine and travel ban for any visitor from Wuhan has further deterred travelling.

The unemployment rate in the hotels and accommodation industry was 3.4 per cent, or around 1,500 people, in the fourth quarter of 2019, nearly double the jobless rate a year earlier, according to the government’s General Household Survey which sampled 74,000 individuals.

The coronavirus outbreak, which can be traced to the Hubei provincial capital of Wuhan, would exert a bigger impact on Hong Kong’s hospitality industry than the protests because it is a blanket ban that restricts visitors from mainland China across the board. While the larger hoteliers could afford to cut their rates, the smaller operators cannot afford to run their businesses below cost.

“Some hotel room rates have dropped to as low as HK$70 (US$9) or HK$80 per night. That’s not even enough to cover the cost of [hiring a cleaner] to make up the room,” said Leong. “There is no point in lowering room rates as it’s not about the price of hotel rooms any more. People from the mainland cannot come to Hong Kong, and foreigners are afraid to come.”

Leong, 68, owns the four-star Hotel Indigo in Wan Chai, the three-star Holiday Inn Express in Mong Kok, the Sharma Island in North Point and the TraveLodge Kowloon in Jordan. His newest property, the Hotel 1936, is scheduled to open this year in Prince Edward.

He is not alone in forecasting a slump. William Cheng, the chairman and chief executive of Magnificent Hotel Investments with nine hotels in its portfolio, expects to see a further drop in occupancy after February, as the full impact of the Wuhan coronavirus outbreak kicks in after the Lunar New Year holiday.

“The outbreak hasn’t [completely] surfaced yet in the hotel industry. But the impact will be reflected in February. A lot of hotels across the city may close,” said Cheng. “Traditionally, February is the worst month of the year for the hotel industry. With all the current problems, hotel occupancy [across Hong Kong] may only be 30 per cent or less. It’s still possible for large hotels to break even, but smaller hotels are less cost effective, and therefore must be suffering.”

Hotels could consider lowering costs by offering fewer rooms and closing off a few floors, or allocating staff to other locations, said Leong.

More than 17,000 cases of infection have been confirmed in the mainland, far surpassing the number from the 2003 severe acute respiratory syndrome (Sars) epidemic. The current death toll has reached 362 as of Monday noon local time, according to China’s National Health Commission.

Hong Kong has reduced cross-border travel with the rest of China as it adopts tougher measures to contain the spread of the deadly Wuhan coronavirus, starting with the shutdown of the two railways and suspension of new visas to individual mainland tourists.

The hotel market appeared to settle slightly following the events in 2019, but if the incoming visitors continue to drop with the outbreak of the virus, this will put further pressure on all hotels, said Edmond Wong, director of valuation and advisory services for hotels at CBRE Hong Kong.

Room rates at Best Western have dropped around 70 per cent from an average price of HK$1,000, before the city’s hotel industry started to suffer in August, said Cheng. Revenues have also dropped around 70 per cent over the past few months, compared to the same period in the previous year.

However, Cheng is optimistic about the longer-term prospects of Hong Kong's hotel market after July when the high season comes.

“Being in the business, you expect these ups and downs. It’s been only six months since the industry started suffering in August. Once these things are over, the recovery will be very strong,” he said.

This article appeared in the South China Morning Post print edition as: virus ‘threat to 40pc of hotel jobs’

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