As the global COVID-19 virus has taken over the world this year, no country, including Vietnam has been immune to the harmful business, economic and social costs of the pandemic.
With Vietnam forced to undergo two rounds of lockdowns, hotels that rely on a combination of both business and leisure travelers have seen both their room occupancy rates and revenues dramatically decrease.
Business hotels in major metro cities such as Hanoi and Ho Chi Minh City have seen their occupancy rates plunge to 15 ~ 20%, while hotels in tourism destinations such as Da Nang have seen rates as low as 10% for weeks on ends.
While its unknown how long the COVID-19 virus will be with us, it is known that many individuals and companies that own or have invested in hotel properties are desperately seeking to sell their hotels as they see no end to the economic realities facing the hotel industry at this time, and as a result, many financially weak hotels across the country are being put up for sale.
Mauro Gasparotti, Director of Savills Hotels Asia Pacific, said that most hotels have been facing losses due to their low occupancy rates and declining room tariffs. Gasparotti said that based up Savills research, that in August the room occupancy rate for luxury hotels was between 10 ~ 14% in HCMC and 20 ~ 24% in Hanoi City.
Although room rates are 10 ~ 20% lower than last year, lower rates have not been able to drive traffic to hotels, because of overriding concerns related to the COVID-19 pandemic. While some hotels had several months of cash on reserve, few if any are prepared for a downtown that has lasted 10 months, and may last for 6 to 12 more months.
The reality for most hotels is that unless they have occupancy rates of 50 ~ 60% on a consistent basis, then they aren’t profitable, and during the current crisis, they are unable to make bank and investments payments, which is leading to a demand for capital divestment.
Gasparotti from Savills said at a real estate seminar last month that “there has not yet been any wave of capital divestment from four- or five-star hotels,” but other experts say that there are at least five, four and five-star hotels in Hanoi and HCMC that are quietly looking for companies to buy their current investors out.
Hotels that are affiliated with international brands, may be on a better financial footing, but even though the tourism industry has seen growing domestic and international demand over the last several years, few hoteliers in the luxury category have put enough cash in reserve to weather 12 ~ 24 months of negative cash flow, with no let up in their expenses.
Luxury hotels have tried to maintain their “brand” for the most part by resisting any lowering of their room rates above 10%, but for travelers looking for deals at luxury properties, there are many deals to be had if a little research is done.
The hotel industry is desperately seeking for strategies to recover, but domestic demand is limited to weekend sojourns for most families since their kids are in school, and weekends are the only time off until the end of the year.
Vietnam’s travel industry as a whole, including airlines, ground agents, travel agency staff and hotels and resorts are all suffering, but its unknown when the COVID-19 virus can be brought under control, allowing for a return to pre-pandemic travel numbers.
Under the most optimistic scenario, a COVID-19 virus vaccine, that has a minimum 50% efficiency rate will be available by next summer, and the majority of Vietnam’s citizens would be vaccinated in the summer, leading to a full resumption of domestic tourism.
However, when the international tourism segment can recover is totally unknown. Euromonitor has just released a report that says they are anticipating that global tourism will take at least three to five years to recover from Covid-19.
Euromonitor says that, “provided the pandemic is contained within a year and demand begins to rebound in 2021, it expects airlines to take a minimum of four years to recover, while lodging and intermediaries will take even longer.”
Statistics from the Vietnam National Administration of Tourism are that 18 million international tourists visited the country in 2019, and there were also 85 million domestic visitors. Hotels are hopeful that the projections from Euromonitor are wrong, but if they are correct, then 2021 will see a number of hotels in the three, four and five-star categories going bankrupt or sold.