Mandarin Oriental International Ltd, Shangri-La Asia Ltd and rival Hong Kong hotels, struggling to fill rooms as the city battles SARS, probably won't see a recovery this year.
Tourists won't return soon even if the World Health Organization lifts a travel warning on the city this week, analysts said. Hotels -- losing as much as US$13,000 a day each as they fill a fifth of the rooms they need to break even -- have seen share prices plummet. Shangri-La, the largest luxury hotel operator in Asia, yesterday scrapped its proposed final dividend.
"As long as one country in Asia still has a big problem, it's seen as a whole -- the traveler will just decide to give Asia a miss," the company's Malaysia Managing Director, Kay Kuok Oon Kwong, said after a shareholders' meeting in Kuala Lumpur.
Occupancy at the Hong Kong's 77 top hotels has fallen to about 10 percent, costing them an average HK$100,000 (US$12,800) a day, according to hotel consultant Horwath Asia Pacific. They need to fill at least 45 percent of their rooms to cover operating costs, according to Eric Wong, an analyst at UBS Warburg.
Many hotels have already warned the outbreak of severe acute respiratory syndrome will erode earnings. Sino Hotels Holdings Ltd, controlled by the family of Singapore billionaire Ng Teng Fong, and Hongkong & Shanghai Hotels Ltd, owner of the luxury Peninsula chain, both said profit will decline.
Shangri-La, with 18 of its 40 hotels in Hong Kong and China, said it will scrap its proposed final dividend of HK$0.05 to save cash. That makes the full-year payout the smallest since the company listed in 1993. Its Shangri-La Hotels (Malaysia) Bhd unit said occupancy, which fell as low as 40 percent last month, may not rebound until October.
Shangri-La's earnings may plunge 64 percent this year if its occupancy remains below 20 percent for three months, UBS Warburg said in a report. Shangri-La shares, which have declined 6.4 percent this year.
At Mandarin Oriental, profit may fall 99 percent, the report said, while earnings at Hongkong & Shanghai Hotels may drop 19 percent.
Shares of Hongkong & Shanghai, which is bolstered by rental income from residential and commercial properties, have risen 7.6 percent this year.
To be sure, the number of new SARS cases in Hong Kong has fallen and hotels have begun checking in more guests.
Hongkong & Shanghai said occupancy at its landmark Peninsula recovered to 25 percent from less than 10 percent a month ago, though it doesn't expect bookings to rise quickly.
"Full recovery will take some time," chief executive officer Clement Kwok said in an interview. "Some of the summer business we might have got may have changed plans. The strongest season for travel is from September to the end of the year, so we are hoping for an autumn peak season."
About four-fifths of travelers to Hong Kong arrive from elsewhere in Asia and 65 percent visit as part of extended trips in the region, UBS Warburg's Wong said.
"If you are planning for your Christmas holiday now, probably Hong Kong and other parts of Asia will not be your destination of choice," said Martin Lau, who helps manage US$1.8 billion at First State Investments HK Ltd. "We may see full recovery sometime next year."