Features

Hard times for Taiwan's hospitality industry

18 June, 2020

The nation’s on-going ban on international visitors continues to impact guest residences to different degrees

 

By Douglas Habecker

 

For American Carl Thelin and his Taiwanese wife Wendy, the first hint of trouble came in early February. The couple had been accepting guests at their A Touch of Zen Guesthouse in Kaohsiung’s Zuoying District since April, 2019, after investing a considerable amount of time and money to renovate what was originally a high-ranking Japanese officer’s home, later occupied by a ROC Navy admiral, in a former navy-marine corps village. The tastefully-decorated, nostalgic-style lodging—one of 17 guesthouses in the village and a total of 140 in Kaohsiung—had been doing a respectable business, of which about 30% was foreigners, evenly divided between international tourists and resident non-Taiwanese. 

 

Despite growing concerns over the spread of “Wuhan pneumonia” at the time, January was a normal month for business and the guesthouse was fully booked with runners for the upcoming Kaohsiung Marathon. Then, in early February, the race was cancelled at the last minute. Throughout the rest of the month, about half of Carl and Wendy’s February reservations showed up and the other half cancelled. In March, there were only four guests and the entire month of April saw a single couple stay one night.

 

While A Touch of Zen may only have four guest rooms and a total capacity of a dozen people, its significant Covid-19 challenges have been echoed and experienced by thousands of businesses in Taiwan’s hospitality industry over the past several months, from the smallest of bed-and-breakfast places to five-star hotels with hundreds of rooms. All have had to cope with the impact of this coronavirus and government policies designed to stop its spread.

 

Undoubtedly, one of the key factors behind Taiwan’s world-beating success in battling the Covid-19 pandemic was its very early, active response to reports of a coronavirus outbreak. This included progressive steps to monitor flights and passengers arriving from overseas, together with the progressively tighter restrictions and then bans on international, non-resident visitors. 

 

Still in place, such measures have been a double-edged sword for many of the nation’s service industries, including the hotel and food and beverage sectors, on one hand helping ward off the necessity for an economically devastating lockdown, while on the other completely cutting the lucrative flow of international business and leisure travellers that had become increasingly critical to many of these businesses in recent years. Taiwan’s almost-complete closure to outsiders in March almost certainly destroyed any chance that 2020 would see Taiwan once again exceed 11 million international visitors, as it had in the past two years.

 

According to Tourism Bureau data released in May, Taiwan’s hotels saw revenues in the first quarter fall 32.82% year-on-year, with average occupancy rates dropping from 66.36% to 37.19% and guest visits totaling 1.9 million during the period, a decline of almost 40%, or 1.24 million from last year’s first quarter total of 3.15 million. Foreign travellers were responsible for almost one million of these visit losses. By comparison, Taiwan’s food and beverage sector also took a 22.8% year-on-year drop, reported the Ministry of Economic Affairs in May, with the industry seeing double-digit reductions in business three months in a row.

 

Local headlines have heralded a string of negative news from various hotels and hotel groups. In mid-May, My Humble House Hospitality Management Consulting Co., whose properties include Le Meridien Taipei, Humble House Taipei, Sheraton Grand Taipei Hotel and Mu Jiao Xi Hotel in Yilan County, reported a NT$194 million (US$6.48 million) loss in the first quarter, and April revenues that were down 68.9% from a year earlier. Ambassador Hotel Ltd. reported NT$24.24 million in losses for the same quarter, while Taipei’s 215-room Golden China Hotel temporarily shut down in May. Landis Hospitality Group—which reported a 76.4% revenue drop in March to its lowest level since the 2003 SARS outbreak—opted to permanently close its landmark, 13-year-old Landis Taichung hotel on 9 March and announced the 30 June closure of the Tayih Landis Hotel Tainan after 19 years in business. Perhaps garnering the most media attention was an announcement by one of Taipei’s premier residences, Mandarin Oriental Taipei, that it was suspending guest-room operations on 1 June and laying off 212 employees.

 

Even as officials from Taiwan’s Centers for Disease Control (CDC) and Central Epidemic Command Center (CECC) discuss protocols for reopening to international visitors, including ranking other nations’ Covid-19 risks and potential shared “travel bubbles”, there is no definitive end in sight to the current situation, with early October tentatively floated as the possible start of a partial opening. That means that the nation’s hospitality businesses are facing the reality of a continuing struggle to survive in the months ahead without international visitors.

 

Coping strategies vary widely across this very diverse industry, which has been impacted to different degrees, based on factors such as a hotel’s pre-pandemic reliance on international visitors as well as largescale business and non-business gatherings and events—from corporate conventions to weddings—and in-house food and beverage outlets. Geographical location on the island is also playing a role, with Taipei hotels of all sizes noticeably suffering more from the drop in international guests and benefitting less from a recent local boom in domestic leisure travel.

 

Among these is Hotel MVSA, a 38-room boutique residence, including a branch of Spain’s Michelin 2-starred Molino de Urdaniz restaurant, that had only been open since 6 January. According to owner and managing director Arthur Wang, 80% of his pre-pandemic guests were international visitors, mainly leisure travellers from Japan, followed by those from Hong Kong, Macau, South Korea and China. For the first two months Wang said he successfully promoted his hotel with online travel agents, including flight-and-accommodation packages. However, average occupancy dropped to 10-15% in March and April, which was the worst month overall for his rooms and restaurant business. Although restaurant customers doubled in May, compared to the month before, the room business has not gone up, despite growing domestic travel. “Taipei city occupancy is still very low, despite cheaper rates being offered. Taiwan is such a small market and if you’re travelling on vacation, you’ll go to leisure destinations elsewhere, not Taipei,” said Wang, noting that local visitors may help offset the fall in international guests by only 20-30%.

 

At the other end of the size scale, some of Taipei’s biggest and best-known hotels have also been equally impacted. Grand Hyatt Taipei General Manager Jan-Hendrik Meidinger said his 850-room residence—the largest in Taiwan—was heavily impacted, as 70% of its guests are from abroad, with a 60/40 split between business/leisure travellers and 74% pre-pandemic average occupancy rate. Like most of his hospitality industry counterparts have also commented, Meidinger noted that January was a strong month with business starting to decline in February, followed by a drastic drop with the government’s 19 March ban on non-resident visitors to Taiwan and a rock-bottom April. This latter month was further impacted by public “panic” after government warnings and media coverage related to Tomb Sweeping Day holiday crowds at 11 popular tourist sites around the island, he added.

 

Despite the use of promotional room and dining packages to lure guests back and a slight uptick in May, business for the Grand Hyatt’s eight current food-and-beverage outlets (after the closure of one restaurant), he said that the room business has not really benefited from any growth in domestic travel, with central and southern Taiwanese travellers heading to places like the eastern coast. Although he hopes families in central and southern Taiwan will come up to Taipei for vacations—adding that his hotel has the “best pool in Taipei”—Meidinger doesn’t believe that domestic travellers will offset the loss of international visitors for a hotel of the Grand Hyatt’s size and stature. “Taipei hotels are the most affected because they’re so focused on international travellers and there are many hotels here. Most local travel goes from north to south and for what little that comes to Taipei, it’s very competitive,” said Shangri-La’s Far Eastern Plaza Hotel, Taipei General Manager Randy Zupanski, who oversees his group’s 420-room Taipei and 333-room Tainan properties as area manager.

 

Zupanski noted that international visitors respectively made up 90% and 50% of pre-Covid-19 guests for his Taipei and Tainan hotels and reported the same downward spiral in business after the lunar New Year holiday, worsening as group and corporate bookings were cancelled. In response, his hotel has also created packages focusing on local guests, which has helped boost occupancy, especially on weekends and more noticeably in Tainan, with its greater appeal to domestic vacationers. 

 

“It’s not about making money. It’s about losing less….It’s going to be a slow road to recovery. The first half of next year will probably see similar numbers, as leisure travel is going to take a while to recover, corporate travel is going to be restricted and the MICE [meetings, incentives, conferencing, exhibitions] business is going to be extremely slow,” he said, noting that the recovery would be even slower if the Chinese government’s restrictions on its citizens’ travel to Taiwan—implemented from August, 2019—also remained in place.

 

Both Meidinger and Zupanski mentioned the complete halt to another significant income source—business and non-business banquets and meetings—noting that many weddings at their hotels also normally include large numbers of guests travelling in from overseas. Like almost everyone interviewed for this article, they also were full of praise for the Taiwanese government’s assistance to the hospitality industry, including subsidies, loans, employee training programs, and vouchers, pointing out that such measures help hotels survive and keep employees on the job.

 

Although Taipei hotels appear to have suffered the worst in this crisis, Covid-19 has brought its share of challenges to the hospitality industry in other parts of Taiwan. Howard Prince Hotel Taichung Chairman Hiro Liao said that business from crucial corporate accounts, including businesses tied to the wind power and semiconductor industries, “evaporated” in March and April, helping drop occupancy rates into the mid-teens from its normal 68-69% annual average. Such business-related visitors normally make up 70% of his hotel’s guests and help cushion what are traditionally two of the slowest annual months for leisure travel. 

 

“Aside from trying to tighten up hygiene standards, it has been basically trying to ride it out and cutting costs to reduce overhead,” said Liao, noting that his hotel saw some pick-up from Mother’s Day room-and-restaurant packages and that May weekend business grew by 60% compared to April, although weekdays remained “very bad” due to his hotel’s reliance on foreign travellers. “Everyone needs to figure out how to get out of the hole independently. Everyone is in survival mode.”

 

Just down the road from the Howard Prince, international business travellers and long-stay guests working in central Taiwan’s wind power, semiconductor and aerospace industries are also critical to The Huan Hotel Taichung, which opened in July 2019.  Seventy percent of its 260 rooms are service residences and 80% of these are filled with Americans, Japanese and northern European long-stay guests, while regular hotel rooms see a lot of international tourists from surrounding Asian countries, particularly on weekends. General Manager Paul Lin said that long-stay business dropped 50% in his two worst months of February and March, although regular hotel business actually started growing in April and May, with a 20-30% recovery from the prior two months. He also still sees about 40-60 service residences booked per day, partly because not all his international guests were able to return home. A current focus on domestic travellers, increased spring-summer promotions and expansion of local booking channels, including cooperation with a popular Taiwanese YouTube travel channel, means that his current 45-50% occupancy rate tops the current average of 35% for Taichung and 20-30% for Taiwan overall.

 

“Unfortunately, there’s been an impact on every hotel. Taiwan is a well-known business destination and we are one of the only international chain hotels in Taichung,” said Fairfield by Marriott Taichung General Manager Dario Congera, noting that half of his house guests are from overseas and, of these, half are business travellers, mainly from Asian countries. After his worst period from mid-March through April, he saw business pick up slightly in May as Taiwanese weekend leisure travel started to grow. Congera said that June continues to see improvements as public confidence grows and his hotel has benefitted from joint promotions with six other Marriott International hotels in Taiwan. “Yes, local business helps keep the hotel alive, but local guests will never offset international guests, including conferences and big meetings,” he said.

 

Half-way between Taichung and Taipei, Hsinchu tends to attract hotel guests who are overwhelmingly there for business and not leisure, thanks to its science park. Cecily Liu, CEO of the 770-room Sheraton Hsinchu Hotel, said that 70% of her guests are international visitors, of which 70-80% are business travellers. However, her decade-old residence began working 6-7 years ago to woo non-business guests by creating a lot of programmes and promotions—from recreational activities to its Bobo mascot—targeted at leisure travellers and families, and is currently cooperating with the Hsinchu government to promote tourism. When Covid-19 begin to bite into her core market, her team responded by boosting its leisure/family-oriented promotions even further. 

At the same time, her six food and beverage outlets began offering box-meal deliveries, working with staff canteens at nearby companies to provide a variety of local and international cuisine, and offering a drive-through service for the hotel’s popular Beiping duck. With the recent lifting of government restrictions on gatherings, such events are also starting to return to the hotel. While the guest room business fell by 70% from mid-March through April, the Sheraton Hsinchu’s early-March launch of special 10th anniversary package rates enabled it to sell 4,000 room nights and helped lead to an improving May, although Liu noted that business was still down 60% year-on-year. Elsewhere in Hsinchu, Hotel Indigo Hsinchu Acting General Manager Kevin Lee said that his 140-room residence previously also had an overwhelmingly 70/30 business/leisure guest ratio, thanks in large part to the science park. Even during the worst March-April period, high-tech firms like TSMC still required visits from foreign engineers and Taiwan continued offering visas to specific business travellers, so the hotel also continued to see a reduced number of international guests, checking in after mandatory two-week quarantines. A variety of promotion within Indigo’s parent IHG hospitality group and events targeted at domestic leisure/family visitors meant that the hotel was able to achieve a 40% May occupancy rate, an achievement Lee is proud of.

 

Although still hit hard by the pandemic, Taiwan’s resorts have arguably gotten off the easiest during the on-going crisis, due in part to a lower percentage of business from international visitors, the rapid rebound in domestic tourism as vacations abroad remain off-limits for Taiwanese (who normally take about 17 million overseas trips annually) and there is little/no local coronavirus transmission, and perhaps the public perception that more remote, non-urban areas may be safer to visit. 

 

Resorts and guesthouses in the Kenting area reportedly saw 80-95% occupancy rates during the 2-5 April Tomb Sweeping Day holiday. In mid-April, it was reported that while March revenue at Farglory Hotel’s Hualien County branch shrank 21.75%, its quarterly revenue actually grew 9.93%. The same trend was true for Hotel Royal Chihben, situated in Taitung County’s popular hot springs resort area, which saw a 15.71% revenue drop for the same month but a 6.72% quarterly gain. For the upcoming 25-28 June Dragon Boat Festival long holiday weekend, a number of hospitality groups such as Silks Hotel Group, Humble House Hotels and Fullon Hotels & Resorts are already projecting an average occupancy rate of 80-90%.

 

Hotel Royal Group Sales Office General Manager, Fiona Yuan, said that her group’s four resorts—including two in Yilan County and one in Taipei City’s Beitou District—were not seriously impacted by the March ban on international tourists, which normally only make up about 15% of guests. Despite the hit to business from the ban, followed by public panic over a navy flotilla outbreak and warnings about Tomb Sweeping holiday crowds, Hotel Royal’s Chihben and Chiaoshi resorts still maintained 40-50% occupancy rates (down from a previous 70-80%) in April.  

 

The growing prevalence of “zero-case” days in May saw the group achieve its budget goals that month and Yuan says that business is already back to normal in the May-June period, with a 70% and 80% occupancy for Chihben and Chiaohsi resorts, respectively.  This happened in part because of her group’s special promotions, including an online sale for Hotel Royal’s 11 residences that brought in NT$60 million in four days. Despite the rosier picture for her resorts, she noted that the situation was quite different for the group’s four Taipei business hotels, which saw occupancy drop from a previous 90% to a current 20%. “For our resorts, it’s even busier than before due to very heavy domestic demand.  Domestic travellers are a big benefit to us, provided that there are no new government Covid-19 measures. Employee travel groups are returning and there is strong FIT [Free Independent Traveller] demand,” said Yuan, adding that she didn’t see international visitor numbers returning to normal until the 2021-22 period.

 

When it comes to returning to normal, or perhaps a “new normal”, most hotel managers appear to range from cautious to guardedly optimistic about when that will happen and what it means for their day-to-day business. 

 

“Normal is the past. Now, it’s basically defining new benchmarks. A lot of hotels are talking about new protocols, like should they offer daily breakfasts and housekeeping,” said Howard Prince Hotel Taichung’s Liao, noting that while pent-up domestic demand for travel makes him optimistic, he believes a recovery will be slow and gradual, perhaps as long as 2-3 years. “There’s a question of if we should even consider the need for mass tourism. Perhaps it will be longer ‘stay-cations’ versus two-three night stays, and virtual meetings for business travellers. This accelerates the evolution of the idea of hospitality. Everything is becoming more digitized with less contact, something that definitely needs to be fast-tracked. However, we are also in the people business and we still have to be more sensitive to people’s needs and emotions.”

 

“It’s a new way of hospitality and managing a hotel—wearing a mask, temperature checks, letting guests and employees know we are trying to protect them, a la carte breakfasts, a new employee mindset, spraying alcohol to clean rooms, getting new laundry vendors and washing at 85 degrees. This is going to be long-term, as I don’t think this epidemic will disappear overnight,” said Hotel Indigo Hsinchu’s Lee, adding however that he anticipates the July-August period will be “packed”. “In this ‘new normal’ I think we can still make a profit….I’m looking forward to the next three months.” Beyond that, Lee is also optimistic that Taiwan’s success will play a big role in luring international visitors back: “I’m very proud that Taiwan is so safe. Everybody has been so curious about Taiwan and I guarantee that once the epidemic slows down, they will definitely be willing to visit Taiwan.”

 

In Taipei, Hotel MVSA’s Arthur Wang foresees some tough times ahead: “I don’t think international visitors will return any time soon, maybe in a year. Maybe early next year, or early in Q2, we’ll see some visitors come back. I’m not optimistic. It’s not easy and everyone has to tightly control every penny for the next year.”

 

“Everything depends on the government’s policy and when international business people can come in, perhaps in October or November? No one knows,” said Paul Lin at The Huan Hotel Taichung, noting that local employee trips by big Taiwanese banking and insurance groups would provide a boost in the meantime. “I’m optimistic because of local Taiwanese travel, and Taichung has lots of new projects in aerospace, wind power, data center and semiconductors. I think it takes time to get back to normal, at least a year or longer.”

 

“Yes, there will be a new normal and no there won’t be. Changes will influence the way we operate and procedures we’ve always had; we’ll just emphasize the way we implement them and take them a bit further,” said the Grand Hyatt Taipei’s Meidinger, who predicts that many Taiwanese could panic and stay at home when new Covid-19 cases inevitably crop up with a reopening to the world. “Flights need to resume and quarantine periods need to change. Until that happens, it will be very challenging. However, we should never give up hope. If Taiwan opens up in October, we can still save the year so we don’t overall lose too much.”

 

Meidinger’s counterpart at the Far Eastern Plaza Hotel believes that it is critical at this stage for there to be better coordination and input between the hotel industry and government agencies, including the Tourism Bureau, something that he feels is currently lacking by comparison with places like Hong Kong. This is not only for business survival but to also revive Taiwan as a destination.

 

“Taiwan has a tremendous opportunity to promote itself as a safe destination. We need to be working together so that we can benefit when it opens up,” Zupanski said. “If we’re not more vocal, this business will go elsewhere like Hong Kong. We have to capitalize on the opportunity. There’s a sense of urgency.”

 

“I think we’re in a better situation than hotels in most parts of the world,” said Sheraton Hsinchu CEO Liu, who is using this opportunity to rethink her business and restructure for greater competitiveness and efficiency, including staff cross-training, in addition to big renovations and technology upgrades to rooms and hotel facilities. “We’re thinking about how we can be ahead of other hotels when we come out of the pandemic. It’s hard to make changes when things are going well.”

 

Back at A Touch of Zen Guesthouse in Kaohsiung, Thelin says the first half of May only saw one or two guests, but things started to pick in the second half with a “sudden surge” from 20 May that has included Taiwan-based foreigners. Although over 15% of his guest base—international visitors—is still gone, he feels that the current situation will benefit local hospitality businesses for the time being and make up for the lack of international guests.

 

“It’s really hard to say about this summer. If the current zero-transmission situation continues, it looks good for domestic travel. There’s a pent-up travel energy among the local population and, once they feel safe, they want to get out and go somewhere, and can’t leave the island. That benefits us all in the hospitality industry,” he said. “Short-term, we’ll see a bump in domestic travellers that will cover for international business but it’s uncertain how long that bump lasts, perhaps until things open up internationally. I don’t even want to speculate about when international visitors return, as that’s having a discussion at a national level. Taiwan’s been cautious, which is a good thing although it’s not good for my business.”

 

Douglas Habecker is a writer, Compass Magazine co-publisher and current Taichung AmCham chairman

 

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