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APAC: Economic Boom or Financial Downturn?
2024 has been a very intense year. Throughout my career as a hotelier, I have lived through 9/11, several wars, a global financial crisis, a pandemic, a tsunami, and a few other milestones. Yet 2024 has been the most intense year for me in my 25 years in the hospitality industry. So what’s going on?
My email inbox is impossible to organize. Projects are piling up, I’ve already flown 185,000 miles in 180 days, and every time I open LinkedIn, I see a new deal or opening in the Asia Pacific hotel industry, and on top of that, there are tour buses full of Chinese tourists.
Colleagues and clients around the world tell me that I am lucky to be in the Asia Pacific region, and that all the talk of the town seems to be focused on this region now and for the next few years. Then comes the calm. I feel that it was the right choice to base myself in the City of Angels, Bangkok.
But when you look at the numbers, something seems incredibly odd. The numbers don't add up, and they're exactly like the Ice Water Bucket Challenge from a few years ago. What's going on?
To understand what’s happening, we need to go back four years and follow the four lines on the graph below. Starting out on a level playing field, everything seemed level, but then reality fell apart. As we all know, APAC took the longest to recover because of fears about borders being opened. But just five quarters ago, my world region was ahead of Europe and the US in one metric that really mattered: GOP pace compared to 2019, and expectations were high.
Fast forward to today, well, the last 15 months have been a huge disappointment. APAC is only 3% ahead, the US is up 6%, Europe is 19% ahead, and the Middle East is 36% ahead in terms of speed, so it is in a world of its own. So what’s the problem with all the optimism about Asia? Or is it all smoke and mirrors?
A closer look at each of the major markets provides some hope. Development is indeed strong. Not as strong as Saudi Arabia’s megaprojects, but solid. India’s huge profit margins are fueling a huge development pipeline. China is back in the game with news of a property boom. Japan’s weaker yen is making its property market look like an exceptional value. Vietnam has turned a corner and is moving forward, with corruption scandals and fears seemingly behind us.
And then there are mature, stable markets like Australia, Singapore and South Korea, which are well on their way to stabilizing the entire region.
I love numbers, so let me zoom in on a few details that I think are quite relevant to the cooling off of APAC after its strong run 30-15 months ago. As you may recall, the prime example of performance at a global level was Maldives, which gave every statistician a headache because the numbers were literally off the charts and looked terrible everywhere in the world.
So what has happened in the beautiful island nation over the past 12 months? Well, nothing! In fact, the GOP margin has fallen by 0.2% year-on-year. The Maldives’ hot streak has finally cooled. It’s not that they’re not doing well. They’re doing well, but they’re not growing, and that’s the point.
Another key market that opened early has benefited greatly from the Chinese lockdown in Hong Kong and its attractive destination for private leisure and business travel, combining a strong strategy and first mover advantage for MICE and sports events. Singapore was the shining star of the past and again, like the Maldives, it has grown its GOP margin by 0.1% year-on-year over the past 12 months. Another major victim of lack of stability and growth.
To ease your eyes, here are the top five fastest growing countries in APAC over the past 12 months. In order of success, they are China, Vietnam, Malaysia, Japan and Thailand. So overall, it is positive news. Unfortunately, Cambodia is struggling with lack of demand, and Australia has strong demand but major cost control issues have caused GOP margins to fall to the south.
To make the issue of profit margins very clear in Australia, let’s look at F&B. All major markets are doing as well as last year and higher than in 2019. In every country except Hong Kong and Japan, profit margins are at 25%. Not impressive, but not a disaster. Australia is in trouble. Who wants to open a restaurant, decorate it, market it, hire staff, train them, and do everything else to make a profit of only 8.5%? You’d be better off buying bonds and relaxing on the beach. It’s a lot less headache and the returns are about the same. Believe it or not, I’ve been looking at the data. It’s tight.
Nevertheless, I am hopeful. I know Thailand is doing well this year. I see it in the airport, in Bangkok, on the beach. I also know Vietnam is recovering and China is committed to growth. The next 12 months will be very interesting and I can’t wait to experience it and share my insights once again.
This story was contributed by Tareq Bagaeen, Senior Consultant at HotStats.
Tareq Bagaeen is the Founder and CEO of aQedina.com and Senior Consultant at Hotstats and D-EDGE.. Connect with Tareq on LinkedIn.
Hot stat HotStats provides hoteliers worldwide with a unique P&L benchmarking service that allows them to compare their hotel performance to their competitors on a monthly basis. It maintains over 500 key performance indicators covering 70 areas of hotel revenue, cost, profit and statistics, providing a much deeper insight into hotel operations than any other tool. The HotStats database aggregates millions of hotel rooms worldwide. For more information, visit www.hotstats.com.