APAC: Economic Boom or Financial Gloom?
2024 has been very intense. Throughout my career as a hotelier, I've gone through 9/11, a few wars, a world financial crisis, pandemics, and a tsunami to name but a few significant milestones. And yet, 2024 has been the most intense year for me thus far in the quarter century of hospitality life. So, what is going on?
It seems like my email inbox is impossible to keep clean. Projects keep stacking up one after another, I've already flown over 185,000 miles in 180 days, and every time I open LinkedIn, I find news of a major new signing or opening for the hotel industry around the Asia Pacific, and on top of it all I see tour buses with Chinese travelers everywhere.
My colleagues and clients around the world tell me that I am lucky to be in APAC and that all the buzz seems to be focused on this part of the world now and for the next few years, and a sense of calm descends; I've made the right choice to base myself out of the city of Angels, Bangkok.
But then, I look at the numbers and something seems extremely off. The figures just don’t stack up and it’s like the ice-water bucket challenge from a few years back all over again. What gives?
To understand what is going on, we need to go back four years and follow the four lines in the below graph. Starting with a level playing field, all seemed copasetic, and then reality came crashing down. As we all know, APAC took the longest to recover because of the fear of opening up borders. However, as early as five quarters ago, my region of the world was actually ahead of Europe & USA on the one key measure that matters: GOP pace vs. 2019, and hopes were high.
Fast forward to today and well, the past 15 months have been a major disappointment. APAC is a measly 3% ahead, USA is at 6% up, Europe is 19% way ahead and The Middle East is in a world of its own at 36% ahead in terms of pace. So, what is the deal with all the optimism about Asia then? Or is it all smoke & mirrors?
Upon drilling down into each major market, I have hope. Development is indeed strong. Not Saudi mega-projects strong, but solid. India’s immense profit margins are fueling a massive pipeline of development. China is back in the game with news of their real estate boom going bust a thing of the past. Japan’s weakened yen is making the real estate market seem like exceptional value. Vietnam is over the hump of concern with the corruption scandals and fears also seemingly behind us and it is rallying forward.
Then you have the more mature and stable markets like Australia, Singapore, Korea, and others who are just ticking along nicely to stabilize the whole region.
I like numbers, so let’s zoom into a few details which I find quite relevant to APAC climbing strong 30 to 15 months ago, and then cooling down. If you recall, the poster child of performance at a global level was Maldives giving every statistician a headache because their figures were literally off the charts and making everywhere else in the world look awful.
So, what has been happening in the beautiful island nation for the past 12 months? Well, nothing! It is in fact 0.2% down on GOP margins year-on-year. It seems that Maldives’ hot streak has finally cooled. Not that they are not doing well. They are, but they’re not growing and that is the key.
Another major market that opened up early combined a first-mover advantage with a brilliant strategy for MICE & sports events, gained hugely from the Chinese lockdowns in Hong Kong and from being overall an appealing destination for both individual leisure and business travel. Singapore is that erstwhile shining star and again, just like Maldives it has managed just a 0.1% growth in GOP margin for the last 12 months when compared to the previous year. Another key victim of stability and lack of growth.
To make things easier on your eyes, I will tell you who were the top five fastest-growing nations within APAC in the last 12 months. In order of success, it is China, Vietnam, Malaysia, Japan, and Thailand. So, positive news all around. Except for Cambodia unfortunately, which is suffering from a lack of demand, and also Australia which has strong demand but has a major cost control issue which has sent GOP margins south.
To show you very clearly the significance of the profit margin issues in Australia let’s look at F&B. All major markets are doing as well as the previous year and higher than in 2019. All except for Hong Kong and Japan, but even there, profit margins are hovering around 25%; not impressive, but not a disaster either. Australia faces challenges. I mean, who would go through all the trouble of opening dining venues, decorating them, marketing them, finding staff, training, and everything else for just 8.5% profit? You might as well buy some bonds and chill at the beach. Far less headache and almost the same return. Unbelievable, but trust me, I looked at the data over and over: it’s tight.
Nevetheless, I have hope. I know that Thailand is doing well this year, I see it at the airport, in Bangkok, and at the beaches. I also know that Vietnam is picking up and China is fully committed to growth. The next 12 months will be super intriguing and I can’t wait to experience them and share back my insight once again.
Story contributed by Tareq Bagaeen, Senior Consultant with HotStats.
