The Peninsula in Tsim Sha Tsui. The hotel industry is feeling the pinch of the financial turmoil. Edmond Tang

Occupancy rates in local hotels have been steady since last year but the industry is expecting to take a blow from the financial turmoil.

The Federation of Hong Kong Hotel Owners said the current economic downturn is different from SARS in 2003 in terms of their damage.

"In 2003, the hotel industry revived several months after the SARS outbreak, but problems from the credit crunch are emerging one after another," said executive director Michael Li at a press conference yesterday.

The immediate impact is on business guests.

Many international corporations would rather hold teleconferences instead of sending their staff overseas for conferences to reduce costs. Those who are still sending that staff overseas often shorten their stay.

High surcharges on air tickets could be another factor that turns visitors away from the city, Li said.

Joseph Tung Yao-chung, executive director of the Travel Industry Council of Hong Kong, agreed with the federation.

"Business guests have strong spending power but unfortunately the global financial crisis stops them from coming," he said.

Luk Kwok Hotel in Wan Chai is one of the hotels which have seen the impact. Its revenue plummeted about 12 percent in recent months.

General manager James Li also expected the occupancy rate during Christmas to drop. Yet he said he hopes to attract more guests after the hotel lowers the room rate by 10 to 15 percent.

Nevertheless, Michael Li expected the average occupancy rate for 2008 to stay at about 85 percent, similar to that of last year, thanks to the robust economy in the first quarter. He also forecasted a comparable rate during Christmas.

However, he said it is hard to tell what business will be like next year due to too much uncertainty.

"We can still maintain business now, but we don't know how long the impact of the financial tsunami will last," he said.

Li added that he is certain that revenue growth will slow down due to the depreciation of Hong Kong dollar and an increase in operating cost.

"So we have to prepare for the worst," Li said, adding cost control is the key to maintain hotel business.

Some hotels have already frozen recruitment these two months to save labor cost.

While Li said it will not be a surprise for hotels to freeze salary, reduce their year-end bonuses or even lay off staff, he said closure is unlikely.

Finance professor from the Chinese University of Hong Kong Raymond So said some staff may be asked to switch their employment from a permanent basis to a contract basis.

He added high-end hotels which have higher operating costs will be at a bigger risk amid the credit crunch.

Li called for more promotional work to attract business guests. "Our strength is the position as an international financial center backed by the strong Chinese economy. We ought to hold more international forums and conferences to let the world know about it," he said.

(HK Edition 10/21/2008 page1)