Room at the inn:how much is enough?

The 500-room VinPearl Resort and Spa, set to open next week, will be Nha Trang’s first five-star resort

During the biannual Hue Festival in particular, foreign visitors have found it hard to secure a room in the city, simply because there are not enough luxury hotels. Travel agents have to direct clients to other places such as Danang or Hanoi instead.
This shortage has inspired Eric Merlin, a Frenchman who owns Exotissimo travel agency, to set up a venture with a local company to build a hotel at 5 Le Loi Street in Hue. The 120-room hotel is expected to have a soft opening next June to accommodate visitors during the festival.
Merlin is not the only investor setting his sights on the hotel business in this beautiful and historic city. Other developers have seen opportunities in the room shortages during the peak season to establish large hotel projects there.
New projects such as Hung Vuong, Hoang De and Thuan An hotels will add more than 500 rooms to Hue’s hotel portfolio in the next couple of years, posing a challenge for Merlin’s hotel business.
“I am afraid that there are likely to be more than enough hotel rooms in Hue in the next few years because of some major hotel projects under construction at present,” he said.
To counter tough competition, he said, the company is to speed up construction and position the hotel as a high-end facility to avoid the competition of lower-standard hotels.
Having observed the local hotel and tourism industry for more than a decade, Merlin said he was concerned that the many hotel projects under construction in Danang and Hoi An at present might eventually trigger an oversupply, mirroring the situation during the Asian financial crisis of 1997.
“Projects, and resort hotels in particular, under construction in the Hoi An area will add up to thousands of rooms in the next few years. I am afraid this will lead to an oversupply if the number of visitors does not grow strongly enough,” he said.
It seems to be a legitimate concern. The hotel industry underwent a serious downturn during the 1997-1999 period when thousands of luxury rooms opened in Hanoi and Ho Chi Minh City while foreign-visitor numbers declined as a result of the regional economic crisis.
The malaise sparked a price war as hotels lowered rates to attract customers, resulting in room prices plummeting by more than 70 per cent and delaying many foreign-invested hotel projects.
It is only recently that the tourism industry has picked up again with high occupancy and profitable room rates, inspiring investors to renew their interest in the hotel industry.
Despite the SARS epidemic earlier this year, hotel construction is booming again across the country, just as it was prior to the 1997 crisis.
Foreign investors registered around $140 million in the hotel industry last year and $100 million since the beginning of this year, compared to just a few million dollars in the 1999-2001 period, not taking into account local projects now under construction.
Resort hotels are mushrooming in the country’s most popular tourist destinations such as Halong Bay, Hue, Danang, Hoi An, Nha Trang and Phan Thiet, where hotels target mainly leisure travellers. Hanoi and Ho Chi Minh City, on the other hand, have seen few new projects.
Hoi An, a World Heritage Site, will see at least five large resorts open in the next few years: the Golden Sand, Indochina, River Park, Faifo and another property built by Hoi An Tourist Service Company, in addition to numerous smaller projects.
However, tourism authorities have been quick to allay over-supply concerns, pointing out that these investments are necessary for an industry that is striving to become an economic spearhead.
National Administration of Tourism vice chairman, Dr Pham Tu, said the recent stronger investment flow reflected investors’ confidence in the development of the local hotel and tourism industry.
“Only if the tourism industry has a better future will investors build hotels. Tourism is growing and Vietnam needs more hotels to accommodate the rising number of visitors,” he said.
Tourism is expected to post an annual 10 per cent growth rate in coming years to reach 3.5 to four million visitors in 2005 compared to 2.2 million this year.
Tourism authorities say the country needs 89,000 hotel rooms by that year, meaning that more than 13,000 hotel rooms need to be built in the next couple of years. The country should have a total of 150,000 rooms by 2010.
There were signs of room shortages in Hanoi and Ho Chi Minh City during the peak season late last year and despite the impact of SARS, most hotels across the country are reporting 90 to 100 per cent occupancy.
Investors remain optimistic about future business. Pham Khac Phuong, president of Hon Tre Tourist and Trade Company which will open the 500-room VinPearl Resort and Spa next week, said more hotels would improve marketing for various destinations.
“In the short term, more hotels means tougher competition. But in the longer term, it will help promote Nha Trang globally and push for more flights, including international services, to this city,” Phuong said.
VinPearl will be Nha Trang’s first five-star hotel, and various other large projects under construction such as Rusalka, Dong Hai, Crystal, Wonder Park and Ninh Van will add a substantial number of rooms to the seaside city’s portfolio.
“Even so, the number of hotels here is nothing compared to Thailand where a tourist spot like Nha Trang would have hundreds of luxury hotels,” Phuong said.
Pham Tu echoed Phuong’s view, saying that more hotels would help to promote Nha Trang and Vietnam internationally as a popular tourist destination.
“More hotels does not mean they will have to share more of the pie if they know how to make a bigger one. What’s necessary is to do more overseas promotion to attract tourists,” Tu said.
But VinPearl’s general manager, Jeroen Van Dongen, said tourism infrastructure should be further improved to support the hotel industry.
VinPearl will open 200 rooms at first and will wait for the market to pick up to launch the remainder.
Due to a lack of international flights to Nha Trang, he said, the resort would first focus on the domestic market with promotional room rates and start to concentrate more on the overseas market from the end of next year.
“Next year will not be an easy year for us,” Dongen said, referring to the fact that there are no international flights to Nha Trang and only small flights from Hanoi and Ho Chi Minh City.
“We expect Cam Ranh airport to open for international routes by the end of next year and to boost our occupancy,” he said.
More flights are what hotel investors like Eric Merlin are pushing for.
But, Merlin said he was still worried that increased flights with the opening of Chu Lai airport in Quang Nam province next year would not bring in enough guests for resorts soon to open in Hoi An.
“The increase in hotel rooms in Hoi An might outpace visitor arrivals in the couple of years,” he said.