In key Asian cities, global forces drive hotel revenues

Liu Crocker
Pamela Moulton
Daniel Quan

Global forces play a greater role than local factors in driving hotel revenues in eight major Asian cities, according to three professors at Cornell’s School of Hotel Administration.

The most extreme case is Seoul, South Korea, where more than 90 percent of the hotels’ revenue per available room, known in the industry as RevPAR, is affected by such global factors as Chinese and U.S consumer confidence. In contrast, local factors hold more weight in Beijing and Bangkok, where they account for 52 percent and 66 percent of RevPAR, respectively.

“When we initially interviewed the hotel managers, they listed many local events and factors as potential drivers of their revenue, and they were not focused on international forces. But we determined that local or regional events must be extremely large and even disrupting to offset the effects of global forces on hotels’ revenue,” said co-author Pamela Moulton, assistant professor of finance at Cornell. “For example, the 2008 Chinese Olympics and the 2010 Shanghai Expo moved the needle. Sadly, so did the 2011 Japanese tsunami and floods in Thailand,” she added.

But international tourist arrivals – a local factor – were always associated with RevPAR in all eight cities.

The researchers used data on monthly average daily hotel rates and occupancy rates from 2005 through 2011 collected by STR Global in Bangkok, Beijing, Hong Kong, Seoul, Singapore, Shanghai, Taipei and Tokyo. Global factors included MSCI Asia stock index, Chinese and U.S. consumer confidence, the China‐U.S. exchange rate and Chinese real estate development (as a proxy for China’s gross domestic product). Local factors included international tourist arrivals, trade balance and inflation.

The lodging industry uses RevPAR as a key determinant of a hotel’s performance. The influence of global and local factors are especially important to the industry in light of the recent financial crisis, in which global factors caused RevPAR to plummet around the world, the researchers said.

Moulton and her co-authors suggest that these findings give hoteliers a window into the factors that drive their properties’ revenues and also offer investors a mechanism with which to make a more accurate risk assessment. Hotel executives can view the variables significantly related to RevPAR as early warning indicators that they can use to take timely steps to sustain profitable operations. Knowing the sensitivity of RevPAR to these factors gives hotel operators a sense of the extent to which RevPAR may be affected, given a change in a salient factor that drives RevPAR.

For investors, knowing the portion of RevPAR that arises from local demand and supply factors allows them to better assess whether to invest in or exit a given Asian city and whether the risks that they face (volatility in RevPAR) are primarily local or more macro in nature, Moulton said.

Moulton’s co-authors are Crocker Liu, the Robert A. Beck Professor of Hospitality Financial Management, and Daniel Quan, the Singapore Tourism Board Distinguished Professor in Asian Hospitality Management, both at Cornell.

The study, “Common Global and Local Drivers of RevPAR in Asian Cities,” is available from the Cornell Center for Hospitality Research.

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Joe Schwartz