This article first appeared in The Edge Malaysia Weekly on June 20, 2022 - June 26, 2022

DESPITE the reopening of borders since April 1, when Malaysia allowed quarantine-free travel for fully-vaccinated travellers into the country, it will be some time before the hotel industry regains a strong footing following the debilitating lockdowns of 2020 and 2021.

In fact, it may well take another year at least before operators can operate at their full capacities at pre-pandemic levels, Malaysian Association of Hotel Owners (MAHO) president Tan Sri Teo Chiang Hong tells The Edge.

“Average occupancy rates are an estimated 30% to 50% of pre-pandemic levels,” says Teo, who is owner and director of One World Hotel in Petaling Jaya, Selangor.

He notes that resort destinations are seeing full occupancies while city hotels still face low occupancy.

As at November 2020, a total of 204 tourism and hotel operators had shut down following the impact of the Covid-19 pandemic and enforcement of the Movement Control Order, which was implemented in several phases, according to the Ministry of Tourism, Arts and Culture (Motac). The ministry estimated the hotel sector’s losses at RM6.5 billion in 2020, with room occupancy averaging below 30%.

Data from the World Tourism Organization (UNWTO) shows the hotel workforce in Malaysia fell 10% to 208,500 persons in 2020 from a pre-pandemic total of 233,800 persons in 2019, while MAHO estimates that the hospitality industry lost about half of its total workforce during the pandemic to other industries and self-employment.

But things are improving, albeit slowly. In its report, “Kuala Lumpur Hotel Market Outlook & Prospects 2022”, out in March, CBRE noted that the city’s hotel performance (measured by revenue per available room [RevPAR]) reported a reduced decline in 2021 following a 16% year on year (y-o-y) drop the year before — indicating a turning point in the market.

“… [W]e observed a significant improvement in the last three months of 2021, likely on the back of relaxed domestic travel restrictions. December 2021 RevPAR peaked at RM118, the highest since the pandemic hit in April 2020,” it said.

In the last three months, since hotels saw foreign tourists again, operators continue to wrestle with a tangle of issues from the slow return of foreign tourists, manpower shortage, higher wages to higher operating costs as overheads and prices of food and materials soar.

“Another six months will not give us that level of [pre-pandemic] volume. There are too few flights now to attract foreign tourists,” Teo remarks.

In a June 10 note, CGS-CIMB research analyst Raymond Yap says that in May, international seat capacity amounted to 27% of the May 2019 base, up from 14.7% in March this year. However the research house’s top-down estimate of Malaysia’s international passenger traffic recovery in 2022F currently stands at 40% of the 2019 base.

“Our bottom-up analysis suggests that potentially only 31% can be achieved. Meanwhile, our top-down estimate for Malaysia’s domestic sector is for a recovery in 2022F to 85% of the 2019 passenger traffic base, but a bottom-up analysis suggests that 75% could be more realistic.

“Airline seat capacity has been recovering slower than hoped for, because the process of restoring cabin crew strength is slowing down airlines’ plans to reinstate flights. The unfavourable effect on passenger traffic is compounded by lower-than-expected seat load factors,” Yap explained.

The interdependencies between players have a chain effect across the travel and tourism industry, says Malaysian Association of Hotels (MAH) president Christina Toh.

“[Hotels] have to depend on the flow of flight frequency. [Airlines and industry players] are working hard to increase flights into Malaysia. It would be realistic to expect the average hotel occupancy rate to reach 60% to 70% by next year,” she says. MAH had earlier expected the target to be reached by the third quarter this year, mainly contributed by international tourists.

China’s Zero-Covid policy has seen tourism players the world over suffer from the absence of Chinese tourists.

Indeed, over the last decade, Chinese outbound tourism has been one of the driving forces for global tourism, especially in Southeast Asia. Chinese visitors to Asean reported a compound annual growth rate (CAGR) of 23% between 2009 and 2019, according to CBRE.

In its report, CBRE noted that China’s Zero-Covid policy will mean a very gradual return of outbound Chinese tourists. Nevertheless, it pointed out that within Asean, Malaysia is one of the countries that is least reliant on Chinese travel demand due to its diversified demand pool.

The issue with low occupancy rates at hotels is not as straightforward as it appears as it is not just caused by the still-low tourist arrivals. Hotels are also struggling with a labour shortage that is compounded by the higher minimum wage of RM1,500 that was raised in May 1 from RM1,200 previously. Hence, even with the return of foreign tourists, hospitality players face the challenge of staff recruitment and retention.

From an operational perspective, it is all hands on deck and a redesigning of work schedules for existing and new hospitality employees, with administrative staff executing desk work in the morning, followed by a change of garment to assist in housekeeping chores in the afternoon, and over the weekend and rest days on a freelance basis.

Current circumstances leave many hotels with no choice but to compromise on their inventory of services, most notably in the housekeeping department. Daily changes of linen and towels are reduced to three times a week, and even when guests request the latter, the service is not expected to be prompt. Staffing limitations have 400-room hotels offering only 200 rooms, while services at dining halls are slowed.

“Guests obviously aren’t pleased, but there is no choice due to limited personnel,” Teo laments.

“The Department of Labour [of Peninsular Malaysia] promised that foreign workers would be allowed in when borders reopened. We were promised Bangladeshi workers two months ago, but we struggle to this day. [While waiting], we face challenges in trying to employ local hires,” he adds.

Given the difficulties in recruiting hotel workers, employers in the industry face the pressure of raising salaries to attract and retain new hires.

Toh confirms this, explaining that certain hotels are offering incentives, such as a RM200 payment to new hires who fulfil three months of service. Many five-star players are offering higher starting salaries, especially in the housekeeping division, as it faces the most acute manpower shortage, followed by the kitchen and food and beverage division. The going salary for room attendants is now as high as RM2,800 to RM3,000 per month from the old rate of about RM1,800 per month, she adds.

Yet, the success rate of hiring is low as the rank-and-file positions have typically been filled by foreign workers. Locals are not interested in housekeeping jobs, Toh says.

“The [government] said it would look into our request for a staggering of the minimum wage hike from RM1,200 to RM1,500, or a deferment.

“[But] after further discussion, we have decided to ask the government for a subsidy of a few hundred ringgit a month or a one-off payment of up to RM1,000 only for the hospitality industry to tide us over for the rest of the year.

“The hospitality industry has become a start-up all over again. It isn’t just wages that have gone up. Food, materials and every single item in a hotel room costs more now. Hoteliers will need to bite the bullet and spend that extra in order to provide services. But [in doing so], we are merely keeping our heads above water,” Teo says.

It is worth noting that even if the government grants the hotel associations’ appeal for a staggering or deferment of the minimum wage, the challenge is in attracting and hiring workers to do the job.

For now, hotel operators can only wait for the promised arrival of workers and bulldoze through with the existing workforce.

According to Teo, the Ministry of Human Resources says it has cleared workers from Indonesia and Thailand to work in Malaysia, and is now sourcing for workers from Cambodia.

“Upon following up on my application [for workers] early this year, I have been informed that we should see an influx of foreign workers within a month or two,” Teo says.

Meanwhile, the Airbnb landscape in Malaysia remains muted due to a lack of interest on the part of its operators, while visitors are flocking to resort destinations, Teo says.

Neither is surprising. The drop in Airbnb operators is to be expected, given the slump in visitor numbers, movement curbs and health concerns which arose during the pandemic.

For now, MAHO is taking the opportunity to seek out Motac for better health and cleanliness regulation of the vacation rental platform.

“We have put forward a request to Motac to have Airbnb players undergo a health and cleanliness programme. We would like Airbnb operators to be licensed and be on the same footing as hotel players. This is to give a good representation of Airbnb in Malaysia,” Teo explains.

Toh points out that major players in Malaysia’s tourism, business events and airline industry have established the Travel Safe Alliance Malaysia, which is certified by testing, inspection and certification services provider Bureau Veritas Malaysia, to give tourists the assurance of safe and hygienic travels.

“This is especially important during the Covid-19 pandemic. Industry players are working together to restore tourism in Malaysia,” she says.

CBRE believes that the tourism industry has passed the trough, as evidenced by the pickup in passenger traffic at the Kuala Lumpur International Airport (KLIA) in late 2021. KLIA reported that total passenger traffic in December 2021 reached 1.2 million, reflecting a 293% y-o-y jump.

In an April 12 statement, Knight Frank Malaysia says the last two tumultuous years sent investments in hotels across Malaysia spiralling downward from a 2017 high of RM2.2 billion to just RM556 million in 2020 and RM177 million in 2021.

“International travellers’ confidence is slowly returning … with investor sentiment recovering. We expect to see an increasing number of hotel transactions over the next 24 months,” says its capital markets executive director James Buckley.

CBRE sees investment volume picking up in 2022, pointing out that higher construction costs will see investors favouring existing completed hotels as they are ready to tap on the demand spike from the borders reopening.

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