The fallout of the economic downturn has been positive for mid-range hotels in Vietnam with belt-tightening tourists eschewing top of the line luxury establishments.
Phan Dinh Hue, director of Viet Circle Travel and Service Company, said many tourists have switched from luxury hotels to more affordable ones since mid-2009. He estimated that around 60 percent of foreign visitors and 70 percent of local tourists now preferred to stay in mid-range hotels during their trips.
"Foreign tourists often choose four-star hotels over three-star hotels, but recently more of them have requested the latter," Hue said. "Most local tourists also pick budget hotels."
A representative of Ho Chi Minh City-based tour operator Vietravel also confirmed the trend towards low-cost hotels. Around 60 percent of customers booking tours with the company have asked to stay in three-star hotels in the first six months this year, he said.
Tran Kim Long, general director of Bong Sen Corporation, said his company has taken advantage of the recent trend, targeting tour operators who previously accommodated their customers in luxury hotels.
This strategy has expanded the customer base for the company's three-star Bong Sen Saigon and two-star Bong Sen Annex, both in HCMC, he said. Rates start at US$65 per night for a double room in these hotels, compared to around $300 for a deluxe room in a five-star hotel.
"Occupancy rates have been quite low over the last 12 months so businesses are looking at geographic diversification in order to get a better mix and access new market opportunities to drive demand," Kenneth Atkinson, managing partner of accounting and consulting firm Grant Thornton Vietnam, said in a statement earlier this month.
The results of a survey released last month showed Vietnam's hotel industry experienced an average decline in room rates of 31.9 percent in 2009 as a result of the global downturn.
It said five-star hotels experienced the most pressure on pricing with a 33.5 percent decrease in average room rates while rates of three-star hotels only declined 2.9 percent last year.
While five-star and four-star occupancy fell by 6.3 percent and 14.1 percent respectively, three-star hotels recorded a 2.1 percent increase, showing that "the movement in customer demand during the year was towards the less expensive categories," the survey report said.
It found that many local hotels had managed to offset the decline in room rates and occupancy by increasing the proportion of their revenues from non-room services. Food and beverage sales increased 8.9 percent and that of other products and services including spas, banquets and travel services by 8.2 percent.
"These increases assisted hotels to achieve, on average, relatively similar profitability levels in 2009 to 2008, despite the economic challenges faced," the report said.
Sven von Moock, general manager of Australian owned business-class Norfolk in HCMC, said the focus on food and beverage sales had definitely helped the hotel weather the movement towards mid-range hotels.
Most of our customers are business people, and it's not unusual if they have to cut spending during tough economic times and choose less expensive hotels, he said, noting that Norfolk's room rates were cut by 18 percent and occupancy fell 38 percent last year.
But von Moock and other industry insiders said the good time that mid-range hotels were enjoying was temporary. When the economy recovers, luxury hotels will regain their position, they said.
Hue of Viet Circle also believed the difficult situation that luxury hotels are facing will pass soon.
"Tourists who travel a lot prefer better hotels even though they are more expensive," he said, adding, "Foreign tourists are likely to return to four- and five-star hotels soon. Meanwhile, the ratio of local tourists choosing three-star hotels will be around 40-50 percent in the next one or two years."
There are already signs of a recovery for the hospitality sector.
Foreign arrivals to Vietnam in the first six months reached 2.51 million, up 32.6 percent from the same period last year, official statistics showed. Grant Thornton Vietnam said international arrivals appear to have returned to pre-financial crisis levels, supported by increases in domestic travel.
Long of Bong Sen Corporation said he knew that two- and three-star hotels will have to face tough competition when the downturn petered out. But he said his company will improve facilities and work closer with travel companies to keep its customer base from shrinking.
"Businesses are trying to combat the lack of loyalty by working their existing customer base, looking after them well and offering discounts and promotions to keep them coming," said Matthew Lourey, corporate finance director at Grant Thornton Vietnam.