Within 10 years but will the hotel industry be ready? Located in the heart of Southeast Asia, Singapore has for centuries been a bridge between the East and West, bursting with culture, cuisine, arts and architecture. The country ranks among one of the smallest and most densely populated in the world. However, this has not stopped Singapore from thinking big.

In January the Minister for Trade and Industry announced plans to double visitor arrivals and triple tourism receipts over the next ten years. As Singapore embarks upon this ambitious phase of development, we look at how it is planning to achieve this target and the implications for the hotel industry.

Just 9m more visitors to find
In 2004 the number of visitor arrivals to Singapore reached a record high of 8.3m. The Singapore Tourist Board's (STB) target is to double the number of tourist arrivals to 17m by 2015. In addition, they hope to triple tourism receipts to S$30m and create an extra 100,000 jobs.

Latest figures show that visitor arrivals for the first four months of 2005 reached 2.7m. This is an increase of 8.2% compared to 2004. Indonesia, China and Australia remain Singapore's top three visitor-generating markets, accounting for 35.5% of total arrivals. Visitors from each of these source markets increased in 2004 apart from China which fell 11.8%. Although China has become a key source market for Singapore, it faces strong competition from Hong Kong and Macau and from other newer destinations such as Vietnam and Malaysia.

Low-cost airline boom
The growth in visitor arrivals has been aided by the development of low-cost airlines. In 2004, Singapore's Changi Airport saw the launch of three low-cost airlines including ValuAir, Tiger Airways and Jetstar Asia Airways. All three currently serve destinations across Asia Pacific and China, but not India. However, over recent months, two newcomers have filled this gap. In April 2005 Jet Airways started running non-stop daily flights between Mumbai and Singapore. Also last month saw Air Sahara commence a daily service between Delhi and Singapore.

Although the impact these two new airlines will have on the number of visitor arrivals originating from India remains to be seen, the prospect for future growth looks good. At present India is Singapore's sixth largest source market. Latest figures show that arrivals from India increased 21.7% year-to-April 2005 compared to the same period in 2004.

In March 2005, the STB opened a regional office in New Delhi to continue to strengthen its partnership with the Indian travel industry and provide potential visitors with more access to information on Singapore. The regional office in New Delhi is the STB's third office in India; there are a further two in Mumbai and Chennai.

Hotel performance mirrors tourist arrivals
As the table below illustrates, over the last four years, hotel performance in Singapore has mirrored the trend of tourist arrivals entering the city. When Singapore was hit by SARS in 2003, revenue per available room (revPAR) for year-to-April 2003 plummeted 27.7% to reach a low of S$86 compared to the previous year.

However, since then hotel performance has improved. Year-to-April 2005 results saw revPAR increase 12.9% to S$130 compared to the same period in 2004. Occupancy rose to 78%, the highest level recorded for the period since 2002, while average room rate reached S$166. As visitor numbers to the city continue to rise, hotel performance is expected to continue to improve, pushing occupancy and average room rates up further.

Singapore revPAR performance and visitor arrivals - year-to-April 2002 to 2005

Source: HotelBenchmark Survey by Deloitte and Singapore Tourist Board

Investment explosion
To achieve the tourism targets set for 2015, the STB plans to focus its efforts on further developing three key customer segments; BTMICE (Business Travel, Meetings, Incentives, Conventions and Exhibitions), leisure and services (education and healthcare). The government has set up at S$2 billion Tourism Development Fund (TDF) to support initiatives in upgrading infrastructure, attracting major events and developing strategic tourism products.

In March 2005, the Senior Minister of State for Trade and Industry announced that S$1.6 billion will be invested in Orchard Road - Singapore's shopping district. This rejuvenation project is expected to contribute to the city's tourism targets and will further enhance Orchard Road as one of the greatest places in the world to shop.

Big names fight for space at new resorts
Although there is huge investment being pumped into the tourism industry, as yet there is little activity in the hotel market. The only new hotel planned to open in the city over the next few years is the St. Regis Hotel Singapore. The 299-room property, scheduled to open in 2007, will be located on Orchard Road.

In April 2005, after a year long debate, the government finally approved the proposals to develop two new integrated resorts near the Marina and on Sentosa Island. These developments are planned to complement each other. While the resort at the Marina is geared towards the MICE (meetings, incentives, conventions and exhibitions) segment of the market, Sentosa will appeal to the leisure market attracting families and tourists. With an estimated cost of S$5 billion, construction of the integrated resorts is expected to commence in early 2006 for completion in 2009.

Now the developments have been given the go ahead, the race is on as to which consortiums will build the resorts. Some of the big names in the casino and hotel arena reported to be in running include Steve Wynn, Las Vegas Sands Corp and MGM Mirage. As yet it is still unclear which hotel companies will arrive in each resort but if the STB wants to meet its tourism target by 2015, hotel supply in the city must keep pace.

Will Singapore meet its target?
It is too early to predict whether Singapore will meet its target of doubling visitor arrivals by 2015. However, with huge investments planned over the coming years, Singapore should manage to maintain its image as a leading business and leisure destination. The growth of low-cost airlines and the likelihood that the two integrated resorts will house not one but several casinos, will mean that Singapore will be better placed to compete with the traditional hot spots of Hong Kong and Macau.

As the number of tourist arrivals increase, it is likely that hotel performance will continue to mirror the trend, pushing both occupancy and average room rates up. However, hotel supply in Singapore must increase to handle the surge in tourist arrivals expected. The only question left unanswered, is when will the new supply arrive and when it does, will it be in time?

Note: All analysis in Singapore dollars

The HotelBenchmark Survey contains the largest independent source of hotel performance data outside of North America and tracks the performance of over 6,500 hotels and 1.2 million rooms every month. Monthly surveys are produced on the following areas:

• Four regional rate and occupancy surveys covering Asia-Pacific, Europe, Central & South America and the Middle East & Africa.
• 12 country/sub-regional rate and occupancy surveys for Australia, Belgium & The Netherlands, China, Germany, India, Italy, New Zealand, Nordic Countries, Paris, Qatar, South Africa, Spain, UK and London.
• Profitability surveys on Germany and London.
• Two city rate and occupancy surveys for Paris and London.
• On an annual basis we produce profitability surveys tracking performance across all regions of the world.
• Daily HotelBenchmark tracks rate and occupancy everyday for a number markets across the UK, Europe and the Middle East. Coverage is building rapidly since launch in early 2005.