Japan, the land of the Rising Sun, or is it?

Tareq Bagaeen
November 13, 2022
To say that there is a lot going on within the hospitality industry in The Asia Pacific Region is a dramatic understatement. It isn’t a tale of 2 sides, rather a tale of 20 sides! There is so much happening that is and can affect demand, it is quite simply mind boggling.

For today’s article we are focusing on the world’s 3rd largest economy, one that holds 5.14% of the global GDP of our planet. Japan. Japan borders have recently opened for individual leisure travel, but they are struggling with what the whole world had to deal with 12+ months back. In-effective, slow and cumbersome arrivals processing, lack of manpower at airports, masks everywhere, restrictions on events and even temperature controls all over the place.

It isn’t the most welcoming place to be visiting right now. But, at the same time, it’s never been more appealing to visit as the Yen is at the weakest it’s been against the dollar for well over 10 years, in fact just from 6 months ago to now, everything has become 40% cheaper if the source of your funds is in USD. Yet, this is somewhat muted as the top nationalities for the country the last few months have also experienced some form of weakening to their currency.

In Q3 2022, and as per the data collected by Hotstats, Japan as a whole managed a total RevPAR of 210 USD, with payroll running at 33% of total revenue and the GOPPAR was just under 30 USD. Japan had traditionally been an expensive place to run hotels and achieving a healthy occupancy rating along with strong rates has been and will continue to be critical, but how long will it need to get back to acceptable profitability levels?

If you would compare Japan to another key regional hub in the form of Singapore, which opened its borders at the end of March 2022, just a few months ahead of Japan, the tiny powerhouse island nation has managed a TREVPAR of 277 USD, payroll costs of 26% of total revenue and a GOPPAR of 105 USD. Miles ahead of Japan and in fact, just over 350% up in terms of GOPPAR while being just 30% up in terms of RevPAR.

This is why looking at the topline revenues of a hotel, city or destination barely paints a fraction of the picture. It really isn’t about how much you bring in, rather how much you keep. How much you can give back to your ownership groups to pay off your mortgages and how much you can set aside to enhance your product offerings in the future.

The Covid dip for Japan will surely have long lasting effects on the destination that will only really be understood years into the future; especially if we are to read all the signs and listen to the economists who were speaking at the HICAP (Hotel Investment Conference Asia Pacific) a few days ago. The message is simple, 2023 will have recessions, some worse than others and some nations will have lengthy dips while others will rebound faster and tourism revenues will most certainly plat a big part in this as per the President of PATA (Pacific Asia Travel Association).

Generally speaking, there will be a 6 month global recession, with some regions mostly being spared, like the Middle East but Japan doesn’t look to be as lucky and this will have an impact on business travel, corporate revenues and government spending which will in turn strike yet another blow to the battered hotel industry that is just getting its knees off the ground in Nippon.

Seems to be a grim picture, but we are not done yet. While walking though airports in Osaka & Tokyo last week, and even while visiting places like Disneyland Tokyo or Universal Studios Osaka, you will hear announcements in Japanese, English and still, Chinese. That’s because in 2019, when Japan hit 32 Million international arrivals, its peak, Chinese travellers made up 9.6 Million of those.

That is quite an unhealthy mix and is another huge barrier for recovery.

From the 16th to the 22nd of October 2022, the 20th National Congress of the Chinese Communist Party was held where the Chinese Premier, Xi Jinping was expected to announce a relaxation of Covid restrictions and border controls, following what Hong Kong, Taiwan, Japan and other nations have done. Yet, he didn’t. He stayed firm and defended the strategy of zero Covid and shared no indication as to when this will be eased, and regional experts agree that this will take the better part of another year to be reversed.

Comparing Japan to India, Thailand, Australia against GOP performance from Jan 2020 to September 2022, these 4 nations were quite comparable back then, but now, India is sitting pretty at 27% growth, while Thailand and Australia are on the way up and are now just 25% below the benchmark and Japan is way behind at 67% loss to the Jan 20 peak.

We will be keeping an eye out on how progress moves forward and will be sharing updates with you as soon as major steps appear in the data. Tareq Bagaeen
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