Hong Kong Tourism Report Q3 2008

Strong Start To 2008 Figures released in May 2008 by the Hong Kong Tourism Board (HKTB) showed that visitor arrivals for the first quarter of 2008 reached 7,275,521, a 10% increase year on year (y-o-y). For the month of March, some 2,404,499 visitors arrived in the SAR, some 11.2% more than March 2007.

Once again, China was the main source market for in-bound tourists, with some 1,269,673 people visiting Hong Kong in March, up 16.8% y-o-y.

We continue to believe that 2008 will prove another positive year for Hong Kong tourism, with arrivals expected to break through the 30mn mark for the first time. We forecast a 10% increase in tourist arrivals and tourism revenue figures for this year, with risks to the upside. In particular, Beijing's hosting of the Olympic Games should see an increase in two-centre holidays to the area, taking in both Beijing and Hong Kong. Hong Kong itself is also hosting the equestrian rounds of the Olympics, which should see an influx of higher-earning tourists to the SAR.

HK Hotel Construction Boom Continues At the present time, Hong Kong is in the midst of a hotel construction boom, as it seeks to catch up on regional rivals such as Beijing, Singapore and Macau, which have increased supply and lower rates for their own hotel rooms. Research from the HKTB shows that, while visitor arrival numbers increased by 70% over the 2002-07 period, the number of hotel rooms available only increased by 30%.

To remedy this shortfall, the authorities have approved a great number of new hotel projects. 2008 will mark the high water mark for new builds over our forecast period, with an expected increase of 11.4% in new room supply.

Oasis HK Airlines Grounded Hong Kong-based low-cost long-haul airline Oasis Hong Kong Airlines went into liquidation on April 9 2008, a victim of the harsh operating environment faced by all global airlines at the present time. The main problem for the airline was the sharp rise in jet fuel costs, which had nearly doubled from US$600 a tonne when the airline was set up in October 2006 to around US$1,137 a tonne when it entered liquidation.

Even leaving aside the high cost of jet fuel, most industry analysts did not think that Oasis's low-cost, premium service approach would work successfully. The airline was offering hot meals and in-flight entertainment for free, rather than charging for them as is the case with most budget carriers. In addition, Oasis gave over 25% of its Boeing 747 aircraft to Business Class, which reduced the number of passengers it could carry.

However, speaking at the time of his company's liquidation, CEO Stephen Miller defended the airline's business model saying that it only would have needed 'a little more time and a little more network' to have been able to work successfully.

The demise of Oasis underlines the headwinds being faced by all global airlines at the present time. Oil prices have once again been making record highs, with the price of oil in the US hitting over US$140/bbl.

BMI's economic analysts believe that oil prices will remain in elevated territory throughout 2008, which will see fuel costs remaining a significant headache for international airlines.

We have upped our average 2008 forecast for front Brent to US$100.00/bbl, from US$91.00/bbl previously, and our 2009 average forecast to US$85.00/bbl, from US$80.00/bbl. Needless to say, risks are very much to the upside. To that end, it is clear that Hong Kong-based airlines may now have to consider ways that they will be able to offset this higher cost of jet fuel over the years ahead.

Mindful of this higher oil price environment, Cathay Pacific introduced new fuel surcharges on all tickets issued on or after April 1 2008. These range from US$15.80 to US$65.10 dependent on destination.