KUALA LUMPUR, Malaysia—While some businesses consider cutting costs to survive the current economic climate, Hotel Nikko Kuala Lumpur is looking to its own back yard to grow business during the drought.
“We are going regional,” said the hotel’s general manager, Michael Borostyan. “A lot of the business that
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comes to Kuala Lumpur is from the regional states of Malaysia, and I don’t think we have been aggressive enough in these markets.” In addition to looking into existing markets and maximizing them, Hotel Nikko Kuala Lumpur also is looking to new markets like Singapore and Indonesia.
“Singapore is our nearest well-heeled market. It is the closest port and the easiest market to access, and we’d like to attract both its commercial and leisure sectors,” Borostyan said. “Even though Singaporeans are experiencing the same conditions (under the recession), Malaysia still presents great value where people can stay in five-star hotels and still be more cost-effective than Singapore or anywhere else.”
Besides Singapore, one of Hotel Nikko Kuala Lumpur’s greatest potential markets is Indonesia, which Borostyan said is a “large country with a lot of commercial activities.”
Slowing MICE
With the current economic situation, the GM predicts a downturn in the profitable business brought in by meeting, incentive, convention and exhibition travelers as commercial organizations rethink the necessity of travelling internationally.
“Business from MICE is very profitable for the hotel, and we want to encourage that, but it will probably be one of our more difficult markets to attract this year,” Borostyan said. “A lot of the MICE business that comes into Kuala Lumpur is long-haul, and with the present situation, companies may centralize their hub business a bit more.”
But the hotel does very well within the government sector with a lot of support from the daily delegate business into hotels.
“We capitalize on that by building one of the best purpose-built surau (Muslim prayer house) for our Malay businesspeople that patronize the hotel,” Borostyan said. “The surau has been a talking point among these clients, and word-of-mouth advertising is one of the best forms of free advertising. That’s been one of our success stories in the last nine months.”
Volume vs. yield
In times of economic recession, successful businesses gird their loins by focusing on volume strategy, driving revenue rather than high yield. The Hotel Nikko Kuala Lumpur is no different.
“This year we will be adopting a volume-based strategy as oppose to being very aggressive with yield,” Borostyan said. “I think it’s almost impossible to be aggressive with yield in the current environment for at least another 18 months.”
Demand through renovation
Hotel Nikko Kuala Lumpur’s US$10 million renovation, which started in 2008, will come to a close in March. Despite the hotel being in a state of half-refurbishment last year, it experienced 10-percent growth on its bottom line. Borostyan hopes to maintain the same level of occupancy as last year’s 70 percent.
“In the last two years, Hotel Nikko Kuala Lumpur has improved its overall performance at a great rate of knots and that is despite a hard refurbishment,” Borostyan said. “Like any other hotel that reaches its 10-year lifespan, a soft refurbishment no longer works. But because the hotel was very highly (specified) when it was built, there was a lot of great backbone to the hotel.
“We didn’t have to change a lot of things, and that helped cut the budget down.”
All 470 guestrooms were refurbished and new function rooms were added because they are a key part of Hotel Nikko Kuala Lumpur’s business.
Commercial vs. leisure
Hotel Nikko Kuala Lumpur enjoys greater exposure to the commercial segment with 75 percent of its business coming from the commercial sector and 25 percent from leisure.
“The commercial segment will experience a contraction in travel especially internationally while the leisure market is going to be very competitive and price-driven as people adopt a wait-and-see attitude,” Borostyan said.
Holidays will be shorter and people will look for more cost-effective dining options outside of the hotel, making the business a very competitive environment, he said.
“We refurbished all the function rooms in December 2008, so we expect good things in banqueting,” Borostyan said. “I just hope the business is out there. If not, we need to steal more market share because there’s no doubt Kuala Lumpur, like any other major city around the world, has slowed in its commercial travel as well.”
Operating in the downturn
According to Borostyan, in terms of competitive segment the hotel in the past was at the bottom of the market. Its profile, he said, was not well-known in Kuala Lumpur. However, with the re-alignment of its manpower in the management level (resources), the hotel has successfully reduced the turnover from 33 percent to about 17 percent over the past two years.
“We have increased the allocation of funds toward profiling the business, and we have more active senior leadership out there representing the hotel today,” Borostyan said.
Nikko Kuala Lumpur has a large employee base with about 500 staff, and Borostyan hopes he will not be put in a position where he has to make hard decisions.
“A lot of people are struggling as it is, paying home loans, putting food on the table without facing unemployment and this is happening to a lot of businesses all over the world,” he said. “We made some tough financial decisions. They are all cost-benefit decisions at this point in time but that’s only a stage-one scenario. If the economic environment deteriorates further we need to make probably more difficult decisions.”
Measures being considered to improve the situation include increasing the hotel’s sale-and-marketing team.
“It’s a key objective to see that the business performs as well as possible, and my first focus this year will be to push the revenue, as opposed to cost cutting,” Borostyan said. “Cost cutting is the worst option that the hotel can take. So I would rather steal market share from our competitors. To do that, we need more people on the ground in the sales function.”
Like many other organizations, Hotel Nikko Kuala Lumpur too did not foresee the recession but, as Borostyan puts it: “The dice has been tossed and you have to follow through.”
“You can’t have a half-refurbished hotel. That’s just not going to work,” he said. “Despite everything changing very quickly, the owners have stayed the course. They probably realized that if you want to remain competitive, especially in the five-star segment, you have to put your best foot forward and come out with a very stylish product.”
“2009 is going to be a challenging year for all hotels but there has been a consistent message out in the media about Hotel Nikko Kuala Lumpur and our reputation continues to improve slowly but surely,” Borostyan said. “It’s a long process and it is unfortunate that the economic climate has changed so dramatically. Otherwise there is nothing stopping 2009 being another record year for Nikko Kuala Lumpur as oppose to consolidating a lot of the operation.”