Myanmar’s new administrative capital, Nay Pyi Taw, has a mismatch in room supply and demand that is bigger than Kanye West’s ego. Greg Lowe reports why hotel groups are in there

On first impression, Nay Pyi Taw is a model of efficiency: on arrival at the airport you can clear immigration, collect your luggage, change dollars into kyat and sit in your transfer vehicle within 15 minutes. The 16km drive into the capital passes quickly as you journey along tree-lined, multi-lane roads that are practically devoid of traffic. Then there’s the impressive sight of the hotels: long driveways lead up to massive resorts where the buildings are dispersed over large tracts of land. Everything appears bigger and more spread out. They have the space, so why not use it?

There’s also plenty of data to show the city is built for business: Nay Pyi Taw International Airport has a capacity of 3.5 million passengers a year; Myanmar International Convention Centre features 29,000m2 of floor space and can hold 1,900 people in its plenary hall; and there’s no shortage of accommodation – there were 4,884 rooms spread across 58 properties at the end of last year, according to Ministry of Hotels and Tourism (MHT) data.

What is lacking however is – people.

Nay Pyi Taw is a young city. Construction of the new administrative capital started in secret around 2002. The announcement that power would shift from Yangon was made in 2005, with the official naming of the city taking place the following year. The biggest influx of people, mostly government officials, was in 2008 and the population has grown ever since. While the city has netted a number of large-scale events, such as the World Economic Forum in 2013 and the ASEAN Tourism Forum 2015, reality appears to be falling short of the dreams of the generals who designed Myanmar’s new centre of power.

Andrew Langdon, executive vice president Thailand and Indochina of Jones Lang LaSalle, explained the gap between supply and demand in the hotel sector.

“Nay Pyi Taw witnessed a significant increase in room supply in the lead up to hosting ASEAN events in 2014. With the conclusion of these events, some of the facilities are now significantly under-utilised,” he said.

“Existing branded supply in Nay Pyi Taw is very limited but growing. Existing hotels are primarily categorised in the upscale segment and include Parkroyal (90 keys), Kempinski (141 keys), MGallery (165 keys) and Hilton (202 keys).”

Authorities are trying to fill this gap by promoting the city as a MICE destination. They also recently announced plans to develop it as a multi-development tourism market. This is no mean feat given the current lack of content: a quick search on TripAdvisor yields six attractions, eight restaurants, 30 hotels and not a whole lot more.

Official data reveals tourism performance which can only be described as dismal. While MHT statistics show international arrivals to the city rose from 5,521 in 2011 to 19,261 last year – up by about 52 per cent per year – growth would need to continue at this rate for 11 years, with no new supply, for hotels to run at full occupancy. In other words, last year’s international arrivals would have been enough to fill every hotel room in the city for only four nights.

Action is clearly needed to improve performance; however, the trade is far from optimistic about government initiatives to bring in more people. Stephen McEvoy, managing director of Asia World Enterprise, said: “I don’t think Nay Pyi Taw would work in the foreseeable future as a MICE destination.

“For one thing the international airport is very new with no major airlines flying in… There is a choice of hotels in the destination, but no world famous cultural sites or areas of natural beauty nearby as a hook for selling the destination. Apart from accommodation, restaurants, meeting venues and meeting technology would need to be upgraded.”

Given such weak performance, why are international hoteliers opening shop in the capital? Especially given the overall decline in Myanmar’s hotel sector at the national level: STR Global reported that Myanmar suffered Asia-Pacific’s largest decrease in RevPAR (-22.4 per cent) in February, driven largely by a 16.9 per cent decline in occupancy to 67.8 per cent.

A senior executive at an international tourism business with more than 15 years experience working in Myanmar said major hotel groups need a presence in Nay Pyi Taw to strengthen government relations and help secure licences elsewhere in the country.

“If international hoteliers want licences to operate in key destinations like Yangon, Mandalay and Inle, they need to partner a hotel in Nay Pyi Taw,” he said. “The authorities need the big brands here to make the place look credible. I doubt it’s written down anywhere as a requirement, but everyone knows giving them face will ease the licence process elsewhere. What other explanation can there be?” the source said.

Tourism authorities deny the claim, as does AccorHotels, while Hilton and Pan Pacific did not directly respond to the question.
Timur Senturk, vice president operations ASEAN at Pan Pacific Hotels Group, said: “The management contract for Parkroyal Nay Pyi Taw was signed with Shwe Taung Group, one of Myanmar’s leading corporations in real estate and infrastructure development. Shwe Taung Group is also our joint venture partner for the development of the first Pan Pacific hotel in Myanmar, Pan Pacific Yangon, which is scheduled to open in 2017.”

William Costley, vice president of operations for South-east Asia at Hilton Worldwide, said: “As Nay Pyi Taw increasingly (becomes) an appealing destination for travellers, we want to be where our guests want to be.”

None of the hoteliers approached gave performance data for their properties in the capital. And until performance in Nay Pyi Taw matches the vision of its founders, doubts about its viability as a destination are likely to continue to echo around its empty streets.

This article was first published in TTG Asia, July 17, 2015 issue, on page 5. To read more, please view our digital edition or click here to subscribe.

Airlines are coveting more ancillary revenue. Agencies are not. Find out why and if they are doing so at their own peril

Asia is the biggest and fastest growing region for travel where demand is expected to further accelerate over the next two decades due to a growing middle class and urbanisation.

In 2033, approximately 48 per cent of global traffic will be to, from or within the region. At the same time, low-cost carrier market share is expected to grow from 15 per cent currently to 24 per cent in 2033.

In a competitive Asian landscape where price wars are a norm, low-cost carriers are ancillary revenue champs. According to Ideaworks, ancillary revenue formed 20 per cent of total revenue of Asian low-cost carriers in 2014. In comparison, it formed less than 11 per cent of Asian full-service carriers.

Ancillary revenue for AirAsia Malaysia made up RM47 (US$12.54) per passenger in 1Q15, of which 56 per cent were from bags, 11 per cent from cargo, 10 per cent from assigned seats, five per cent from connecting fees, nine per cent from AirAsia insurance and a further nine per cent from F&B, according to CAPA-Centre for Aviation.

In 2014, the compound annual growth rate (CAGR) of ancillary revenue of Jeju Air, the largest low-cost carrier in South Korea, stood at 104 per cent. In comparison, CAGR of revenue overall was 34 per cent and passenger numbers 26 per cent over the period, explained Ken Choi, CEO, Jeju Air. The airline practices unbundling of air fare, baggage seat, seat allocation and priority boarding to maximise ancillary revenue.

The idea of increasing revenue opportunities by widening ancillary sale distribution channels is part of the strategy of some full-fledged airlines going forward, TTG Asia learnt on the sidelines of Travelport Live conference in June.

Malaysia Airlines is understood to start distributing seat selection and extra baggage through the GDS once its system provider, SITA, enables this as an add-on function.

China Airlines will start loading its Family Couch seats on economy class on the Boeing B777-300ER aircraft through the GDS after it migrates its system to Altéa, Amadeus’ airline passenger service system, next year. Family Couch seats, where a set of three seats can be turned into a sofa bed on longhaul flights, can currently be purchased through the airline’s reservation system and is set to become the airline’s first ancillary product.

Thailand’s Jet Asia Airways is also looking at earning ancillary sales revenue through distribution of extra baggage allowance, enhanced meals and preferred seating on the GDS in the near future.

But senior analyst of CAPA-Centre for Aviation, Will Horton, warned: “Airlines selling ancillary revenue should ensure it is relevant to consumers to be effective.”

“Most of the Asia-Pacific full service airline ancillaries are in either the neutral or friendly categories.”

The neutral category includes items such as travel insurance, hotel and car hire. The passenger makes a decision to purchase these items because he needs it. Friendly categories includes items such as enhanced meals, seat upgrades and special allocations. The choice to purchase these items stem from passengers getting something sweet in return.

However, Horton believed the real  money is in the ugly – where passengers perceive they are getting the same after paying more. Ancillary revenue from cancellation and rebooking fees fall into this segment.

While airlines earn money from selling ancillaries through their various distribution channels which include the GDS, many fail to incentivise travel agency staff with a commission, thus the lack of motivation for consultants to put in the extra effort.

An exception is Air New Zealand which gives a commission to travel professionals to sell ancillaries. “That’s an incentive for us. Being our national carrier, we sell the airline a lot,” said Adrian Turner, general manager of Harvey World Travel in Auckland.

Agencies by and large agreed that it is easier to sell bundled ancillaries on different fare classes as passengers and agency staff know exactly what they are getting for the price they pay. This is the normal practice of full-service carriers.

Elizabeth Rooney, manager-corporate, Executive Business Travel based in Victoria, Australia, said: “If a client wants extra baggage allowance and meal on a low-cost carrier, we will add them in although we don’t earn any money from the airline. However, we focus more on selling hotels and car rentals as the commissions are better. The majority of our clients fly full-service with all-inclusive fares and we look at the bigger picture of cross-selling hotels in the right location and with the right facilities. This will make or break a holiday.”

Russell Brown, managing director of Travel Associates, Australia, said: “We only sell ancillaries when we need to. We don’t actively push unbundled ancillaries because you need the customer to be in front of you to ask him what he wants.”

From travel commerce provider Travelport’s perspective, Damian Hickey, the company’s head of airline travel commerce said:  “We don’t want to get into the discussion of commissions between agencies and airlines as we cannot solve it. Customers will just go elsewhere if agencies choose not to sell ancillaries to them. We have developed Travelport Merchandising Platform to make it as easy as possible for agencies to integrate ancillaries into the workflow, thus saving them time.”

This article was first published in TTG Asia, July 17, 2015 issue, on page 4. To read more, please view our digital edition or click here to subscribe.