China’s holidaymakers are still missing but the luxury resort operator has already opened new properties elsewhere to make up the numbers
Only recently did the term “revenge travel” enter the contemporary lexicon. Almost two years after international borders were closed, pentup demand from holiday-starved travellers bubbled over just as countries loosened their Covid-19 restrictions and reopened borders.
For those in the hospitality industry, the horde of travellers eager to spend their excess savings has been a welcome respite given the barren tourism landscape over the past couple of years.
That could explain why Eddy See cuts a relaxed figure as he sits down for an interview with The Edge Singapore. The 58-year-old took over as CEO of Banyan Tree in March, just as the luxury resort operator reversed into the black. In Banyan Tree’s 1HFY2022 ended June, the company reported earnings of $514,000, bouncing back from a $42.6 million loss for the same period last year.
See joined the company in 2004 and also holds the roles of president and managing director of the hospitality management business unit. Under his leadership, Banyan Tree has doubled down on increasing its operating footprint over the next several years.
The company now operates 62 properties globally and — based on the number of signed contracts in its pipeline — will cross the 100-hotel mark in the next three to four years. “Our core business is hotel management, and one push factor has always been going global. If we call ourselves an international
hotel group, we need to be in every part of the world,” says See.
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Unfortunately, the Covid-19 pandemic that began in early 2020 threw a spanner in the works of the entire hospitality industry. “The pandemic hit us badly with the closure of international travel,” See says. “So, the
primary mode in the heart of the pandemic was survival, to see our business through. We did that, and to be honest, I like to think we did it well.”
Banyan Tree’s financials appear mixed at first glance, with losses in recent periods. However, the company’s operating and free cash flow are positive, having turned around three periods ago from 1HFY2021. This positive cash flow is due to a fairly significant expense depreciation, indicating that the business is profitable but reported losses due to accounting requirements. Banyan Tree’s short-term liquidity remains pretty decent, with a current ratio of 1.1 times, but it has a net gearing ratio of 61.1%.
Although the company’s debt levels are relatively high, consistent cash flow profitability should improve the financial safety of the company. A net gearing ratio of 81.9% from three periods ago, when the company started to turn around, supports this.
Banyan Tree’s share price, trading at around 50 cents just before the pandemic, dropped to as low as 22 cents in July 2020. It closed at 27.5 cents on Nov 2, valuing the company at $238.68 million. As at June 30, the company’s net asset value per share was 56 cents, down slightly from 57 cents as of Dec 31, 2021.
Asset-light global expansion
See says the many challenges presented by the pandemic also provided opportunities for Banyan Tree to focus on its expansionary plans. “During the pandemic, we created three new brands and two brand extensions, doubling what we had in pre-pandemic branding.”
Banyan Tree now has eight brands and two brand extensions in its portfolio, creating 10 possibilities for the company to “capture the full spectrum of the market”, from the mid-market to the luxury section. These brands include Angsana, Cassia, Dhawa and Laguna.
The company has also widened its geographical portfolio, opening its first property in Europe during the pandemic with the opening of the Angsana Corfu Resort and Spa in Greece in June 2021.
Banyan Tree opened its first two properties in Japan this year with boutique hotels Dhawa Yura and Garrya Nijo Castle in Kyoto, just in time for the country’s highly anticipated full-scale reopening for international travellers. Says See: “During the pandemic, we took a conscious, conscientious effort to engage in more business development. We can now look to take Banyan Tree brands worldwide with our expanded brand portfolio.”
Banyan Tree’s global expansion efforts will come off the back of its asset-light model, through which the company manages hotels owned by other investors. Out of the 62 hotels it manages, See says the company has stakes in fewer than 10. In the future, the “significant majority” of its contracts in the pipeline will continue the asset-light trend to manage, not own, hotels. This means that the capital required for hotel development will come from its owners, not Banyan Tree.
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RHB real estate and REITs analyst Vijay Natarajan says this model of asset-light expansion is a “prudent” move given the current economic climate. “Considering the possibilities of asset write-downs as well as soaring debt cost, an asset-light model would help in terms of scaling up faster without incurring a lot of capital costs,” he says. “In hindsight, I think this is the right strategy to have embarked on to expand the hospitality business at this point.”
The company’s global expansion includes finally planting its flag on home soil. Its long-awaited domestic debut in Singapore will arrive with the upcoming Banyan Tree Mandai, some 30 years after opening its first
hotel in Phuket, Thailand. Initially slated to open next year, the project between Banyan Tree and Mandai Park Holdings, a subsidiary of Temasek Holdings, has been postponed to 2025 due to the pandemic.
First announced in 2019, the 338-room resort is meant to be part of Mandai Wildlife Reserve, providing visitors to the new eco-tourism hub “unprecedented yet sensitive access to nature”. When completed, the reserve will include the Singapore Zoo, Night Safari, River Wonders, Bird Paradise and Rainforest Wild.
“Banyan Tree is a Singapore-born company; it is where our home base is and where we are listed. But short of the Banyan Tree Spa we operate in Marina Bay Sands, we have had no operations in the country,” says See. “When it opens, Mandai will be our homecoming.”
Unique strategic partnership
Another region that the company has been making progress with is the Middle East. It opened Banyan Tree Doha in Qatar in May 2021, followed by its AlUla resort in Saudi Arabia in October this year.
This development could be a surprise, as Banyan Tree has historically not had “great success” in the Middle East. Although the market has always been of “importance” to the company, the management’s lack of familiarity with the region meant earlier projects were either aborted or had to close down, says See.
Banyan Tree entered into a strategic partnership with French-based hospitality giant Accor to bridge this gap in 2016. See recalls that the hospitality industry saw some “consolidation” five to six years ago, with
major players making acquisitions. “We pride ourselves on the fact that we are independent, and we want to remain independent. But we acknowledge the benefits and advantages of being partnered up with one of the bigger players in the industry, which is how we came up with this unique business alliance.”
“We are small relative to Accor, who have a full team of business developers around the world looking for deals, whereas on our own, we have less than a dozen of these specialists globally,” adds See.
The long-term partnership, which saw Accor acquire a 5% stake in Banyan Tree, was meant to help develop and manage Banyan Tree branded hotels worldwide while giving the company access to Accor’s global reservations and sales network, as well as its loyalty programme Le
Club AccorHotels.
“We know that Accor’s main strength is in Europe and the Middle East, and therefore they can help us penetrate these markets,” he says, sharing that both Banyan Tree’s Middle Eastern properties Doha and
AlUla are the result of a joint management agreement in its non-exclusive partnership with Accor.
“Our partnership with Accor is not exclusive; we can do it on our own if we wanted — but this is a great lead-in by Accor. Now that we have a foothold in the Middle East, over time, we will hope to make our own deals in that region and Europe as well,” he says, adding that the Angsana Corfu Resort and Spa was an independent deal struck by Banyan Tree.
Meanwhile, Banyan Tree’s continued expansion in the Americas appears to have borne fruit. In Netflix’s legal drama Partner Track, a paralegal is gifted with a week-long trip to Banyan Tree Mayakoba in Mexico, a glowing advertisement of the brand’s luxury appeal. See says this was something he did not even know about, much less pay for. “That’s so cool because that creates even more buzz for us.”
“Aside from Americans just holidaying in their backyard, after they’ve stayed in our properties [in the Americas] several times, they will look out for our brands when they travel further to Asia or other regions,” says See, pointing out that “word of mouth” is critical to growing Banyan Tree’s guest market.
Banyan Tree’s Netflix cameo is not the first time a similar situation has occurred. See shares an anecdote of when the company’s first property in China, Banyan Tree Lijiang, was also featured in a Chinese feature film after it opened in 2006. See says the resort’s rave reviews by satisfied guests must have reached the ears of the film’s director. “When that happened, many of the owners and developers in China approached us — all through word of mouth — to invite us to manage properties in their provinces and cities,” he adds. “We were quite late to the Chinese market in 2006, but as a consequence, China now makes up almost 40% of our portfolio.”
Given China’s rigid zero-Covid stance and the closure of its international borders for leisure travel, Banyan Tree’s China-heavy portfolio sounded like bad news. However, he says the company’s Chinese properties saw “skyrocketing” demand from the domestic market in 2020 and 2021. “It makes sense — the Chinese were the number one travellers, so when they could no longer travel abroad, they started looking for options domestically.”
The pandemic could not stop people from looking for alternatives to international travel: “The same increase that we saw in demand for staycations here in Singapore, we saw in China multiplied by hundreds of times,” adds See.
China’s extended regional lockdowns have been harsh this year. At various times, cities including Beijing, Shanghai, Hainan and Shenzhen were locked down. “That significantly affected the market, particularly in the first half of this year,” he adds.
Things have improved with restrictions easing, and the company has seen an “upturn” for its affected properties that have resumed service with the requisite protective measures. “People look for opportunities; once there is a little bit of a gap, that’s their opportunity to make the most of it. So we see business returning to China for the second half of this year.”
Reopening the cherry on top, not the whole cake
The Chinese travel phenomenon only started around 10 to 12 years ago after the global financial crisis in 2008. See says: “When we opened our first hotel almost 30 years ago, there were zero Chinese tourists.”
Although Chinese tourists were a relatively new market, they were a significant source of business for Banyan Tree outside of China. With China’s travel restrictions still in place, the hospitality industry is forced to look elsewhere to make up the numbers. “It’s simply a question of pivoting,” See reasons, adding that the company “pivoted back” to alternative markets at an early stage.
Instead, Banyan Tree turned towards markets it has relied on historically, such as Europe, as well as new, growing markets like India, the Middle East and Central Asia for its properties in the Maldives. The
tourism-reliant archipelago was one of the first countries in the world to open up to international visitors in late 2020. However, the steady stream of Chinese guests to its three resorts have disappeared.
Due to the company’s agility in recapturing old markets and targeting new ones, See says that Banyan Tree’s properties in the Maldives posted performances in 2021 that were “just short” of pre-pandemic levels, even with the complete absence of Chinese tourists. “My message to our team early on was to forget about the Chinese market and pivot now to the rest of the world, depending on where you are,” See says.
This sentiment was echoed by Banyan Tree’s founder and executive chairman Ho Kwon Ping at the Forbes Global CEO conference in Singapore on Sept 26. What concerned him the most about the current macroeconomic climate was China’s “aggressive decoupling” from the rest of the world.
Adds Ho: “The ‘deglobalisation’ used in more gentle terms is proceeding rapidly. China is intentionally now leaning to strategically decouple from the rest of the world because they see the signs of sanctions coming quickly in finance, energy and food security. They are determined to be independent.”
He predicts that businesses like Banyan Tree, with operations in over 20 countries, will be caught in an “uncomfortable” situation, even if they are based in countries that maintain neutrality in geopolitics.
“I’m having a hard time trying to figure out where I’m going to be getting pressure from in order not to do business in certain countries or not to do business with certain companies,” Ho says, adding that it
will be a challenge to navigate the “rapid disassembling” of the global economy.
Ho believes that business people have to “differentiate” their jobs from those of diplomats. “If we indulge in wishful thinking, our companies will be dead,” he says. “As a pure businessman, I can tell you what I’m doing now — I’m projecting that sometime in the future, sanctions will be enacted against China.”
“I hope it will never come, but what I have to do as a businessperson is to start the scenario planning,” says Ho, noting that his company has not been “that affected” by US sanctions on Russia. He adds that businesses do not have the “luxury” of thinking that globalisation will return to former levels and should instead possess “foresight” of the possibility that the situation deteriorates further so that they do not get “caught in the middle” of the power struggle. “That is where I’m at right now — a level of intentional pessimism, hoping that intentional pessimism can keep me alive if the inevitable does happen.”
With China’s zero-Covid approach unlikely to change anytime shortly — President Xi Jinping’s “work report” on Oct 15 at the opening of the party congress made only two brief references to Covid-19 policy — and the future of the global economy up in the air, Banyan Tree’s redirection could well be what keeps it rooted.
CEO See says of Banyan Tree’s strategy: “The long and short of it is that we believe we will be able to pivot back to pre-pandemic levels progressively and very hopefully soon enough, without the Chinese market. When the Chinese eventually return, they will be the cherry on top of the cake.”
