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Asia Pacific Journal of Tourism Research

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The survival of hotels during disaster: A case study of Hong Kong in 2003

Ada Lo , Catherine Cheung & Rob Law

To cite this article: Ada Lo , Catherine Cheung & Rob Law (2006) The survival of hotels during disaster: A case study of Hong Kong in 2003, Asia Pacific Journal of Tourism Research, 11:1, 65-80, DOI: 10.1080/10941660500500733

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The Survival of Hotels During Disaster: A Case Study of Hong Kong in 2003

Ada Lo, Catherine Cheung and Rob Law The Hong Kong Polytechnic University

The mysterious Severe Acute Respiratory Syndrome made Hong Kong a key travel destination in Asia, world famous in 2003 but for the worst reasons. As a major sector of the local tourism industry, hotels in Hong Kong went through an unprecedented and traumatic time during the SARS infection period. While a few published articles in hospitality and tourism research journals have initially discussed the impact of SARS on hotels, these articles were predominantly the collection and compilation of secondary reported news. In other words, the existing hospitality and tourism literature has no published research that investigates the influence of SARS on specific hotels in Hong Kong and the responses of hotels to the crisis. This paper offers an overview of the emer- gence of SARS in Hong Kong and, more importantly, reports on the practices employed by hotels to survive during this harsh period. Through in-depth interviews with senior executives in six hotels in Hong Kong, empirical results showed that hotels were adopting various strategies during different stages of the crisis in order to survive. Industry-wide recovery effort and mutual support are also essential recovery strategies. This paper presents feasible management strategies and operational procedures for hoteliers to refer to in the eventuality of a future or potential crises.

Key words: Hong Kong, Severe Acute Respiratory Syndrome, SARS, hotels

Introduction

The first case of Severe Acute Respiratory Syn-

drome (SARS), a form of atypical pneumonia

caused by the corona virus family, which is

transmitted through respiratory droplets and

direct contact with a carrier’s secretions, was

reported in Hong Kong on 10 March 2003

(Department of Health, 2003). The source of

the epidemic was traced back to a male

doctor from Mainland China who was sick

and had stayed in one of the hotels in Hong

Kong between 12 February and 2 March

2003 (Nakashima, 2003). This patient had

spread the disease to six other guests who

stayed on the same floor at the hotel, and

these six people, in turn, spread the virus

around the world (Shellum, 2003).

By 15 March 2003, WHO had received

reports of more than 150 new cases, and

Asia Pacific Journal of Tourism Research, Vol. 11, No. 1, March 2006

ISSN 1094-1665 print/ISSN 1741-6507 online/06/010065 – 15 # 2006 Asia Pacific Tourism Association

DOI: 10.1080/10941660500500733

Asia Pacific Journal of Tourism Research, Vol. 11, No. 1, March 2006

results of epidemiological analyses indicated

that the disease was spreading along the

routes of international air travel. Therefore,

WHO had issued a rare emergency travel advi-

sory as a global alert to international travelers,

health-care professionals and health auth-

orities before the ultimate cause transmittal

channels for the reported cases were clearly

understood (World Health Organization,

2003). Within a period of two-and-a-half

months, there was a total of 1,722 SARS

cases in Hong Kong. Eventually, 1,247 of

these people recovered and 258 died (Depart-

ment of Health, 2003). There were over

8,000 cases reported worldwide, with nearly

700 fatal cases (World Health Organization,

2003).

It is generally agreed that tourism is highly

susceptible to external factors and pressures

in the wider operating environment

(McIntosh, Goeldner & Ritchie, 1995). This

new virus thus became a global health

concern and affected people’s desire to

travel. From 2 April to 23 May 2003, WHO

issued travel advisory recommendations that

travelers consider postponing all but essential

journeys to high-risk areas where SARS cases

had been reported. This included Hong Kong

and Guangdong province in Mainland

China. This was the first time WHO had

issued travel advisories for specific geographi-

cal areas because of the outbreak of an infec-

tious disease (World Travel & Tourism

Council, 2003). Although WHO did not

make any recommendation for people not to

travel to these destinations, this travel advi-

sory adversely affected international travel

worldwide. It was the fear of SARS rather

than the virus itself that caused social unease,

hesitancy to travel and economic losses.

In Hong Kong, tourism brought in total

revenue of HK$77.41 billion (US$ 1 ¼ HK$

7.8) in 2002 (Hong Kong Tourist Association,

2004a). The tourism industry is Hong Kong’s

second-largest contributor of foreign

exchange and represents 6 percent of the

GDP of Hong Kong (Census and Statistics

Department, 2004). The unexpected SARS

outbreak had severe adverse impacts on

hotels in Hong Kong because of the drastic

drop in numbers of visitor arrivals, which led

to a massive cancelation of flights, package

tours, conventions, business trips, and of

more hotel reservations.

With the decrease in the number of visitor

arrivals from mid-March 2003, the tourism

industry in Hong Kong experienced an unpre-

cedented loss of business. Hotels, airlines,

travel agents, restaurants, retailers, tourist

attractions and all other tourism-related

sectors reported drastic decreases in their

business. In particular, all hotels reported his-

torically low occupancies in the period April

to June 2003. According to the Hong Kong

Hotels Association (HKHA), occupancy

levels in HKHA’s member hotels averaged

about 20 percent in April 2003 compared to

85 percent at the same time in the previous

year. Hotel restaurant business was also

seriously affected (Hong Kong Hotels Associ-

ation, 2004). The situation lasted until July

2003, when the WHO lifted its travel advi-

sories for Hong Kong and Mainland China

(Pine & McKercher, 2004). Since then,

business at Hong Kong’s hotels has

rebounded, and the SARS era has officially

ended.

During this difficult period, hotels in Hong

Kong adopted different measures to deal

with the situation. On the one hand, they

had to ensure the health and safety of their

employees and guests. On the other hand,

they had to reduce unnecessary expenses in

order to maintain an acceptable “bottom

line”. Due to the decrease in numbers of visi-

tors, some hotels changed their emphasis to

66 A. Lo, C. Cheung and R. Law

focus on business from the local market.

Although this difficult period for the hotel

industry in Hong Kong is over, hotels should

not be complacent and forget about the hard-

ships that the industry as a whole suffered, and

the efforts that the tourism industry took to

make the rebound occur. This paper, there-

fore, serves as a reminder to hotel managers

about the impact of any potential epidemic

or other disaster on the industry. More impor-

tantly, this paper offers suggestions on the

basis of primary data that the authors col-

lected from participating hotels in Hong

Kong. The limited number of articles in hospi-

tality and tourism research journals on SARS

provided virtually no actual industrial case

studies for hospitality and tourism prac-

titioners to refer to if or when an epidemic

occurs in the future.

The purpose of this study is to examine the

impact of SARS on hotels in Hong Kong and

to summarize how hotels responded at differ-

ent stages of the epidemic. As opposed to pub-

lished articles that primarily use secondary

data, this study utilizes primary data to add

knowledge to the hospitality literature on

crisis and disaster management. The study

could also benefit the hotel industry in Hong

Kong, and possibly the worldwide hotel indus-

try, by providing valuable information to hotel

practitioners on the lessons learned. In brief,

the results of the study will provide important

information on hotels’ best practices in dealing

with epidemics or other unexpected disasters.

Literature Review

At present, there is an abundance of published

articles in the hospitality and tourism litera-

ture on handling crises and disaster manage-

ment. Faulkner (2001) made a clear

distinction between the definition of “crisis”

and “disaster”, in which the former is

attributable to the organization itself and the

root cause is self-inflected, while the latter is

unpredictable catastrophic changes that orig-

inate outside the organization over which organ-

ization has very little control. Following the

definitions by Faulkner (2001), the SARS out-

break can be classified as a disaster for Hong

Kong’s tourism industry, as the industry had

little control over the effects caused by the out-

break which originated from one of its hotels.

Miller & Ritchie (2003) adopted the frame-

work of the evolution of crisis as proposed by

Faulkner (2001) to study how foot and mouth

disease and its impacts were managed during

different stages of that particular crisis. These

stages included the pre-event stage, prodromal

stage, emergency stage, intermediate stage,

recovery stage, and resolution stage. They

suggested that the foot and mouth disease out-

break in the United Kingdom was originally a

farming crisis, but it was ineffectively

managed by different parties, including the

government, and turned out to be a disaster

for the tourism industry in the UK. Similarly,

the SARS outbreak in Hong Kong was initially

a medical problem but its consequences largely

affected the tourism industry in Hong Kong

and changed the travel behavior of people

worldwide. The over-reactions to SARS and

the lack of experience of governments of

infected areas in handling this kind of large-

scale outbreak soon attracted media attention,

and over-reporting the seriousness of the

disease ultimately impacted travel and

tourism (McKercher & Chon, 2004).

As customer safety and security are so

important to hospitality and tourism oper-

ators, industry practitioners realized the

importance of preparation for potential

future crises (van Walbeek, 2003). Barton

(1994) emphasized that the importance of

post-event mitigation of a crisis is important

The Survival of Hotels During Disaster 67

because the immediate steps that an organiz-

ation takes after a catastrophe can reassure

guests, stockholders, regulators and other

important publics that the company is

working aggressively to return to normal oper-

ation. He suggested that hospitality managers

must have a crisis management plan in place

to ensure business restoration. Furthermore,

it was suggested that hospitality organizations

should assess the risks associated with their

own operations and be prepared for possible

unexpected events that could cause devastat-

ing damage to the organization. It was also

emphasized that effective crisis management

and post-crisis marketing planning are the

essential steps for recovery after a crisis. On

the same note, Ritchie (2004) suggests a stra-

tegic approach for managing crises, from

proactive pre-crisis planning through strategic

implementation and finally evaluation and

feedback. He suggests that throughout these

three stages of crisis and disaster management,

flexibility is required and constant evaluation

and modification are necessary during the

entire process.

Similarly, Taylor & Enz (2002) summarized

the collective voice of hotel general managers

to how they responded to the events of 9/11

by surveying over 1,000 general hotel man-

agers in the United States in 2001. The

responses were mixed, and the severity of the

effects of 9/11 was also different among

hotels of different categories. Generally speak-

ing, hotels implemented two major alternative

strategies, including “revenue-enhancing” and

“cost-constraining strategies” in dealing with

the decline in business after 9/11. Revenue-

enhancement strategies focus primarily on

marketing initiatives to raise occupancy;

whereas cost-constraining strategies focus on

human resources and property-management

activities to cut operating costs. Most of the

hotels studied relied on the marketing

strategies focusing on regional business and

redirecting sales efforts, reducing employees’

working hours, asking employees to clear

vacation and take no-pay leave, and even

laying off employees. The study noted that

the strategy of laying off employees was

actively employed by upper-tier hotels, resort

hotels and convention hotels. The strategy to

reduce employees’ working hours was

adopted by upscale and convention hotels.

The low-tier hotels did not seem to be actively

using the human resources strategies of their

upscale counterparts.

In terms of other cost-constraining strat-

egies, more upscale hotels closed guest room

floors, postponed renovations and canceled

major projects, but this strategy was relatively

unpopular in low-tier hotels. The study also

found that low-tier hotels mainly discounted

their room rates to attract customers while

the upscale hotels redirected their marketing

efforts to focus on regional and local business.

All the hotels studied, regardless of whatever

price segments they were serving, initiated

new actions or strategies without a formal

plan, and they did not revise their marketing

plans.

Another study on hotels’ responses to a

crisis took a different approach. This looked

at how the industry worked together with

other tourism partners and government

agencies in developing recovery strategies.

Stafford, Yu & Armoo (2002) presented a

model for hotels in managing malevolent

crises based on their study of how hospitality

executives in the hotel industry in Washington

DC responded to the 9/11 incident. They illus-

trated how the hotel industry worked closely

with other tourism partners to develop recov-

ery strategies. The first and foremost steps in

the process involved regional tourism stake-

holders in co-ordinated activities and sharing

of information. It showed the importance of

68 A. Lo, C. Cheung and R. Law

consolidating efforts to help victims and relief

workers and encouraging local and regional

visitation. Hotel general managers also

needed to take up the role of reassuring

clients by appropriate communications.

Finally, it was essential to work with industry

and political leaders to launch a recovery plan

once the target customers and locations had

recovered from the incident.

Moreover, Israeli & Reichel (2003) con-

ducted a quantitative study to evaluate man-

agerial practices for hotels in Israel in times

of crisis. The hospitality and tourism industry

in Israeli has been historically subject to wars

and terrorist-related crisis. The study revealed

that there are four main types of management

practices that hotel managers find important

and implement to manage a crisis. They are

“organized industry-wide efforts”, “mainten-

ance and cost cuts”, “marketing”, and “redu-

cing prices”. Although the results of the study

cannot generalize how hotels worldwide

respond to crises, they are very good compari-

son guidelines on how hotel managers in

different countries respond to different crises.

Individual hotels’ own efforts to recover

from the loss of business is essential, and

co-operation between the private and public

sectors is even more important to overcome

challenges affecting the whole industry and

beyond (van Walbeek, 2003). Blake & Sinclair

(2003) further suggested that government

policies such as sector-specific target subsidies

and tax reductions were the most efficient

ways to handle the downturn in tourism

after the 9/11 incident.

In Hong Kong, Chien & Law (2003) initially

discussed the preliminary effects of reported

news of SARS on hotels in Hong Kong. The

study mainly explored the impact on business

and pointed out that hotels needed to adopt

measures such as reducing costs, deferring

promotions that involved overseas travel,

avoiding non-essential capital expenses,

closing down guest floors and suspension of

food and beverage services, and initiating

no-pay leave and pay cuts for staff in response

to the fall in occupancy rates. The authors

highlighted some measures that hotels should

take in order to minimize the potential

spread of the disease at their properties. The

study, however, did not further investigate

the hotel management practices that helped

hotels to survive the SARS period, and the

lessons hoteliers learned to prepare for future

crisis. Lastly, the study reported the research

outcomes based on secondary sources of infor-

mation and showed that the impacts of SARS

on different tiers of hotels were different. To

summarize, the existing hospitality literature

does not contain any published articles that

have examined the real impact of SARS on

individual hotels, and how the hotels

responded to such an epidemic.

Methodology

An inductive research approach, following the

steps suggested by Creswell (2003), was

adopted in the study. A qualitative case study

method involving multiple cases was used as

the strategy of inquiry. Based on the member-

ship list published by the Hong Kong Hotels

Association, six sample hotels – two from

each of the categories of top-tier, mid-tier

and low-tier – were chosen out of 85

member hotels. These hotels were selected

using a non-random sampling technique.

Personal interviews were conducted

between July and December 2003 with

senior management of the sample hotels.

Informants included Resident Manager, Direc-

tor of Sales/Executive Assistant Manager,

Operations-in-charge, Sales Manager, and

Front Office Manager. In-depth interviews

The Survival of Hotels During Disaster 69

were appropriate for this study since more detail

information could be obtained by having the

interviewer ask follow-up questions to seek

elaboration on preliminary responses provided

by the interviewees (Churchill, 1992). In order

to ensure the consistency of approach and cover-

age, a semi-structured discussion guide was used

to guide the interviews, covering topics on the

impact of SARS on hotel business, measures

adopted by the hotels during and after SARS,

and recovery measures adopted by individual

hotels and the industry as a whole. The ques-

tions also aimed to find out if the hotels have

adopted the three-stage strategic approach for

managing crisis from proactive pre-crisis plan-

ning through strategic implementation and

finally evaluation and feedback as suggested

by Ritchie (2004). The open-ended interview

questions were designed in consultation with

previous studies (Chien & Law, 2003;

McKercher & Chon, 2004; Pine & McKercher,

2004; Ritchie, 2004).

The interviews were all conducted in

Chinese. The majority of the informants

allowed the interviews to be recorded, and

detail field notes were taken during the inter-

views when audiotaping was not feasible.

The tapes and field notes were transcribed

and coded from Chinese to English for

further analysis. The transcripts were read,

and key words representing different strategies

which the hotels adopted during different

stages of SARS were coded and analyzed.

Also, information about the impact of SARS

to the business levels of the hotels was also

compared. As well as the information col-

lected during the interviews, secondary data

sources including newspapers, magazines and

Internet websites were used to get additional

information. To ensure the accuracy and trust-

worthiness of the collected data, findings from

the interviews were triangulated by compari-

son to the information collected from the sec-

ondary source, as suggested by Creswell

(2003). Since some information discussed

during the interviews was of a confidential

nature, the hotels and the informants were

unidentified in this paper.

Findings

What Did SARS Do to Hong Kong’s Hotel Industry?

Dismal Business Level. Although SARS was

a short-term crisis, its impact was very signifi-

cant, and Hong Kong’s hotel industry was

badly hit. Its impact on Hong Kong’s hotel

industry was to hit all its markets and was

even severe than the effect of the 11 September

terrorist attacks which mainly affected its

Table 1 Information on Informants

Hotel (in disguised name) Hotel Tier Title of Informants

Hotel A Low tier Operations-in-charge, Hotel & Residential

Hotel B Low tier Front Office Manager

Hotel C Mid tier Sales Manager

Hotel D Mid tier Director of Sales / Executive Assistant Manager

Hotel E Top tier Resident Manager

Hotel F Top tier Director of Marketing

70 A. Lo, C. Cheung and R. Law

long-haul visitors. As soon as the WHO issued

a warning on 2 April 2003 against non-essen-

tial travel to Hong Kong, some hotel occupancy

rates dropped to single digits. Visitor arrivals in

Hong Kong dropped by 57.9 percent between

April and June 2003 compared to the same

timeframe in the previous year (Hong Kong

Tourist Association, 2004b). Table 2 shows

that the hotel industry in Hong Kong experi-

enced the lowest occupancy rate in April,

May and June 2003, with only 22 percent,

17 percent and 34 percent respectively

(Hong Kong Tourist Association, 2004b).

The situation in May 2003 worsened after

the decision made by the Mainland Chinese

government to scale back the Labor Day

holidays in May 2003. This “Golden

Week” in May was traditionally a peak

time for Mainland Chinese to visit Hong

Kong. However, with the shortening of the

Labour Day holidays and the travel advisory,

the number of visitors from Mainland China

dropped drastically.

Comparing hotel room occupancy rates

across the three different hotel categories,

High Tariff A (top-tier) hotels performed the

worst in April and May with an average of

82 percent drop in occupancy compared to

the same months in 2002. High Tariff B

(mid-tier) and Medium Tariff (low-tier)

hotels’ occupancy rates also dropped an

average of 75 percent and 77 percent respect-

ively in the two months. As revealed in

Table 1, business for all the three different

hotel categories started to pick up in July

after the removal of the WHO travel

advisory.

With regard to room rates, the average

room rate in mid-tier and low-tier hotels was

more deeply cut compared to top-tier hotels.

In general during April, business hotels in

Hong Kong are able to achieve a higher

average room rate from the business travel

market. Unfortunately, statistics in Table 3

show that mid-tier and low-tier hotels had

respectively a 24.8 percent and 31 percent

Table 2 Hotel Room Occupancy Rate by Category

Top-tier Hotels Mid-tier Hotels Low-tier Hotels All Hotels

% % % % % % % %

Month/Year 2002 2003 2002 2003 2002 2003 2002 2003

April 81 14 90 24 89 25 87 22

May 78 14 85 20 84 16 83 17

June 74 36 82 36 79 31 79 34

July 73 68 85 73 86 71 82 71

August 78 78 89 89 89 94 86 88

September 80 81 84 82 81 83 82 82

October 88 86 85 85 82 85 85 85

November 90 89 91 93 96 95 93 93

December 83 81 92 90 90 89 89 88

Source: Hong Kong Tourist Association, 2004b.

The Survival of Hotels During Disaster 71

decrease in average room rate in the month of

April compared to the same month in 2002.

Results of the interviews also confirmed that

low-tier hotels were the most aggressive in

slashing room rates. In view of the uncertainty

about when tourism was going to pick up

again, some of the hotels revised their con-

tracts with their corporate clients to extend

the special rate period into the traditional

peak season. This move further drove down

their average room rate for an extended

period of time but pick-up was back to

normal sooner than they expected.

The true impact of SARS on the hotel indus-

try, however, is likely to have been even

greater as hotel occupancy rates were influ-

enced by the number of rooms available for

the given period. In Hong Kong, a number of

hotels actually closed certain floors to reduce

operational costs, or took advantage of the

low demand of rooms to bring forward

renovation programs. Hence, the number of

available rooms was further reduced (Hong

Kong Hotels Association, 2004).

Dismissal of Employees Created Further

Unemployment. To save costs, some of the

interviewed hotels adopted cost-saving

measures to minimize unnecessary expenses

in order to stay in business. Some of the

measures were definitely not welcomed nor

appreciated by the employees. For example,

one of the mid-tier hotels dismissed 130

employees – around 22% of its workforce

(Asia Case Research Centre, nd). This gener-

ated a lot of negative publicity for the hotel

and at the same time employees’ morale was

very low.

Positive Outcomes of the SARS Crisis

Although SARS devastated Hong Kong’s hotel

industry, surprisingly, the hotels interviewed

identified a number of positive factors that

occurred.

Increased health and sanitation

awareness. All of the hotels studied were

Table 3 Average Achieved Hotel Room Rate by Category in 2003

Top-tier Hotels Mid-tier Hotels Low-tier Hotels All Hotels

HK$ % growth# HK$ % growth# HK$ % growth# HK$ % growth#

April 1,138 218.9 485 224.8 304 231.0 643 222.6

May 1,013 216.5 444 28.7 316 23.5 591 212.6

June 1,017 212.3 443 27.0 282 29.2 581 210.5

July 988 211.3 427 27.5 260 219.1 558 211.7

August 969 211.4 428 25.6 271 217.6 556 211.1

September 1,170 24.8 540 þ4.7 342 26.6 684 22.8

October 1,505 20.9 770 þ2.5 481 211.3 919 22.0

November 1,310 23.1 574 þ2.5 361 27.9 748 22.6

December 1,187 24.8 529 20.6 358 29.8 692 24.7

# compared to corresponding period last year.

Source: Hong Kong Tourist Association, 2004b.

72 A. Lo, C. Cheung and R. Law

very conscious of ensuring the health and

safety of their guests and employees. When

the hotels discovered that the first SARS

patient had stayed at one of the Hong Kong

hotels and that several other guests who

stayed at the same hotel at the same time

were infected, hotels soon initiated thorough

cleaning of guest rooms, public areas and

back-of-house areas. Since the occupancy

rates for the hotels were extremely low, all

hotels required their Housekeeping Depart-

ments to increase the frequency of cleaning

and used bleach solutions two to three times

a day in public areas such as guest lift lobby

and public washrooms. Additionally, trans-

parent plastic covers were placed on top of

the call buttons in elevator panels for the

purpose of easy cleaning and disinfection.

Lift cars and escalators, particularly the call

buttons and handrails, were frequently wiped

with a diluted household bleach solution at

least four times a day. Ventilation fans in

lifts were also cleaned regularly. Again, due

to low occupancy, hotels closed off some

guest-room floors for intensive cleaning. All

mattresses and carpets in vacant guest rooms

were steamed, and one of the low-tier hotels

studied instructed its Housekeeping Depart-

ment to use disinfection detergent for cleaning

purposes.

In order to protect the health and safety of

their guests and employees, all hotels required

their staff to check their body temperature

before reporting for work. Hotel security offi-

cers also checked the employees’ body temp-

erature by using infra-red thermometers at

the employees’ entrance upon their arrival at

work. One of the mid-tier hotels required all

their guest-contact employees on duty to

wear facemasks. This was very well accepted

by employees and guests, because the hotel

emphasized that the measure was to secure

the health and safety of guests. The same

measure was followed by some hotels, but

others were hesitant to introduce face masks

as they believed that all employees wearing

face masks might create a negative image of

the hotel.

Similar preventive measures were also

implemented in food and beverage outlets of

the hotels studied. All staff in restaurants and

kitchens were required to wear face masks

and gloves while they were serving customers

and preparing food. Restaurant patrons were

provided with disposable disinfectant tissue

packs upon their arrival at the restaurants.

Extra pairs of chopsticks were provided to

guests in Chinese restaurants to prevent

cross-contamination and possible spread of

the infectious disease. In addition, staff were

briefed on a regular and frequent basis on

additional hygienic and preventive measures,

and guests were also advised of these

measures.

Most of the hotels implemented a series of

measures to prevent the possible spread of

SARS at the hotel by taking guests’ body temp-

erature at check-in. One of the mid-tier hotels

studied did not check body temperature for

guests during check-in for two reasons:

namely, there were hardly any guests checking

in during the months of April and May 2003;

and the body temperature of tourists had

already been checked by the Immigration

Department at the port of entry. Some hotels

required guests to complete a health declaration

form, and distributed face masks and disposable

disinfectant tissues during check-in.

SARS spread quickly and had caused many

deaths in one building of a private housing

estate in Hong Kong. The government then

required the residents of the building to be

quarantined in one of the government-run

leisure camps. This caused panic among the

residents and some decided to escape from

the quarantine by moving out of their homes

The Survival of Hotels During Disaster 73

prior to the quarantine order. Some residents

chose to stay at hotels in Hong Kong.

In view of the potential spread of SARS in

hotels, front-office personnel were required

to pay special attention to the country of resi-

dence of their guests, especially those who

were local residents or from Mainland

China. They were also asked to be alert to

the health condition of the guests when check-

ing in. Most of the hotels discretely tried to

separate guests so that those from Mainland

China and Hong Kong were on different

floors to minimize the potential spread of

SARS at their hotel.

Effective cost control measures. Due to the

drop in business during SARS, hotels

adopted different measures to reduce

unnecessary expenses. For instance, infor-

mants from top-tier hotels required their staff

to take no-pay leave and advance leave of

seven to ten days per month between April

and June. Pay cuts were also initiated by

some mid-tier and low-tier hotels. Some

hotels also rotated their staff to work in differ-

ent departments while releasing other staff to

go on leave. In a way, this was a good oppor-

tunity to provide cross-training for staff in

different departments to prepare for the recov-

ery of business. One of the low-tier hotels also

allocated their staff to other sister properties

managed by the same group. In addition,

hotel staff were assigned to some duties orig-

inally out-sourced to contractors. It was

noted that some hotels worked closely with

their owners to allow employees to be trans-

ferred during the SARS period to other compa-

nies within the group in order to save costs.

In addition to the closure of accommo-

dation floors and some restaurants, some

hotels stopped serving buffets in their restau-

rants to reduce costs. Due to low occupancy,

some hotels also reduced the number of

elevators in operation to save power and

maintenance costs. Advertising and special

promotions, business travel and unnecessary

business entertainment were also suspended.

Creative marketing strategies during and after

SARS. Saving on costs alone could not com-

pletely solve the problem of the drastic drop in

hotel business. Even though many corporate

clients canceled reservations, hotels saw the

importance of maintaining good relationships

with their clients by making courtesy calls or

sending courtesy e-mails. They also kept

their clients informed of their efforts during

the SARS crisis, and the clients were advised

of any special packages and promotions.

Hotels were very creative in devising mar-

keting strategies to generate revenue during

the SARS period. For example, one of the

mid-tier hotels offered cleaning services for

their corporate clients at a reasonable cost.

In addition, it also turned guest rooms into

temporary offices and rented these to corpor-

ate clients. This was an opportunity caused

by banks and financial services companies

attempting to arrange staff to work in teams

at different locations and on different shifts

to avoid possible cross-infection.

Hotels understood that business from the in-

bound leisure market was lost during this

period and could not be recovered since these

travelers might have changed their travel

plans. Therefore, hotel managers worked

very hard to find new markets to fill the

vacant rooms. Examples of exploring non-

traditional markets include the offering of

promotional packages for local residents in

May and June. This was in line with the gov-

ernment’s proposal of developing domestic

tourism as a way of reviving the economy.

Some of the hotels also worked with local

tour operators to offer accommodation or

meals to some of the local tours mainly

74 A. Lo, C. Cheung and R. Law

targeted at domestic tourists. Hotels in the

outlying islands which used to serve the dom-

estic market were swamped by local people,

with occupancy rates as high as 100 percent

over weekends and Easter holidays (Asia

Case Research Centre, nd). Since there was a

market from local residents in Hong Kong,

tapping into non-traditional markets helped

the hotels to survive during the SARS period.

Food and beverage operations were not as

badly affected compared to the rooms

business. Due to the increase in public aware-

ness of hygiene, local residents chose to dine in

restaurants with better sanitation and high

standards of cleanliness. Therefore, restau-

rants in hotels benefited from this. Promotions

such as a complimentary hotel stay with pur-

chase in hotel restaurants were launched to

attract customers. In addition, some of the

hotels also sold food and beverage coupons

at a discounted price, which guests could use

at any hotel restaurant in addition to the com-

plimentary guest room offers. All these crea-

tive methods helped hotels to generate

alternative revenues.

Although business was down during the

SARS infection period, hotel marketing staff

strived to develop recovery strategies to

prepare for the return of customers. Most of

the hotels offered lower rates for their high-

yield corporate clients for a short period in

order to encourage their clients to travel.

One of the hotels studied had successfully

opened a new market by working with second-

ary schools in organizing “life-skill programs”

for students. Through communication with

travel agencies, the hotel was aware of the

fact through travel agencies that many

summer overseas education and study tours

were expecting cancelations due to SARS.

The programs included intensive English

courses taught by college teachers from the

United Kingdom and courses on dining

etiquette. The programs were eventually held

in the hotel and successfully attracted more

than 500 students and over 20 classes from

different secondary schools. The hotel was

very entrepreneurial in seeing this as another

opportunity to develop new market sectors.

Heightened employees’ morale. Although a

number of hotels had initiated no-pay leave,

pay cuts and redundancy of staff during the

difficult months of April to June 2003, some

hotels stayed very firm in not taking those

measures. These hotels reported that employ-

ees’ morale was high, as all staff were trying

their very best to help reduce costs by taking

voluntary no-pay leave so that everyone

would continue to have a job. One of the

top-tier hotels reported that they allowed

employees within each department to decide

on the number of days of no-pay leave to be

taken by each member of staff based on their

family financial conditions. All employees

were very appreciative of the management

being so considerate. It was reported that

staff with no family commitments would vol-

unteer to take more no-pay leave than those

with economic burdens. Most of the hotels in

the study reported that their staff were all

very understanding and willing to share the

financial burden with their employers.

Management being more alert in preparation

for crises. It was revealed that prior to the

SARS incident only a handful of hotels in

Hong Kong had extensive crisis management

procedures and manuals in place. Only two

of the hotels studied were found to have

formal crisis management procedures in

place while the others had made available

emergency procedures such as handling unex-

pected events like fire, bomb threats, thefts

and kidnapping. Most of the hotels indicated

that a team of pre-identified executives and

The Survival of Hotels During Disaster 75

senior management staff would automatically

assume different roles in case of emergencies.

Since the industry had no experience in hand-

ling SARS previously, some hotels formed

special teams involving executives from differ-

ent guest contacts and administrative depart-

ments in devising procedures to deal with the

crisis. Some of the hotels even developed pro-

cedures for handling different scenarios when

the guests or employees had confirmed infec-

tion of SARS. The hotels interviewed advised

that management were more alert of the

importance of effectively managing crises,

and some hotels even included temporary

measures developed as part of their standard

emergency procedures for future reference.

Best practices continued. Some of the prac-

tices during the SARS crisis continued as stan-

dard practice in most hotels. In other words,

the hotel industry increased the standard of

hygiene and sanitation after the SARS crisis.

Staff’s awareness of hygiene and sanitation

continued at a high level. Practices such as

cleaning of public areas with diluted bleach

solution, employees wearing face masks if

they were sick, placing additional pairs of

chopsticks on each table at Chinese restau-

rants, and placing hand disinfectant gel dis-

pensers for guests’ convenience at the

entrance to restaurants still continued as a

standard practice in most of the hotels. These

practices should help to raise the overall

hygiene and sanitation standards of the

hotels, help boosting the image of Hong

Kong as being a clean and safe city to visit.

Increased cohesiveness of the

industry. Although the SARS outbreak

caused a devastating impact to Hong Kong’s

hotel industry, the cohesiveness and unity of

the hotels has increased. During the SARS

outbreak, HKHA took up the leadership role

in disseminating SARS-related information to

its member hotels. Furthermore, HKHA

launched the “Atypical Pneumonia Micro

Site” within the Association’s atypical pneu-

monia (AP) communications. As part of the

HKHA’s “Hospitality Leadership Initiative”,

the micro site was to ensure efficient communi-

cation of the latest information on SARS and

to help the hotel industry to stay vigilant

after WHO removed its travel advisory for

Hong Kong. The AP micro site is part of the

HKHA’s website which presented practical

information to its members (Hong Kong

Hotels Association, 2003). Frequent meetings

with executives of member hotels were held

to exchange information on how its member

hotels handled the crisis.

HKHA Member hotels also united in pre-

paring themselves for the return of visitors

after WHO removed Hong Kong from the

list of infected areas. In order to attract tour-

ists back to Hong Kong, HKHA, in alliance

with the Tourism Commission of HKSAR

and the Hong Kong Tourism Board, launched

the “Be Our Guest” campaign. This was the

first such universal hotel campaign in Hong

Kong’s tourism industry (Hong Kong Hotels

Association, 2003). Unlike any other pro-

motional campaign, the “pay for two nights,

the third is free” offer was supported by all

HKHA members. This offer was applicable

to all visitors from overseas, as well as local

residents who responded to the “Be Our

Guest” campaign package. Some of the

hotels even complemented the core offer with

additional attractions. This campaign demon-

strated Hong Kong’s commitment to attract-

ing visitors to return, and provided travel

agents and airlines with an attractive core

offer to revive the local tourism industry.

In addition, the Chinese Mainland govern-

ment played a part in speeding up the recovery

of the hotel industry by introducing the

76 A. Lo, C. Cheung and R. Law

Individual Visit Scheme (IVS) for Hong Kong.

The Scheme was applied to Chinese residents

living in designated cities, mainly in

Guangdong Province when it was introduced

in August 2003, and then to the entire

Guangdong Province and the cities of

Beijing, Shanghai, Hangzhou and selected

cities in the Yangtze River Delta area and the

Costal Provinces (Hong Kong Hotels Associ-

ation, 2004). Although Hong Kong had

received a regular supply of visitors from

Mainland China before the implementation

of IVS, the Scheme further broadened this

source market. According to Hong Kong

Hotels Association (2004), 25 percent of the

IVS visitors stayed in hotels, and hotels

directly benefited from the IVS with the

increased numbers of visitors from different

parts of Mainland China.

Implications for the Industry

The hotel industry is always vulnerable, as its

business is largely subject to tourism develop-

ment and the number of tourist arrivals. The

SARS outbreak changed the schedule of most

international travelers who intended to travel

to Hong Kong, Mainland China and other

cities where SARS cases were reported.

Although the impact of SARS on Hong

Kong’s hotel industry was devastating, the

effect was short-lived due to the concerted

efforts of the government, the local business

community and the Mainland Chinese

government to help Hong Kong’s recovery.

Hotels were committed to doing everything

in order to maintain as many staff jobs as

possible by adopting cost-saving measures

such as unpaid and advanced leave and

multi-tasking. Employees were also willing to

work with the hotels to implement cost-

saving measures. Maintaining high employee

morale is important during hard times, and

keeping employees informed of the rationale

behind decisions is equally important. To

achieve this, hotels used different channels

such as general meetings and daily briefings

to communicate to staff about these measures.

Internal communications on staffing issues had

to be handled carefully, as poor communi-

cations could demoralize employees.

Communications among hotels were also

essential, and HKHA played an indispensable

role as a platform for members to exchange

their ideas on how to manage the difficult

times. Executives from the member hotels

worked together to develop operational guide-

lines to minimize the spread of SARS, as well

as recovery and promotional plans to prepare

for the travelers’ return. Communications

with customers were also important as staff

were briefed to advise in-house guests on the

measures taken by hotels to prevent the

spread of the disease. Lastly, frequent com-

munications with corporate clients through

courtesy telephone calls and e-mails showed

that the hotels cared about them at all times.

Hotels also learned from the SARS experi-

ence that business could be conducted differ-

ently. Although the crisis had almost halted

all business travel to Hong Kong, business

activities did not stop. Organizations realized

that they could still conduct business through

the Internet, e-mail, video conferencing, tele-

phone and by other means. It is possible that

business travel will decline with the improve-

ment in technology. Therefore, some of the

hotels aggressively tapped into the video and

Internet conferencing market during the

SARS crisis and continue to explore this as a

potential market.

The hotels that recovered sooner were more

entrepreneurial and creative in finding new

business opportunities during the hard times.

Some of these hotels offered new services

The Survival of Hotels During Disaster 77

such as office cleaning to generate extra

revenue and to keep their staff in employment;

while some explored new markets such as

working with schools in running short-term

courses, working with travel agents to offer

accommodation and meals for local residents,

and exploring other potential business. The

exploration of new markets actually became

an ongoing practice in some of the hotels

studied.

Conclusions

This study has attempted to summarize the

negative and positive impacts of SARS on

Hong Kong’s hotel industry, and the measures

taken by hotels of different price-segments in

dealing with SARS. Since the study did not

include all hotels in Hong Kong, it is not the

authors’ intention to generalize the findings

to hotels in general. This is a study about the

responses of hotels to a particular incident;

other disasters such as fire, bomb threat, earth-

quake, tsunami and other life-threatening

events have not been considered. Since the

interviews were all conducted in Chinese,

and the results of the analyses were translated

back into English, there could be discrepancy

in terms of the meanings in the two different

languages.

The key implication of the study is to

highlight effective and successful survival

strategies implemented by hotels through

the downturn of business during and after

SARS. Empirical findings revealed that the

hotels participating in this study responded

in a similar way to hotels in other countries

when facing unexpected circumstances. The

spread of SARS was eliminated in 2003,

and the chance of another large-scale resur-

gence is very unlikely. SARS, however, may

reappear intermittently (Alcantara, 2004).

This paper, therefore, suggests that in order

to survive difficult times, other than cutting

costs and exploring new markets, maintain-

ing employees’ morale through effective com-

munications is also essential. Furthermore,

consolidated efforts by the Hong Kong

Hotels Association and support from the

government in reviving the economy were

crucial in helping all members in the hotel

industry to get back to their normal business.

Other hotels should make note of the experi-

ence from the six hotels studied and develop

contingency plans for handling crisis and

disasters accordingly. To summarize, entre-

preneurship and innovation are the key

elements of success in dealing with crises in

the hotel industry. Future studies on entre-

preneurship in hotels during time of crisis

should be further explored.

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