Demand and Supply for Hotels

       
Malaysia is a multi-racial, multi-cultural and multi-religious country, with Malay, Chinese and Indian ethnic groups. In Malaysia, we are one of the most well developed infrastructures among the newly industrializing countries of Asia

We have a number of fully functioning Airport, convenient public transport like LRT, monorail and train system that goes around Klang Valley and Commuter for different states. Besides developing cities, we have tropical forest with different flora and fauna, historical buildings that left behind after war and varieties of food.

After the government launched the ‘Cuti-cuti Malaysia’ program, which is holiday in Malaysia, the tourist had increased from 137,128 in 2010 to 24,714,324, while receipts increases by RM1.8 bil to RM 58.3 bil the previous year (The Star, 2012).  Therefore, Malaysia has premised itself as diverse tourist attraction that offers world class attractions such as culture & heritage, Meetings, ecotourism, Incentives, Conventions and exhibitions (MICE), shopping, health tourism and international events and health tourism, which affords visitors from all over the world plenty choices to enjoy.

       
     As there is a rapid increase in tourist, there are lots of existing hotel and newly build hotel. Famous tourist places like Kuala Lumpur, Malacca and Penang, they kept on building new hotels to increase the supply of rooms during peak seasons.  

     One of the industries that have biggest impact on Tourism is the hotel industry.  Hotel usually depends on the tourist to maintain their business, but people don’t usually travel everyday. Most of the time, people usually travel during public holiday or school holiday, which is the peak season. When there’s holiday, hotel will be eventually full. As time goes by, shortage of hotels will appear. On the other hand, if there is an excess of rooms during non- peak season, a surplus of hotel room will appear.

 This situation usually happens in everywhere during the peak seasons. The demand of the hotel is high but there’s not enough supply for them. Thus, during peak season, hotel usually set at a higher price for the room to reach the equilibrium point . When the price increases, tourist will eventually look for other hotels or choose non-peak season to travel and the demand will decrease. If it’s me, I will not travel during peak season, when the shortage is really bad, they will set the price extremely high and we do not get the facilities we paid for. They might hire poorly trained employee or even rude employee as they dont have enough time to handle the shortage of rooms. We might pay the price of a 5 star hotel but 2 star facilities and service.

         

     Genting Highland, one of the famous tourist attractions in Malaysia. It is located on the mountain peak between the borderline of Pahang and Selangor state. It started off its business with only one hotel, which is Genting Hotel.  Today, they have a total of 6 hotels from 3 stars to 5 stars at the peak of Genting Highlands.

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 Most of the tourist from foreign country or retired uncle and aunties, they loves to go there to gamble and spend their time there. Genting Highland is the one and only licensed casino in Malaysia and they have a theme park that used to be one of the largest theme park in Malaysia. Therefore, it is very suitable for family to relax, recreation and enjoy.

As according to McConnel, Brue and Fynn (2009), elasticity is defined as the measure of responsiveness of people to the changes in various economics variables. Price elasticity of demand on the other hand states that it measures the extent of how much consumers and producers respond to changes in price (McConnel, Brue and Fynn, 2009). According to Sloman, Wride and Garratt (2012),
 one of the determinants of price elasticity of demand is available of substitutes. First World Hotel and Theme Park Hotel are both rated 3 stars hotel. (compare the pics). Promotion rates for one night in First World Hotel deluxe room in RM128 whereas, rates for Theme park hotel without promotion is RM218 per night. Eventually, people will go for the cheaper hotel with promotion, as there is a difference of RM90 per night. Therefore the price elasticity of demand is perfect.

 

      Further more, percentage of income affects the price elasticity of demand too. If the price of the hotel takes high percentage on their income, then the higher the elasticity tends to be. For people that earn more than 10 thousand per week, a 5 star hotel that costs RM400++ per night in Maxim’s Hotel or Highland hotel will not make a difference on their income. On the other hand, someone that earns around 2 thousand per month, it is ridiculous for them to fork out a quarter of their income just for one night’s accommodation. Thus, price elasticity of demand for low incomer is elastic as they are very sensitive to the price.

There are a total of more than 9000 rooms in Genting Highland. If it is peak season, all hotels will be fully occupied, but during non-peak season, Genting will face a surplus of hotel room. What should they do to the empty room and how do they attract others to come during non-peak season?

        According to the Law of Demand, as the price of hotel room decrease, there will be an increase in demand. Thus, instead of leaving the hotels empty, First World hotel came out with RM1 per room promotion but it is only valid on non-peak seasons. People will definitely come because without promotion, the room will be around RM128, so they earned a consumer surplus of RM127.  Although Genting can only earn RM1 from a room, at the end of the day,tourist will be attracted to Genting, by and by, they will spend their money buy shopping or gambling in Genting. This is one of the way-attracting tourists to spend money in Genting.

           

Furthermore, most of the people are either working or studying during weekdays, only senior citizen or those who are retired are available. To save their trouble, Genting provide various pick up point for their convenience. Therefore even during non-peak season Genting still earns a profit.

In Myanmar, the shortage of hotels room has driven up the price of what an hotelier should charge.

     Room rates shot up from USD$25 a night in 2011 and now goes for almost USD$100 (Whitehead, 2013). Prices are increasing to meet up with the demand. This is a very good example of supply and demand. Ever since the country is opened up, the amount of visitors increased rapidly but the amount of hotels still remains unchanged. Hotel takes time to build and shortage of hotels will not be solved easily.  

                                                                 Problem!!

        When the market facing shortage in supply and people are desperate for something in high demand, ‘black market’ will appear. Black market is a business that runs illegally. They ignore the price ceiling and other restriction imposed by government. The price of the hotel will inelastic because tourist will ignore the prices at the time they are desperate for accommodation. Besides that, image of the country will be affected when tourist do not get what they pay for and they will be unsatisfied.

    

          In conclusion, Increasing the price of hotels does not bring any difference to the tourist and it will not solve the shortage problem. Instead of building a brand new building, shop lots should be renovated and refurnished and use as hotel or motel to solve temporary shortage problem. Backpacker’s hotel should be implemented as it can fit lots of people with limited space. But for country with sufficient hotel, budget hotel should be reduce as more star hotel gives better impression to tourist. For example in   SS2 Petaling Jaya, there is 4 budget hotel on a same street, it degrades the image of Malaysia. Therefore to boost tourism, class must be shown to our foreign visitors so they will return (Sagayam, 2012).

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