Hotel occupancy rates dropped from bad to worse in October with hotels experiencing their steepest decline since the Maoist insurgency as every sector of the economy went haywire due to the fuel scarcity.

According to preliminary estimate of the Tourism Ministry, the average occupancy of hotels plunged below 20 percent in October following the Tarai unrest and the fuel crisis. Hotels had recorded an average

occupancy of 30-35 percent after the April 25 earthquake, the

ministry said.

Subsequent to the negative publicity about Nepal after the April 25 earthquake, headlines about no food, fuel, medicine or rescue being available in Nepal appeared in the international media due to the unofficial trade embargo imposed by India and the Tarai unrest, and potential visitors promptly cancelled their Nepal trips, industry insiders said.

“Hotels around the country are having a hard time. Five-star hotels are hurting the most because of their high operating costs,” said Binayak Shah, vice-president of Hotel Association Nepal. He added that occupancy rates at five-star hotels had plunged below their survival line to 40 percent.

In the hospitality sector, an occupancy rate of above 40 percent is considered “survival”, and a rate higher than 50 percent is termed “fair”. A rate of above 60 percent is “good” and 70 percent and higher is “excellent”.

Many tourist standard hotels have been closed due to the fuel shortage, particularly cooking fuel, Shah said.

A shortage of electricity has forced big hotels in Nepal to depend on diesel and cooking gas. “But thanks to a continuous electricity supply, a few hotels are still smiling.”

According to Shah, hoteliers had suffered this kind of extreme situation during 2000-03 when the Maoist insurgency was at its height. Nearly, 110 hotels and restaurants in Thamel, the main tourist district in Kathmandu, have been closed down. Hotels that are still operating have an occupancy rate of below 15 percent, the ministry said.

The ministry said that if the fuel crisis was not addressed immediately, hundreds of workers would lose their jobs. Hoteliers said that most of the hotels had started laying off their staff.

Nepal has received few free independent travellers for trekking during the current peak season. However, according to Shah, almost all the high-spending holidaymakers have cancelled their Nepal trips.

The Tourism Ministry said that slowed tourism activities had affected the jobs of hundreds of tour guides. “Only 10-15 percent of the tour guides are employed at present,” the ministry said.

Negative news dissemination has led tourists to cancel their trips just when the country’s tourism sector was beginning to gain momentum after the earthquake, the ministry said.

Five-star hotels recorded an average occupancy of 61 percent last year, up from 58.85 percent in the previous year. According to Tourism Ministry statistics, out of 523,453 room nights

produced by the luxury hotels, 319,284 were sold.

There are 10 five-star properties in Nepal, seven in Kathmandu and two in Pokhara. Among them, the Everest Hotel in Kathmandu has remained closed since the earthquake.

Government statistics show that the hotels recorded the highest occupancy rates of 86.33 percent and 73.02 percent during the peak months of November and October, respectively, last year.

Five-star hotels produced a combined 44,454 room nights in October. Among them, 32,459 were sold. The hotels produced 43,020 room nights in November, out of which 37,138 were sold.

Hotels resort to undercutting

As low occupancy has started to bite hotels, they have started adopting a new kind of business strategy—putting heads in beds at any cost—by offering massive discounts. Hotels have started undercutting each other.

Binayak Shah, vice-president of Hotel Association Nepal, said that price cutting had started again among hotels, and that it was harmful for the industry.

The decade-long conflict had a collateral impact on the hospitality sector. Although tourists were not harmed by the insurgents, arrivals started to decline. Even five-star rooms were available for less than $50 per night as Nepal was convulsed by a decade-long armed insurgency from 1996-2006.

The post-conflict scenario was more painful for entrepreneurs. The advent of militant labour forced a number of star hotels to shut down as the hospitality sector faced the brunt of labour unrest.

This led to Nepal’s becoming known among the world’s cheapest destinations. The Travel and Tourism Competitiveness Report 2013, published by the World Economic Forum, had revealed that Nepal offered the most competitive hotel prices in the world after Gambia. The average room tariff in Nepal was reported to be $52.70.

However, hotels started to increase their tariff gradually after 2011, when demand started to surpass supply. The average tariff of five-star hotels in Nepal presently stands at $100 per night.