HONG KONG -- Hongkong and Shanghai Hotels, operator of the upmarket Peninsula hotel brand, is reassessing its project in Myanmar's largest city in the aftermath of the military coup and continuing bloodshed that has thrown the country into turmoil.
The Hong Kong-listed premium hotel chain said in its annual earnings announcement on Wednesday that it has "noted the recent violence and chaos with great concern, and we continue to evaluate both the immediate actions required and the longer-term decisions that need to be made in respect of this project."
The company has been redeveloping the former colonial-style headquarters of the Myanmar Railway Co. in central Yangon into a luxury hotel with 88 rooms.
Completion of the hotel was expected in 2022, the company said last August, despite delays caused by the coronavirus pandemic. But there was no reference to a completion date in its statement on Wednesday. Construction on the building has been halted since the military junta staged a coup on Feb. 1.
"The new date of completion, and pressures on cost, cannot be reliably estimated at present," Lynne Mulholland, director of group corporate affairs, told Nikkei Asia.
The company's original investment in the hotel when the plan was first announced in 2014 was $90 million, but when the project broke ground in 2017, it rose to $100 million. A year later, the company placed the cost at $126 million, and most recently at $130 million.
Mulholland hinted on Wednesday that the price tag of the project could increase again. However, the company made it clear that it would push the project through.
"We take a very long-term view of the investments that we make, and we expect the new hotels in London, Istanbul and Yangon to enhance our brand presence when they open from 2022 onwards, and to create value for stakeholders over time," Clement Kwok, chief executive of Hongkong and Shanghai Hotels, said in the statement. Peninsula also is planning new hotels in the U.K. and Turkey.
An executive of Yoma Group, the joint-venture partner of the Yangon hotel project, told Nikkei that the Hong Kong company will not pull out. Yoma, a local conglomerate, is a minority partner in the venture, which in turn is part of a larger redevelopment plan in central Yangon under its grand design.
The delay in the hotel project comes at a time when Hongkong and Shanghai Hotels, which was founded in 1866, is mired in one of its most challenging periods.
With inbound arrivals plunging more than 90% last year in its main market in Hong Kong, the company's annual revenue dropped by more than half to 2.71 billion Hong Kong dollars ($349 million) in 2020, while it swung to a net loss of HK$1.94 billion from a net profit of HK$494 million a year earlier.
As a result, the hotel, which has long boasted having a high ratio of staff to guests, resorted to cutting staff for the first time last year. The number of full-time employees stood at 5,609 as of the end of last year, 25% lower than in 2019.
Most of the cuts were made in the latter half of the year, with a combination of layoffs, furloughs, hiring freezes and natural attrition. Most of those cuts were in the U.S. and there have been no further staff reductions this year, Mulholland said.
The company operates 10 Peninsula hotels in Asia, Europe and North America, including three in the U.S.
Cutting head count helped lower staff costs -- the largest single item of the company's operating expenses -- by 34% last year. However, that was not enough to save the company from splashing red ink. Cost-control efforts continue, but Kwok said he expects 2021 to be another year with an operating loss, as the devastating impact of the pandemic on tourism continues.
Kwok remains cautious going forward. "As the bulk of our earnings are derived from Hong Kong, we are facing a very difficult environment, given the borders remain closed and strict social distancing measures remain in place," he told Nikkei later in a written response by email.
However, Kwok sees a silver lining in the world's two largest economies. "We are seeing a mild recovery in the Chinese mainland and we are cautiously optimistic for the U.S. now that vaccinations [are] proceeding at a fast pace."
Additional reporting by Yuichi Nitta in Yangon.