Reliance better prepared to face other threats


BY ELAINE ANG

EVER heard of the saying “When it rains it pours”?  

That best describes the woes experienced by the country's travel and tourism industry since the Asian financial crisis struck in 1997. The industry had been hit by a string of unfortunate events that have sent its players reeling.  

Reliance Pacific Bhd executive director Tan Sin Chong has the many incidents etched in his memory – haze, Nipah virus, Sept 11, Bali bombing, Iraq war, Severe Acute Respiratory Syndrome (SARS) outbreak, and most recently, bird flu. 

Tan Sin Chong

Looking on the bright side, Tan said: “Having gone through so much, we are now even better prepared to face any other threat.” 

Many industry players believe that the worst may be over and that the travel and tourism industry is on the path to recovery, barring any other catastrophe.  

Statistics from Tourism Malaysia show that room occupancy rate was bouncing back with the third quarter of 2003 registering an average rate of 57.1% compared with 46.8% in the second quarter. 

The Malaysia Airlines Travel Fair 2004 held in mid-February was also a roaring success, raking in a whopping RM35mil in estimated sales with 120,000 people attending the two-day fair. 

Reliance chief financial officer Thong Swe Cheong said the company's travel, hotel and resort divisions had turned around and were expected to generate stronger profits from Q4 onwards. 

Reliance recorded a pre-tax profit of RM2.5mil for the third quarter ended Dec 31, 2003, compared with a pre-tax loss of RM2.6mil in the same quarter in 2002.  

That was its first quarterly profit since the fourth quarter ended March 30, 2001, attributed to the remarkable recovery in its travel and hotel divisions. Revenue rose by 4.4% to RM93.1mil from RM89.2mil. 

“Avillion Hotel Sydney (a Reliance-owned hotel) is also expected to turn in a better performance and this would translate into higher profits due to the better exchange rate,” Thong said, adding that the area where the hotel was located was undergoing widespread development to be completed by the end of the year. 

“This will create a huge amount of (people) traffic, thus improving business for the hotel as we are the only one in the area,” Thong added. 

Avillion Hotel Sydney currently has a 70% occupancy rate but Thong expects this to jump to the high 70s or 80s once the World Square development is completed. 

“Room rates are expected to increase by 20% and this will go straight to our bottom line,” Thong said, adding that current room rates averaged A$135 per night.  

Although Reliance had been operationally profitable in the past seven financial years, the Sept 11 incident, Bali bombing and Iraq war as well as escalating finance charges had eroded its bottom line, causing the company to record a net loss of RM12mil and RM11.7mil for FY02 and FY03, respectively. 

Thong notes: “The full finance charge for our Avillion Hotel Sydney project was also incurred from FY01 onwards, thus draining a fair bit of our funds,” adding that the current appreciating Aussie dollar was another contributing factor to the higher charges. 

On comments that the company's gearing ratio was on the high side, he said the general gearing ratio of companies with hotels and resorts was between 1.8 to 3 times while Reliance with 1.74 times as at March 31, 2003 could be considered relatively low.  

“The company's rights issue in a couple of months will generate funds of RM30mil to offset some of its overdraft and term loans,” added Thong. 

In its quest to become a slim, strong and resilient company in order to sustain its operations in the face of future threats, Tan said, Reliance had also come up with various strategies to mitigate unexpected events. 

Thong Swe Cheong.

The company has started to outsource its non-core activities like despatch and cleaning services as well as its tour guides and coaches. 

Thong said: “We also have contractual employment for our process-based staff, for example, in data entry”. 

Tan said the company would also be focusing on systems and technology as well as franchising its travel and hotel businesses to encourage a low-cost environment. 

“Since we started our cost restructuring programme in 2001, we have reduced costs for the travel division by 33% and 20% on a group basis,” he said. 

Reliance's franchise system for its travel division has been a huge success and the company plans to leverage further on the system to overcome fierce competition in the industry.  

“It is a low cost and low risk business, providing us with an edge over our competitors and a win-win situation for us and our franchisees.  

“We currently have 12 franchisees but this will be increased to 15 by the end of the month,” Tan said, adding that the company planned to have 20 franchisees by FY05. 

Reliance's franchise business currently contributes 20% to the travel division's revenue and the figure is targeted to reach 30% in FY05 and 40% to 45% in FY06.  

Tan said Reliance's contract to manage the franchise system for the Seri Malaysia chain of hotels had been extended for another eight years, expiring in 2011. 

“The number of Seri Malaysia hotels will be expanding and this will translate into revenue growth for us,” he said, adding that there were currently 16 such hotels in the country. 

Its resort development division also plans to launch 137 units Marina View Service Suites in Admiral Cove, Port Dickson, in April with a potential sales value of RM30mil. 

“We still have another 50 acres of prime land bank to develop more projects in future to generate revenue,” Tan said, adding that the company had submitted layout plans to develop another 10 acres into service apartments/suites. 

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