Calvin Ngai, Group Chief Executive Officer of Artez Group shares with Asian Property Review how he steered his company to positive cash flow amid the most challenging economic crisis in Malaysia.
How did Ngai beat the odds? One answer stood out – he reacted very fast, tweaked his business strategy and pivoted into a field that’s in demand at the time.
Even back in January when news first emerged a bout the virus, he quickly pivoted to long-term rentals instead of relying only on mostly short-term rentals. Then, he went into the sanitising and housekeeping business. Later, he collaborated and even merged with other short-term and long-term operators to share resources. And finally, he joint-ventured with property investment groups like Swhengtee International Group to provide property management services.
Early bird wins
Elaborating further, Ngai says, “Previously, about 15-16% of our rooms were occupied by long-stay guests, but we increased that to 50%. We also changed the business model from fixed fees to profit-sharing. Around April/May, we went into the sanitising and housekeeping business. All these provided the cash flow that we needed.”
“I believe one of the reasons we managed to stay on top is because we acted very fast. In January itself when we first heard of Covid-19, we were already mulling to pivot to more long-term accommodation arrangements. We were also planning to go into the sanitising and housekeeping business – there weren’t many competitors then. We were lucky we had the first mover advantage,” the group CEO of Artez Group reveals.
Prior to the Movement Control Order (MCO), Artez was managing a bout 1,200 rooms nationwide comprising a bout 800 hotel rooms and almost 400 homestay accommodations. At the start of the MCO in March, occupancy rate was still not too bad hovering around 50% due to some foreigners still being in the country. Despite that, Ngai took the decision to completely offload their hotel rooms. This is because the cost of running hotel rooms is much higher than homestay accommodations.
It was a decision that proved savvy on hindsight – this was because the hotel situation has worsened to the point that five-star hotels are now offering two-star rates, as well as having to offer their hotel rooms as co-working office spaces, partly to accommodate companies needing more space to comply with social distancing.
To survive, some five-star hotels are even offering their five-star housekeeping services to offices and other businesses. One five-star hotel has even resorted to selling or renting out its linens and pillows. Meanwhile, many hotels have closed down either temporarily or permanently since March.
Glimpses of freedom
All is not lost however. When the country went into the recovery stage of the MCO, when interstate travel restrictions were lifted, there was a boom in domestic travel in June/July – simply because people needed to get out of their house but yet couldn’t travel overseas.
So, in many outskirt areas, short-term accommodations were fully booked during weekends a nd public holidays. For Artez, its homestay units, comprising unique chalets in Melaka and Desaru, and luxury high-rises in Genting Highlands, were seeing extraordinary demand. The city centre however didn’t witness a boom due to the fierce competition and oversupply.
“We have had our best month in September, even better tha n before the pandemic,” observes Ngai. But then the second wave came in October and business slowed down again. But thanks to its sanitising business, the group’s cash flow was still sustainable.
The other factor that helped it pull through the crisis was its database of customers accumulated over the last six years since it started operations. Their repeat customers have continued to support them.
Furthermore, the company has its own in house sales team which was very active and aggressive in its approach.
“We don’t just rely on Online Travel Agencies (OTA) which only give passive income. Our way is a bit more proactive; we go and find the sales ourselves,” Ngai shares.
He recalls that 2020 was supposed to be a good year due to the Visit Malaysia 2020 ca mpa ign. Tha t of course fizzled out when the pandemic arrived. Ngai even recalls how January 2020 was an extraordinary month as their properties performed quite well despite January being traditionally a slow month.
“We have had a lot of plans for 2020 after we hit our sales target for 2019 having chalked up RM9 mil -RM10 mil sales (for 2020) by December 2019. But when the pandemic hit, 90% – 95% of our bookings were cancelled,” Ngai says.
Since the second wave hit in October causing a CMCO to be imposed, things went south again. “This is my worst experience in my 16 years of running the company. The occupancy rate is seriously low now. But I believe that once the pandemic is over, the economy will rebound and tourism will start booming again,” Ngai enthuses.
By merging with one long-stay and one short-stay accommodation partner, Ngai hopes they are able to share resources. He would no longer be responsible for sales which would become his partner’s, Michael Tan’s responsibility.
Artez is also collaborating with investment groups like Swhengtee International which owns properties in Cyberjaya and Bukit Ceylon in Kuala Lumpur. With this, their offerrings are more varied and are located in strategic locations nationwide.
He cites their 10-plus units of semi-D accommodations which were giving monthly income of RM10K on 50-60% average occupancy per month before the CMCO. The income has since halved when CMCO was imposed in the Klang Valley.
Given the great uncertainty that lies ahead despite the hope of a vaccine, Ngai is not sitting on his laurels. “We are trying to enter agri tourism where we partner with the landowner or farm operator, and run the accommodation or activities there. Examples are durian plantations with accommodations which we foresee will prove very popular when the pandemic ends.”
For Ngai, it’s a continuous search for opportunities in a challenging environment, as is the case with most entrepreneurs now. He reckons in order to survive, they would need to have cash flow that can last at least 6 months to a year. He also laments the continuing political uncertainty in Malaysia which has added to the woes of businesses.
Looking ahead, he hopes the much anticipated travel bubbles could start in 2021 or if not, at least reduce the quarantine days the tourist has to undergo in each country. Otherwise, it would be an even tougher year, what with Budget 2021 not making much allocations for tourism despite the sector being one of the top three contributors to the country’s GDP.
Knowing Calvin Ngai, it is almost a certainty that he would be able to steer his company to profitability amid this once-in-a-lifetime pandemic situation.