Is Mandarin Oriental International Limited Facing A Structural Decline In Its Business?

Technology seems to be posing a big challenge to many traditional businesses in recent years.

Uber, the car-hailing mobile application company, has been making waves all over the world, including Singapore. This can potentially cause headaches for traditional taxi operators here such as ComfortDelgro Corporation Ltd (SGX: C52) and SMRT Corporation Ltd (SGX: S53).

In the hospitality sector, Airbnb, an online platform connecting owners and renters of accommodations, is also pressuring traditional hotel operators and giving them a need to rethink their business models. Airbnb has brought millions of vacant homes and rooms that were previously inaccessible by the public into the hospitality market.

With this as a backdrop, can Mandarin Oriental International Limited (SGX: M04), one of the largest owners and operators of hospitality assets in Singapore’s stock market, survive the challenges ahead?

In 2015, the company saw a 7% decline in its underlying profit to US$90 million. This had been partly driven by an 8.5% drop in its revenue per available room (RevPAR). For me, these are signs that point to a potentially weak future for Mandarin Oriental.

The company currently has over 10,000 rooms in its portfolio and is trying to carve out a niche in the luxury hotel space for itself. But, with more than a million listings within Airbnb alone, many types of accommodations that were previously not available just a few years ago have appeared in the market. The supply of living spaces for travelers worldwide have definitely increased over the past few years.

Fortunately, there might be ways for Mandarin Oriental to succeed.

Instead of fearing the competition and fighting it head on, the company could consider working together with its competitors. For instance, Airbnb and Starwood Hotels had signed an agreement recently to expand in Cuba by working together. This shows that technology companies are not always a threat to traditional businesses – the two camps can be partners as well in moving into new markets.

Foolish Summary

The emergence of new technology can be either a threat or opportunity for existing businesses. It is up to the incumbent operators to decide how they want to face changes in their respective industries. For Mandarin Oriental, the company’s management might really want to think hard about how it can position itself for the future.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Stanley Lim does not own shares in any companies mentioned above.