SPILLOVER EFFECTS OF DEMAND-IMPACTING EVENTS ON HOTELS: EMPIRICAL EVIDENCE FROM SINGAPORE

Abstract

The implications of large-scale demand-impacting events that involve huge public fund and economic costs have caused considerable concerns among key stakeholders. This study examines the spillover effects of demand-impacting events (Formula 1, 28th SEA Games and 2015 haze outbreak) on pricing and transactional behaviour in the hotel market. The empirical analyses are conducted using the difference-in-differences methodology, to investigate the differential changes in room pricing and demand level on a daily basis under the influence of these special events. The high frequency data offers an analytical advantage to assess the exogenous shocks that are responsible for the short-run dynamics in the hotel industry. This study assess if the exogenous events create a systemic, class-specific and/or region-specific effects on the hotel sector; and estimates the aggregate welfare effects for each event. This paper is one of the first few works to analyse the externalities of mega-sporting events and haze on hotel performance. Specifically, this paper debunks some assumptions relating to economic externalities generated by these special events on hotels.

The results reveal that the F1 event has significant positive impact on room prices especially for hotels in the “Luxury” segment and the “MarinaBay” area, but creates a displacement effect on take-up rates. SEA Games event did not have any significant effect on room prices and caused a displacement effect on take-up rates, suggesting that the spillover benefits to the hotel sector postulated by the relevant authorities may be overly optimistic. The small welfare effect gained by the hotel sector presents a contention on the worthiness of the multi-million dollar investment for the event. The haze event has a systemic and negative effect on transacted room prices for the overall hotel market; and leads to almost 5.38 million losses in monetary value to the hotel sector.