• Bloomberg


Royal Hotel Ltd., which operates inns in eight Japanese cities, expects earnings next year to recover to levels seen before the “Lehman shock” of 2008 and last year’s swine flu scare.

Room bookings plunged following the financial crisis fueled by Lehman Brothers Holdings Inc.’s bankruptcy, while the outbreak of swine flu in western Japan last May prompted the cancellation of about 80 percent of big events for the season, Hajime Kawagoshi, president of the Osaka-based company, said in an interview Tuesday.

“The effect of the swine flu scare almost disappeared in the second half,” he said.

In October-December, average occupancy was 76.8 percent at the company’s flagship 973-room Rihga Royal Hotel Osaka. A 75 percent occupancy rate is enough to generate a profit, he said.

Still, Royal Hotel doesn’t expect the recovery to be reflected in its earnings this business year. This month, the company cut its forecast for the year ending March 31 to a net loss of ¥300 million, compared with a previous estimate for a profit of ¥100 million. It posted a ¥158 million profit last year.

“There are people saying the economy is recovering, but I can’t feel that yet,” said Kawagoshi, 64.

Domestic business trips to Osaka, the center of Japan’s second-biggest urban area, only started to increase in October, he said.

Royal Hotel aims in the year starting April 1 to return to a similar level of profitability as the year that ended in March 2008, when it posted ¥303 million in net income on sales of ¥58.4 billion.

The company’s shares have dropped 10 percent in the past 12 months, compared with a 20 percent increase in the benchmark Topix index.

The first Rihga Royal Hotel was opened in 1935 in Osaka as a venue designed to host visiting heads of state and other high officials, according to the company’s Web site.

Kawagoshi said that while the planned opening of Starwood Hotels & Resorts Worldwide Inc.’s St. Regis Hotel in October will trigger “severe” competition for high-end accommodations in Osaka, he doesn’t expect it to significantly affect Royal Hotel, which gets less than 20 percent of its revenue from room charges.

“Most of our revenue comes from the banquet, bridal and restaurant businesses, which is a different model from St. Regis,” he said.

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