Hotel industry leaders say the tourist towns of Queenstown, Rotorua and Christchurch are being hit hardest by the recession and global economic downturn.

At its industry conference, three out of five managers from the biggest chains in New Zealand predicted Christchurch hotels would see a significant drop in earnings in the next year and the other two expected a moderate drop.

Queenstown was only slightly better, with two out of the five expecting a significant drop and three predicting a moderate drop in hotel earnings. Two out of three who had hotels in Rotorua expected a significant drop in earnings.

James Parkinson, a director of Horwarth, which specialises in giving advice to the hotel, tourism and leisure sectors, said Christchurch and Queenstown were expected to be affected by either newly built hotels or soon-to-be-completed hotels coming on board.

But Rotorua had much bigger issues because it had no new hotels and was simply suffering from a lack of visitors.

"There is no question that Rotorua is a destination that is suffering, and part of the concern with Rotorua is if you were to compare and contrast it with Queenstown - Queenstown is also slow at the moment but it is very easily explained by a large amount of new supply.

"That is not the case with Rotorua. Rotorua is suffering from a loss of demand. It has a stable supply side but a lack of demand."

Parkinson thought a lot of Rotorua's problems stemmed from the downturn in the Asian markets.

"Rotorua has evolved as a market that is heavily reliant on the tour markets from Asia. The same can be said of Queenstown as well but Queenstown is more exposed to fully independent travellers."

Parkinson said Rotorua's room rates had always been low compared with other markets. But even in the past few years when others had enjoyed growth, Rotorua had missed out.

"Rotorua has a lot more motels than other cities to cater for the domestic market. But it doesn't have any corporate base. It's very exposed to the leisure market."

Matt Taplin, vice-president of operations at the Millennium and Copthorne Hotel Group, which has two hotels in Rotorua, agrees.

"Rotorua has got too many eggs in too few baskets."

It has relied heavily on international visitors from Asia and some of those markets were already in decline before the recession and swine flu hit.

"Japan has been slowly declining for some time, Korea has had a sharp decline and China was declining, then it was growing and now it has been knocked back again by the recent swine flu outbreak - and that has had a big impact."

At this time of year Rotorua was usually benefiting from high numbers of Japanese school parties but there had been a lot of cancellations as a result of swine flu, Taplin said.

Rotorua was fiercely competitive in the hotel business - probably more so than other locations.

"When there is a surplus of rooms the rates come down quickly and it seems to take a long time to come out of it."

When you look at the yield, Rotorua is one of the least attractive places to build a new hotel in New Zealand. "Rotorua's yield is lower by some 15 per cent."

And that is part of Rotorua's problem too, Parkinson says.

"There is a lot of mid-market product in the three-star category and a lot of it is outdated. Some has been glossed up a bit but it is still fundamentally old. At the same time it is hard to get a new hotel to stack up in Rotorua because the room rates are so low. So it does become a vicious cycle."

Hotel occupancy rates in Rotorua have fallen from 81 per cent in 2004 to 70 per cent in 2005 and most recently to 66 per cent. Room rates are the same as they were in 2004.

Don Gunn, general manager of Destination Rotorua Tourism Marketing, said the hotel sector was finding it particularly tough.

"Traditionally Rotorua has relied on groups and a lot of it is from Asian markets. The numbers from Japan have come down and while we have seen an increase recently in those coming from Singapore the numbers are just small.

"Then, of course, the global recession has amplified the situation, particularly with the UK and US markets."

But the area was seeing growth in the domestic market trend which tended to use more motels than hotels.

"A lot of the domestic growth is being driven around events in the city such as the recent Rotorua marathon."

Gunn said he was also hoping Rotorua would soon be able to tap into the Australian market. Work on strengthening its airport runway is expected to be completed in July and the city is in talks with the airlines to try to attract a transtasman carrier.

"It is hoped by the end of this year or the start of next that transtasman flights will start. That will present good opportunities not only in the business and conference market but in the leisure market."

Gunn said Rotorua's tourism businesses were resilient because many operators had been around for so long they had already gone through a number of downturns.

Te Taru White, chief executive of Maori culture and geothermal attraction Te Puia, said all in the industry were feeling the pinch but he did not believe Rotorua was any worse off than other places in New Zealand.

"We are not feeling that Rotorua is suffering any worse than anyone else. But without a doubt it is going to be a cold winter."

Although fewer Asian visitors were coming, White said Te Puia was maintaining communication with those markets to prepare the way for the future.

To replace some of its lost international visitors, Te Puia was focusing on attracting educational visits from local schools.

"We are trying to shore up the international side by targeting the domestic side."

Te Puia was also hoping to attract more Australian tourists.

"Australia is obviously a key market for growth in the global recession and transtasman flights will certainly help our cause. But the question is how much value you place on that market."

White said it already targeted Australia and it hoped a new family loyalty card would help further that cause.

But even Te Puia, which markets itself as Rotorua's largest single attraction, has had a decline in numbers. In 2003/04 it had 500,000 visitors a year but that has dropped to 350,000 to 400,000.

White said it was inevitable that businesses on the margins would shut down, although he was not aware of any in Rotorua that had yet done so.