BANGKOK—Tourism in Thailand has bounced back strongly since the global meltdown of 2009, despite continuing economic doldrums in Western countries and Thailand’s continuing political instability.
New source markets have momentum, tourism revenue was up 8% last year and more than 18,000 hotel rooms will enter the market within the next three years. Yet the mood in Bangkok earlier this month at TravelTrends.biz’s “No Vacancy” conference was cautious—even somber.
“There’s a disconnect between luxury hotels and growth in mass tourism,” said Bill Barnett, managing director of Phuket-based consultancy C9 Hotelworks. “There’s a disconnect when it comes to infrastructure in Thailand. And the reality is that a wholesale market is a different model. These people aren’t booking online.”
With hotel rates already eroding, Thailand—especially Bangkok and Phuket—will soon host hundreds of new upscale hotels that won’t match the pocketbooks of the groups flying from Vladivostok and Beijing, Barnett said.
The mismatch is a consequence of the shift to Thai-driven development, he explained: “These are people with other businesses. They aren’t doing feasibility studies. It’s illogical.”
Before September 2008, many foreigners and equity groups were the primary investors.
Upscale hotel explosion
The mismatch of hotel supply and demand is most evident in Bangkok and Phuket.
C9’s Barnett calculates that about 60% of the 10,000 rooms in 450 hotels coming online in Bangkok between 2010 and 2014 will fall into either the luxury or “first class” categories. This year alone, more than 5,800 new rooms will enter the market, the majority in this category.
Bangkok’s luxury hotels were running at 60% occupancy in the first quarter of 2011, said Jonas Ogren, STR Global’s Asia director. With room rates of less than US$65 per night in 2010 in the upper and luxury tiers, Bangkok, along with Jakarta, had the lowest revenue per available room among 12 destinations (nine Asian cities, Sydney, Bali and Phuket). Jakarta is moving in a different direction: like Hong Kong, its rates have been growing more than 20% this year, the fastest in the region, according to Ogren. In the first quarter of this year, Bangkok hotels overall increased occupancy almost 10%, but average room rates slightly declined year on year.
At first glance, the prospects for Phuket look more promising.
More than 55% of the 5,749 new rooms opening in the next two or three years will be in the midscale category; this is the only tier last year in which both room rates and RevPAR increased—by 16% and 36%, respectively.
However, almost all the new rooms in ensuing years will be in the 4-star tier or the long-stay condo/villa category, a Phuket specialty. Yet visitor trends indicate that Phuket’s new visitors will be seeking budget or economy accommodation, for which building plans are negligible
Focus on mid-tier sector
While a few hoteliers made the case that their hotels could still command rates of US$500 and up per night, Accor’s Paul Stevens, Mark Van Ogtrop of the Netherlands’ Golden Tulip Hospitality and local developer Prab Thakrul acknowledged that luxury hotels in Thailand would be a tough sell in the foreseeable future and that mid-tier hotels would be the best profit centers.
“There will be a battle for discretionary spending,” said Stevens, Thailand operations director for Accor. He said Accor would put more focus on its upscale Mercure line, which now numbers four in Bangkok. But Accor is still planning to open its fourth and fifth Sofitel hotels in Bangkok early next year.
“Thailand is known for its luxury services, but it will be hard to keep up when yield is low,” Golden Tulip’s Van Ogtrop said. “The spread between 3-star and 5-star has become narrow. It’s very challenging to work in such a narrow spread. If we get low returns, so how can we re-invest?”
Van Ogtrop, Southeast Asia managing director for Golden Tulip, said his group will open 25 new hotels under three brands in Thailand in the next few years, some of which will be in a new 2-star class that would appeal to some of the new budget-conscious tourists. Twenty of this new class are also planned for secondary Indonesian cities. Twenty new Golden Tulip hotels in India will be in the 3- and 4-star level.
“It’s a suicide mission to build on Sukhumvit Road today. There’s just a massive, massive supply coming online,” said Thakral, managing director of Boutique Asset Management. The fortunes of the east-west commercial and residential street have been boosted by the 12-year-old Skytrain, which will add new stations by year’s end.
Entering the Thailand property market seven years ago, Boutique Asset Management tied up with the Ascott’s Citadines brand of long-stay serviced apartments.
“Ascott was able to answer questions about long-term development trends,” Thakral said. The company has only 1,000 rooms in four properties, all on side streets off Sukhumvit, but aims to become Thailand’s largest mid-tier property developer. Citadines turned out to be perfect for even short-stay Indian tourists, who favor the kitchenettes: “They like to make their own tea in the morning,” Thakral said.
Rise of Chinese, Indians and Russians
The total number of visitors to Southeast Asia’s most popular holiday country grew to 15.9 million in 2010, 12% above 2009 levels, according to Thai government statistics. About 3.5 million of those visitors went to Phuket.
Presenters and panelists kept returning to the spectacular growth in Chinese, Indian and Russian visitors. Growing by 45% year on year, more than 1.12 million Chinese visited Thailand last year. China was the second largest source of visitors (after neighboring Malaysia). Chinese visitors overtook the once-dominant Japanese, whose numbers fell by 2% in 2010, even before the tsunami.
In fourth place, yet garnering scant attention from attendees, were the Koreans; their numbers increased by almost 32% last year.
India ranked fifth as a source market, growing by 23.7% last year while supplying 791,235 visitors. Russia ranked sixth, but the country’s 611,162 visitors represented a leap of 81.3% over 2009. Meanwhile, the 4.2 million visitors from Europe, once a mainstay source, represented an increase of less than 7% from 2009; much of that was due to the Russian influx. Numbers from Finland, Spain, Sweden, Ireland, Italy and the United Kingdom actually declined in 2010.
Although Thai government tourism officials always focus on total number of visitors as a measure of success, speakers noted that visitors from new source countries tend not to stay as long as Westerners—meaning fewer nights booked for a holiday. The new tourists also may allocate their spending differently.
“Whereas Europeans might stay for five days or more in Phuket, Asians are more likely to stay two or three,” Barnett said.
Amit Saberwal, vice president of MakeMyTrip.com, which designs charter trips to Thailand for Indians, offered a few suggestions for catering to these growing travel groups.
“Indian tourists want a lot to do. They want Indian restaurants. The Tourism Authority of Thailand needs to refine its brand. It’s not all about price,” he said.
He added: “We closed out with 75% occupancy this year. Singapore and Malaysia and India (markets) are just starting. Europe is shrinking. These changes are here to stay.”