Thailand’s Hotels – mid-year blues?

With Thai tourism’s “piece de resistance” of the 2006 Grand Celebration promotion behind them, their royal dignitaries returned home and the royal barges back in dry dock, hotel executive’s report they are facing a mixed future.

Once again it would appear that the four-star market is fairing better at filling rooms in the nations capital  than the top end five-star products, but they are experiencing  lower food and beverage revenues than last year. The five-star hotels lower occupancies are however balanced by higher yields, known in the industry as RevPar (revenues per available room). This might suggest price resistance in the luxury end, or over supply?

Industry observers had long predicted that 2006 would be a better vintage than 2005 but few realized the extent of the quadruple combination of the World Cup; rising oil prices; a strong baht and the continuing political stalemate. Most believe that the southern unrest is not considered an international problem, receiving only a cursory glance by tourism influencers. The far south has received little in the way of long haul international tourists historically, and is therefore seen to have minimum affect on tourist arrivals.

The five-star market is describing July as ‘sluggish’ with occupancies under performing in comparison to last year by 15-20%, although many of the 5-star hotels have increased rates over last year.

Observers also commented that top hotels like the Peninsula and The Oriental are once again offering summer packages, so bargains are to be found if you know where to look. Peninsula have also offered special incentives such as 3 for 2 offers quietly in the market place whilst a room in the Oriental can be had for just over $239 excluding tax and service but including breakfast, during this year’s “green”  (low) season.

Hotels in the Sukhumvit corridor and CBD (central business district) have been aggressively pricing their wholesale rates for next season, with 30-40% increases and removing inclusive breakfast. The Grand Hyatt and the Sheraton Grande were identified as early initiators of this new pricing structure, with many others on   the central Sukhumvit Skytrain route and side streets, following suit. The results so far have been that buyers have accepted these rates increases for next season; the real test will be to see if they use them.

Couple this with restricting access for local (cheaper) rates being offered by Bangkok-based agents to the international market via the internet. These are then marked up in price and offered to third parties. Many hotels have, in the past, tried to police this practice with restrictive contracts, but many have been ignored and thus proven to be unworkable. The result is that the more confident hotels (usually preferred, first choice, branded hotels) have stopped working with local agents altogether, or offered only regular corporate rates, a practice normally aimed at small to medium volume producers.

The dilemma faced by the industry, is that whilst these centrally located hotels continue to push up the yield, the divide between 4- and 5-star hotels, is widening. Good news for buyers if they are prepared to locate 10 minutes further away from the CBD, where they can usually secure a nightly rate three to four times lower than the CBD hotel’s, by dropping one star only in quality.

Results for the first quarter suggests that the supply is still surplus to demand, particular in Thailand’s north and central regions. The Thai Hotel Association (THA), in its recent report said occupancies in Chiang Mai were down for the first quarter by 50% during the Songkran holidays and from 76% last year to 68% this year in the central region. Strong recovery in the south however has seen occupancies double from the 25% lows of last year.

But is all well for the future in an industry well used to the ups and downs of demand? Commenting Ross Cunningham, director of sales and marketing of the Conrad Hotel said, “As long as there is no future civil unrest, we should have a good second half in 2006.”

Many agree that 2006 is Thailand’s “Grand” Year and we should achieve our target of 14.4 million foreign tourist arrivals. But there are others that believe it will be difficult.

THA President Chanin Donavanik is less optimistic about the industry this year. He said: “Thailand’s tourism industry might be losing international tourists to other destinations. When compared to other countries in the region, we lack new tourism magnets”.

Hong Kong’s impressive Disney World and Singapore’s launch into Resort Casino’s are cited as Thailand’s missed opportunity by industry commentators.

So is Thailand’s hotel industry set for a major correction between the four and five star hotels on rates?  I still believe not. Location is the key, along with competition in the immediate vicinity and within your competitor set. The River hotels and five star hotels, with their control  of the  luxury leisure market, corporate and  MICE market will do what they do and the four star properties will be mainly driven by what their neighbors are doing.