Phuket province is potentially facing a major crisis as 75% of all hotels on the island are still unlicensed despite a government crackdown since late 2016.
According to a new report conducted by the hospitality consulting group C9 Hotelworks, less than a quarter of hotels in Phuket, 429 out of 1,724, are currently licensed. But a crackdown on unlicensed accommodation has resulted in 1,007 hotels applying for licences. Only six of them have already obtained hotel licences.
The issue was pushed into the spotlight late last year, when Phuket's former governor Chokchai Dejamornthan announced aggressive plans for a crackdown on unlicensed hotels.
Mr Chokchai, at that time, called non-compliant hotels to become legally registered by Jan 31, 2017.
"Six months after the deadline, the situation remains challenging. Data from Phuket Provincial Administrative Organisation shows that of the 1,295 unlicensed hotels identified in Phuket, only six have had their licences approved," said Bill Barnett, C9 Hotelworks' managing director.
An additional 1,001 hotels are pending approval, while 288 have yet to apply.
"So far we cannot speak about total losses, but we can calculate current tax revenue, adding 60% more if every hotel pays for local and national licences and taxes. The government needs support at the local level to find a solution and make sure everyone cooperates, not only for hotels, but also serviced apartments and private houses for tourists to rent. Everyone needs to get licensed, then revenue can be used to improve tourism infrastructure. Also, strong support from organisations like the Thai Hotels Association is needed," he said.
Barnett: Challenging
Mr Barnett said that the main reason for the failure is the disconnect in regulations that can delay the licensing process. Additional challenges for the process are the strict regulations associated with the Building Control and Hotel Act. As a result, the province is considering reviewing the requirements to support the conversation process.
Phuket is one of Asia's most popular tourist destinations, attracting millions of international visitors. Therefore, many millions of travellers coming to the island may stay at unlicensed and non-registered hotels.
Local authorities are under pressure to tackle the issue, as strong demand from emerging economies continues to drive a sharp increase in tourism arrivals to Phuket.
For example, Russian passenger traffic at Phuket airport increased 17% in the first five months of 2017, while arrivals from mainland China rose 8%. With 17 Chinese airlines now flying into Phuket, China accounts for two-thirds of Asian traffic at the island's airport.
"Last year and this year, Russia has continued to drive volume into the Phuket tourism market. China is slowing its trajectory, but still hitting strong numbers, and Thai domestic demand has risen. Airlift is a huge fundamental, and that keeps spiking up. The latest international direct flights are set later this month from Turkish Airlines that will provide more airlifts to and from its significant European network," he said.
Mr Barnett said due to the number of non-registered hotels, local infrastructure is not receiving funding from accommodation taxes, despite the fact that the private sector is building more hotels. The government-funded infrastructure projects are not benefiting from the inflow of tourists. In the end, the island and its residents are penalised by tourism growth in terms of a lack of better roads, utilities, parking and parks.
"We should look at how the issue has been addressed in other markets in the world. Airbnb now has over 200 tax agreements with individual cities globally. They collect hotel taxes on bookings and remit to local governments. In Paris, Airbnb is required to collect a tourism and administration tax. Thailand is missing out on collecting tax on unlicensed hotels," he said.
Mr Barnett said it is imperative that the 1,295 unlicensed hotels currently operating in Phuket get registered quickly and effectively to ensure the issue does not do damage to the island's international reputation.
The same report also shows that hotel development in Phuket continues at a steady clip. There are now 33 hotels being developed across the island, which will add 5,738 more rooms. These include major global brands such as Sheraton, JW Marriott, Best Western, InterContinental, Park Hyatt, Kempinski, Ramada and Rosewood.
With so many new hotels set to enter the market in the coming months and years, authorities in Phuket need to ensure regulatory processes are stringent and effective, while also not being overly complex or bureaucratic. At the same time, private sector investment in the hotel industry is racing ahead of the public sector.
The government is addressing traffic management issues by initiating the development of a 12-lane Sakoo-Koh Kaew expressway. It is pending an environmental impact assessment and public hearing, as it will require a significant acquisition of private land.
Construction is expected to take five years, should environmental approval be obtained in 2018.
Meanwhile, Phuket airport is continuing to see rising traffic demand with total passenger arrivals experiencing year-on-year growth of 10% in the first five months of the year. The addition of a light rail network with airport access will improve overall public transport and slow the pace of congestion.
The issue of a single runway at Phuket airport is a long-term problem and has to be addressed too, as it is a lifeline of tourism to the island. If neighbouring Phangnga is unable to win approval to build an airport, then Phuket will have to come up with a workable expansion plan for a larger facility, according to the report.